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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13
OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31, 2004 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period
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Commission file number: 000-50767
CRITICAL THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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04-3523569 |
(State or other jurisdiction of
incorporation or organization) |
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(IRS Employer
Identification No.) |
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60 Westview Street
Lexington, Massachusetts
(Address of principal executive offices) |
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02421
(Zip Code) |
Registrant’s telephone number, including area code:
(781) 402-5700
Securities registered pursuant to Section 12(b) of the
Act:
None.
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $0.001 par value per share
(Title of Class)
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
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. o
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act
Rule 12b-2). Yes o No þ
The aggregate market value of the registrant’s common stock
held by non-affiliates of the registrant as of June 30,
2004, was approximately $56,868,686, based on the price at which
the registrant’s common stock was last sold on that date.
As of March 15, 2005, the registrant had
24,097,624 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the registrant’s proxy statement for
the registrant’s 2005 annual meeting of stockholders to be
held on June 2, 2005, which are to be filed pursuant to
Regulation 14A within 120 days after the end of the
registrant’s fiscal year ended December 31, 2004, are
incorporated by reference into Part III of this report.
CRITICAL THERAPEUTICS, INC.
ANNUAL REPORT
ON FORM 10-K
INDEX
PART I
Cautionary Statement Regarding Forward-Looking Statements
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, which we refer to
as the Exchange Act. For this purpose, any statements contained
in this report regarding the progress and timing of our drug
development programs and related trials; the timing of
regulatory approvals and product launches; the efficacy of our
drug candidates; our strategy, future operations, financial
position, future revenues, projected costs, prospects, plans and
objectives of management; and all other statements that are not
purely historical in nature, constitute forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Without limiting the foregoing,
the words “anticipate,” “believe,”
“could,” “estimate,” “expect,”
“intend,” “may,” “plan,”
“project,” “should,” “will,”
“would” and similar expressions are intended to
identify forward-looking statements. Actual results may differ
materially from those indicated by such forward-looking
statements as a result of various important factors, including
our “critical accounting estimates” and risks relating
to: conducting clinical trials including the timing and success
of patient enrollment; the results of preclinical studies and
clinical trials with respect to our products under development
and whether such results will be indicative of results obtained
in later clinical trials; the timing and success of submission,
acceptance and approval of regulatory filings; our heavy
dependence on the commercial success of ZYFLO® tablets and
the controlled-release formulation of zileuton; our ability to
obtain the substantial additional funding required to conduct
our research, development and commercialization activities; our
dependence on our strategic collaboration with MedImmune, Inc.;
and our ability to obtain, maintain and enforce patent and other
intellectual property protection for our discoveries and drug
candidates. These and other risks are described in great detail
below under the caption “Factors That May Affect Future
Results”. If one or more of these factors materialize, or
if any underlying assumptions prove incorrect, our actual
results, performance or achievements may vary materially from
any future results, performance or achievements expressed or
implied by these forward-looking statements. In addition, any
forward-looking statements in this annual report represent our
views only as of the date of this annual report and should not
be relied upon as representing our views as of any subsequent
date. We anticipate that subsequent events and developments will
cause our views to change. However, while we may elect to update
these forward-looking statements publicly at some point in the
future, we specifically disclaim any obligation to do so,
whether as a result of new information, future events or
otherwise. Our forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers,
dispositions, joint ventures or investments we may make.
Overview
Critical Therapeutics, Inc. is a biopharmaceutical company
focused on the discovery, development and commercialization of
products designed to treat respiratory, inflammatory and
critical care diseases through the regulation of the body’s
inflammatory response. The inflammatory response occurs within
the body’s immune system following a stimulus such as
infection or trauma. Our most advanced product is ZYFLO®
Filmtab®, a tablet formulation of zileuton, which the
U.S. Food and Drug Administration, or FDA, approved in 1996
for the prevention and chronic treatment of asthma. We licensed
from Abbott Laboratories exclusive worldwide rights to ZYFLO and
other formulations of zileuton for multiple diseases and
conditions. We are currently in the process of changing
manufacturing sites for ZYFLO. Subject to FDA approval of these
sites, we expect to begin selling ZYFLO in the United States in
the second half of 2005.
We are also developing product candidates to regulate the
excessive inflammatory response that can damage vital internal
organs and, in the most severe cases, result in multiple organ
failure and death.
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CTI-01. We are developing a small molecule product
candidate, CTI-01, that we believe may be effective in
regulating the inflammatory response. Results from preclinical
studies suggest that CTI-01 |
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inhibits the release of protein molecules called cytokines that
are responsible for communication between cells in the body and
are associated with conditions such as post-operative ileus,
which is the loss of normal intestine movement following
surgery, and the damage to vital organs that can occur in
patients after cardiopulmonary bypass, a procedure commonly
performed during heart surgery. |
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HMGB1. We believe that a cytokine called HMGB1, or high
mobility group box protein 1, may be an important target
for the development of products to treat inflammation-mediated
diseases because of the timing and the duration of its release
from cells into the bloodstream. We are currently collaborating
with MedImmune, Inc. on preclinical development of our
monoclonal antibodies directed towards HMGB1 in a number of
animal models. In addition, we are currently collaborating with
Beckman Coulter, Inc. on development of a diagnostic directed
towards HMGB1. |
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Cholinergic Anti-inflammatory Program. We are developing
small molecules designed to inhibit the body’s inflammatory
response by acting on the nicotinic α-7 cholinergic
target, which is a cell receptor associated with the production
of the cytokines that play a fundamental role in the
inflammatory response. We believe that successful development of
a product candidate targeting the nicotinic α-7
cholinergic receptor could lead to an oral anti-cytokine therapy
for acute and chronic diseases. We are also exploring the
development of a medical device, similar to those already
marketed for the treatment of epileptic seizures, to stimulate
the vagus nerve, a nerve that links the brain with the major
organs of the body, and induce an anti-inflammatory response by
acting on the α-7 receptor. |
We were incorporated in Delaware on July 14, 2000. Since
our inception, we have incurred significant losses each year. As
of December 31, 2004, we had an accumulated deficit of
$58.5 million. We expect to incur significant and growing
losses for the foreseeable future. Although the size and timing
of our future operating losses are subject to significant
uncertainty, we expect our operating losses to continue to
increase over the next several years as we continue to fund our
development programs and prepare for potential commercial launch
of our product candidates. We do not expect to achieve
profitability in the foreseeable future; and we cannot assure
you that we will achieve profitability at all. Since inception,
we have raised proceeds to fund our operations through our
initial public offering of common stock, private placements of
equity securities, debt financings, the receipt of interest
income and payments from our collaborators MedImmune and Beckman
Coulter.
Our Strategy
Our goal is to become a leading biopharmaceutical company
focused on developing therapeutics to treat respiratory,
inflammatory and critical care diseases through the regulation
of the body’s inflammatory response. The key elements of
our strategy are to:
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Maximize the commercial potential of ZYFLO. We are
focused on successfully launching ZYFLO in the United States in
the second half of 2005. We plan to build a marketing and sales
infrastructure to promote ZYFLO and the controlled-release
formulation of zileuton that we are developing for the treatment
of asthma upon regulatory approval from the FDA. We believe that
by targeting specialists rather than primary care physicians, we
can successfully promote ZYFLO with an initial sales force of
fewer than 100 sales representatives in the United States. |
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Expand the potential applications of zileuton. We believe
that zileuton has potential therapeutic benefits in a range of
diseases and conditions, such as acne, chronic obstructive
pulmonary disease, or COPD, nasal polyposis and acute asthma
exacerbations. We intend to expand the potential applications of
zileuton through development of additional formulations,
including controlled-release, intranasal and intravenous
formulations. |
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Advance and expand our portfolio of product candidates.
We intend to focus on developing products that address large
unmet medical needs in the critical care market. We believe that
our understanding of the cytokine cascade and its role in
critical care diseases will enable us to continue |
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to develop and discover drug candidates with novel mechanisms of
action that may address some of the unmet medical needs in
critical care medicine. We believe our focus on diseases
associated with the severe inflammatory response will allow us
to pursue drug development and discovery programs across a
number of therapeutic areas in an efficient manner. |
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Maximize the economic value of our product portfolio. We
believe we can maximize the potential economic benefit to us of
our product candidates by retaining sole or shared ownership of
our product development opportunities. We intend to undertake
selected strategic collaborations, such as our collaborations
with MedImmune and Beckman Coulter, to develop projects that may
be beyond our internal resources, while seeking to retain
co-promotion or commercial rights in any such collaborations. |
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Strategically in-license or acquire attractive development
candidates or approved products. We intend to enhance our
product pipeline and leverage the marketing and sales
infrastructure that we are building through strategically
in-licensing or acquiring product candidates or approved
products for the critical care market. We believe our focus on
critical care medicine and our targeted sales force will make us
an attractive partner for companies seeking to out-license
products or product candidates in our areas of focus. |
Our Product Pipeline
The following table sets forth the current status of our product
candidates in development and our research and development
programs:
Zileuton
We have acquired from Abbott exclusive worldwide rights to
develop and market ZYFLO and other formulations of zileuton for
multiple diseases and conditions. ZYFLO, a tablet formulation of
zileuton, is an FDA-approved product for the prevention and
chronic treatment of asthma that was developed and previously
sold by Abbott. We are required to submit a supplemental new
drug application, or sNDA, for ZYFLO because we are changing the
process for manufacturing and transferring the manufacturing of
ZYFLO to new, third-party manufacturing sites. We intend to
submit this sNDA to the FDA in late
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March 2005 shortly after completing the transfer of
manufacturing, and, subject to regulatory approval, we expect to
begin selling ZYFLO in the United States in the second half of
2005.
Zileuton blocks the activity of the 5-lipoxygenase enzyme, which
is the main enzyme responsible for formation of a family of
lipids known as leukotrienes. There are many different
leukotrienes, and ZYFLO’s mechanism of action blocks
production of the entire leukotriene family. Leukotrienes are in
part responsible for the inflammatory response associated with
asthma and are known to cause many of the biological effects
that contribute to inflammation, mucus production and closing of
the lung airways of asthmatic patients. Leukotrienes are also
implicated in the disturbance of normal lung airway function in
certain other diseases, including COPD. ZYFLO is the only
FDA-approved product that blocks the activity of the
5-lipoxygenase enzyme.
Asthma is a chronic respiratory disease that is characterized by
the narrowing of the bronchi, or lung airways, that makes
breathing difficult. An asthma attack leaves the victim gasping
for breath as the airways become constricted, inflamed and
clogged with thick, sticky secretions. Severe asthma attacks can
be life threatening and, according to the American Lung
Association, resulted in almost two million people visiting
hospital emergency rooms in the United States in 2000. The
Centers for Disease Control and Prevention estimate that
20.3 million people in the United States had asthma in
2001. The direct healthcare costs associated with treating
asthma reached an estimated $9.4 billion in 2001.
There is no one ideal treatment for asthma and there is no cure.
Currently, patients are treated with a combination of products
that are designed primarily to manage their disease symptoms by
opening the airways in the lungs and reducing inflammation.
Typical treatments include bronchodilatory drugs, such as
Serevent®, leukotriene receptor antagonists, or LTRAs, such
as Singulair®, inhaled corticosteroids, such as
Flovent® and combination products such as Advair®,
which is a combination of an inhaled corticosteroid and a
bronchodilator. We believe many prescribing physicians are
dissatisfied with the treatment options available for patients
with uncontrolled or severe, persistent asthma due to the
inability of these treatments to control symptoms reliably. As a
result, these patients, who we believe constitute approximately
20% of the asthma population, often have severe asthma attacks
requiring emergency room visits and, in many cases, further
hospitalization to stabilize airway function. Despite the
approval and launch in 2004 of Xolair® to treat severe
allergic asthma, we believe patients with severe asthma remain
underserved and in need of effective medication.
We believe that many patients with asthma may benefit from
therapy with zileuton. Zileuton actively inhibits the main
enzyme responsible for the production of a broad spectrum of
lipids responsible for the symptoms associated with asthma,
including all leukotrienes. We believe that this is an important
distinction from Singulair®, the most frequently prescribed
LTRA, which blocks only one of the two known receptors for a
single leukotriene out of the many leukotrienes associated with
asthma symptoms. We intend to market ZYLFO as a treatment for
asthma patients who do not gain adequate symptomatic control
from currently available medications.
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Zileuton Product Development |
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ZYFLO: The Tablet Formulation of Zileuton |
ZYFLO is the only 5-lipoxygenase inhibitor drug to be approved
for marketing by the FDA. In 1996, ZYFLO was approved by the FDA
as an immediate-release, four-times-a-day tablet for the
prevention and chronic treatment of asthma. ZYFLO was launched
in the United States in 1997. We have completed the transfer of
the manufacturing technology used in the production of the
zileuton active pharmaceutical ingredient, or API, and for ZYFLO
tablets from Abbott to contract manufacturing sites. We have
completed manufacture of the tablets required for registration,
and these tablets are currently undergoing stability testing.
Once stability testing is completed, we expect to submit an
sNDA, which FDA regulations require in connection with our
changes in manufacturing process and manufacturing sites. We
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expect that the FDA’s review of our sNDA will take
approximately six months. If the FDA approves our sNDA within
this timeframe, we would expect to begin marketing ZYFLO in the
second half of 2005.
Dr. Paul Rubin, our President and Chief Executive Officer,
led the development of ZYFLO while he was employed by Abbott.
The full clinical development program for ZYFLO consisted of 21
safety and efficacy trials in an aggregate of approximately
3,000 patients with asthma. FDA approval was based on
pivotal three-month and six-month safety and efficacy clinical
trials in 774 asthma patients. The pivotal trials compared
patients taking a combination of ZYFLO and their inhaled
bronchodilators to patients taking a combination of placebo and
inhaled bronchodilators. The results of the group taking ZYFLO
and their inhaled bronchodilators showed:
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rapid and sustained improvement for patients over a six-month
period in objective and subjective measures of asthma control; |
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reduction of exacerbations and need for either bronchodilatory
or steroid rescue medications; and |
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acute bronchodilatory effect two hours after the first dose. |
Our post hoc analysis of the data suggested there was a greater
airway response benefit in asthma patients with less than 50% of
expected airway function, and a six-fold decrease in steroid
rescues compared to placebo.
In these placebo-controlled clinical trials, 1.9% of patients
taking ZYFLO experienced an increase in the liver enzyme alanine
transaminase, or ALT, to greater than three times the level
normally seen in the bloodstream compared to 0.2% of patients
receiving placebo. These enzyme levels resolved or returned
towards normal in both the patients who continued and those who
discontinued the therapy.
In addition, prior to FDA approval, a long-term, safety
surveillance trial was conducted in 2,947 patients. In this
safety trial, 4.6% of patients taking ZYFLO experienced ALT
levels greater than three times the level normally seen in the
bloodstream compared to 1.1% of patients receiving placebo. In
61.0% of the patients with ALT levels greater than three times
the level normally seen in the bloodstream, the elevation was
seen in the first two months of dosing. After two months of
treatment, the rate of ALT levels greater than three times the
level normally seen in the bloodstream stabilized at an average
of 0.3% per month for patients taking a combination of
ZYFLO and their usual asthma medications compared to
0.11% per month for patients taking a combination of
placebo and their usual asthma medications. This trial also
demonstrated that ALT levels returned to below two times the
level normally seen in the bloodstream in both the patients who
continued and those who discontinued the therapy. The overall
rate of patients with ALT levels greater than three times the
level normally seen in the bloodstream was 3.2% in the
approximately 5,000 patients who received ZYFLO in
placebo-controlled and open-label trials combined. In these
trials, one patient developed symptomatic hepatitis with
jaundice, which resolved upon discontinuation of therapy, and
three patients developed mild elevations in the protein
bilirubin.
After reviewing the data from these trials, the FDA approved
ZYFLO in 1996 on the basis of the data submitted and we are not
aware of any reports of ZYFLO being directly associated with
serious liver damage in patients treated with ZYFLO since its
approval.
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Controlled-Release Formulation of Zileuton |
We believe that the controlled-release formulation of zileuton
that we are developing will be more convenient for patients
because of its twice-a-day dosing regimen, as compared to
ZYFLO’s current four-times-a-day dosing regimen, and may
increase patient drug compliance. Abbott completed
Phase III clinical trials for this formulation in asthma,
but did not submit a new drug application, or NDA. Based upon
data provided to us, we believe this decision was not based upon
the clinical efficacy or safety data generated during the
program. We expect to submit an NDA based on safety and efficacy
data generated
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from the two completed Phase III clinical trials, a
three-month efficacy trial and a six-month safety and efficacy
trial. The results of these clinical trials were as follows:
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The three-month pivotal efficacy trial, in which
409 patients received either the controlled-release
formulation of zileuton or placebo, generated similar efficacy
results to those seen in the ZYFLO pivotal trials. The trial
demonstrated statistically significant improvements over
placebo, in objective measures of asthma control, such as mean
forced expiratory volume. The trial also showed a reduced need
for bronchodilatory drugs as a rescue medication to alleviate
uncontrolled symptoms; |
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The efficacy component of the six-month trial included
757 patients and generated similar efficacy results to
those seen in the ZYFLO pivotal trials. The trial demonstrated
statistically significant improvements over a combination of
placebo and the patients’ normal asthma therapies, in
objective measures of asthma control, such as mean forced
expiratory volume. In the trial, the controlled-release
formulation of zileuton also showed a reduced need for
bronchodilatory drugs as a rescue medication to alleviate
uncontrolled symptoms; and |
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The safety data generated in a total of 1,335 patients from
these two trials was comparable to safety data seen in the ZYFLO
pivotal trials. The incidence of ALT levels greater than three
times the level normally seen in the bloodstream in patients
receiving zileuton was 2.1% and in all cases ALT levels resolved
or returned towards normal in both the patients who continued
and those who discontinued the therapy. |
We believe that this clinical development package will be
sufficient to support the submission in the fourth quarter of
2005 of an NDA for the controlled-release formulation of
zileuton for asthma. However, before we can submit the NDA, we
must receive satisfactory comparative bioavailability data from
a clinical trial in healthy volunteers designed to show that our
manufactured tablets behave similarly in the body to the tablets
that had been manufactured by Abbott. At present, we are
conducting production campaigns and assessing performance of the
manufactured tablets, prior to initiation of the bioavailability
study. We believe that any significant variability in product
performance or delay in manufacturing could delay the submission
of the NDA by up to six months.
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Intravenous Formulation of Zileuton |
We also commenced development in 2004 of a new intravenous
formulation of zileuton for use in severe acute asthma attacks.
In 2000, approximately two million hospital emergency room
visits in the United States involved severe asthma attacks, of
which approximately 465,000 resulted in hospitalization.
Currently, most patients suffering severe asthma attacks are
treated with bronchodilators inhaled via a nebulizer, typically
for 20 minutes or more. Nebulizers attempt to restore airway
function by delivering the bronchodilatory drug to the
bloodstream via the lungs. However, the patient’s ability
to get the drug into his lungs may be impaired by his inability
to breathe efficiently caused by the severe asthma attack.
Clinical data demonstrate that zileuton exhibits its maximum
effect on lung function when the blood drug concentration
reaches its peak level and that the effect is achieved after a
single dose of zileuton. We believe that an intravenous
formulation of zileuton that would deliver zileuton directly to
the bloodstream would have a rapid onset of action, reaching
peak blood concentration within minutes of the injection. We
believe that this rapid delivery of the drug to the
patient’s bloodstream may lead to more rapid symptom
improvements, and potentially reduce the number of hospital
admissions of patients arriving in the emergency room suffering
from a severe asthma attack.
In 2004, we entered into an agreement with Baxter Healthcare
Corporation to conduct feasibility studies to analyze the
various properties of zileuton and determine the most suitable
technologies for the development of an intravenous formulation
of zileuton. As a result, we have produced, and are currently
evaluating, two intravenous formulations of zileuton. Due to the
large amount of available preclinical information on zileuton,
we believe that the preclinical development requirements for the
intravenous formulation will be restricted to limited exposure
studies in animals designed to clarify the safety of the mode of
administration. These studies are currently ongoing and as a
result, we expect to begin Phase I clinical trials of a
product candidate in the middle of 2005.
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Commercialization Strategy |
We are developing a targeted marketing and sales infrastructure
in connection with our anticipated launch of ZYFLO in the United
States in the second half of 2005. We plan to build a marketing
and sales force to promote ZYLFO and the controlled-release
formulation of zileuton that we are developing for the treatment
of asthma. We believe that by targeting specialists rather than
primary care physicians, we can successfully promote ZYFLO with
an initial sales force of fewer than 100 sales representatives
in the United States.
We plan to utilize the knowledge we have obtained through review
of recent ZYFLO prescription patterns, which demonstrate that,
despite the lack of a sustained marketing effort, ZYFLO has
developed an established prescriber base among specialists who
treat asthma. Prescription data for the 12-month period ended
September 30, 2003 revealed that approximately 1,700
physicians were prescribing the product. The top 20% of
prescribing physicians accounted for 57% of all prescriptions
and the top 25 prescribers averaged 79 prescriptions each. We
believe these data suggest that physicians who are aware of
zileuton prescribe the product in moderately high volumes.
We intend to position ZYFLO as a treatment for asthma patients
who do not gain adequate control of their symptoms with other
currently available medications. We expect that as part of our
launch, we will promote ZYFLO to specialists who treat asthma
and managed care decision makers. As part of our marketing
strategy, we plan to educate key opinion leaders and physicians
on the scientific data that differentiates ZYFLO’s
mechanism of action from other asthma treatments and emphasize
clinical data that show safety and efficacy for ZYFLO in asthma
at all levels of severity.
We also intend to maximize patient and physician access to ZYFLO
by addressing ZYFLO’s position on managed care formularies.
We believe that in many managed care formularies, as a result of
the lack of a sustained marketing effort, ZYFLO has been removed
or relegated to third-tier status, which requires the highest
co-pay for patients prescribed the product.
If we successfully complete the development of, and receive
regulatory approval for, the controlled-release formulation of
zileuton, we will seek to convert prescribing and usage of ZYFLO
to this formulation.
We intend to explore the therapeutic benefits of zileuton in
treating a range of diseases and conditions, including acne,
COPD, nasal polyposis and mastocytosis. We are aware, for
instance, of clinical data available in publications of clinical
trials and individual patient case trials that indicate zileuton
has shown efficacy in the treatment of nasal polyps and acne. We
are currently conducting a Phase II clinical trial in
patients with moderate to severe inflammatory acne and we expect
to complete the trial by the end of the first half of 2005. In
each case, if we develop zileuton for one of these diseases or
conditions, we will need to commence clinical development
programs to generate sufficient information to obtain a
regulatory label. During the manufacturing transfer and
regulatory review periods, we intend to conduct additional
trials in specific asthma patient populations prior to
commercial launch to aid in the successful repositioning of the
product as well as to support the use of the product in the
target markets.
Critical Care: The Inflammatory Response
We are developing product candidates directed towards the
inflammatory response that we believe is responsible for the
single or multiple organ failures often seen in patients
admitted to the emergency room or the intensive care unit, or
ICU. Our product development programs in this area center on
cytokines and other inflammatory mediators that play a key role
in regulating the body’s immune system. We believe that the
cytokine cascade is responsible for the severe inflammatory
response seen in:
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acute diseases and conditions that lead to admission to the ICU,
such as sepsis, septic shock, post surgical ileus, the damage to
vital organs resulting from cardiopulmonary bypass during
surgery, trauma and burns; and |
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acute exacerbations of chronic diseases that frequently lead to
hospitalization, such as rheumatoid arthritis, Crohn’s
disease, acute pancreatitis and ulcerative colitis. |
In the setting of severe infection, trauma, severe bleeding or a
lack of oxygen to the major organs of the body, the
overproduction of inflammatory mediators, including cytokines,
can lead to organ failure, tissue destruction and, eventually,
death. When cytokine levels become elevated, an excessive
inflammatory response occurs that may potentially result in
damage to vital internal organs and, in the most severe cases,
may result in multiple organ failure and death. While TNFα
is the first cytokine released during the cytokine cascade, the
transient nature of its release leaves only a short window of
opportunity for therapy. Many previous therapies directed at
TNFα in acute diseases have failed in clinical
development. The failure of such therapies may be a consequence
of the fact that the cytokine cascade comprises many different
cytokines, including HMGB1, which is believed to be released
late in the inflammatory response and acts as the final common
pathway to sickness and death.
Individual programs within our portfolio, while targeted toward
the inflammatory response, exert their effects through different
mechanisms of action. These programs include:
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a CTI-01 program directed towards the development of a small
molecule product candidate that directly affects the release of
cytokines through a number of different mechanisms; |
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an HMGB1 program directed towards a newly-discovered
pro-inflammatory cytokine, HMGB1; and |
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a cholinergic anti-inflammatory program directed towards a
receptor that we believe regulates the release of the cytokines
that play a fundamental role in the inflammatory response,
including TNFα, in response to an inflammatory stimulus. |
8
We believe the probability of success of any one of our programs
is not directly dependent upon the success or failure of any of
our other programs. We believe our therapeutic approaches
provide multiple opportunities for success and may increase the
productivity of our research and development efforts. The
programs we currently have directed towards the inflammatory
response are as follows:
We are developing a small molecule, CTI-01, that we believe may
be effective in regulating the inflammatory response in addition
to its known antioxidant activity. We plan to develop CTI-01 for
at least one disease or condition such as organ damage resulting
from cardiopulmonary bypass or post-operative ileus. In animal
studies, CTI-01 has improved organ function or survival in a
number of models of critical illness. In these studies, CTI-01
was effective when the drug was administered after disease
onset, as well as in preventative administration when the drug
was administered before disease onset. CTI-01 has demonstrated
positive responses in animal models of restricted blood supply
to the intestines, severe bleeding, overwhelming bacterial
infection and acute intestinal injury.
Scientific research suggests that CTI-01 inhibits the systemic
release of a number of cytokines that play a fundamental role in
the inflammatory response, including TNFα and HMGB1. Many
of these cytokines are responsible for the severe inflammatory
response that contributes to organ damage. Research shows CTI-01
inhibits the activation of inflammatory signaling pathways, the
activation of a number of pro-inflammatory genes and the release
of the late-acting cytokine HMGB1, both in vivo and
in vitro.
Our current formulation of CTI-01 is an intravenous infusion
best administered in diseases and conditions that enable a
central line to be utilized to deliver the drug to the
patients’ bloodstream via a large vein. We believe this
product candidate to be best suited for diseases and conditions
with the inflammatory response as the underlying complication
and where patients already have central lines inserted for
medical care. Potential opportunities for CTI-01 include:
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damage to vital organs that can occur in patients after
cardiopulmonary bypass, a procedure commonly performed during
cardiothoracic surgery; and |
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post-operative ileus, which is the loss of normal contractile
movement in the intestine due to inflammation of the muscle
layers of the intestine after abdominal surgery, which is one of
the major reasons why patients stay in the hospital after
surgery. |
9
In 2003, we conducted a Phase I clinical trial of CTI-01 in
healthy volunteers in the United Kingdom. The trial consisted of
two phases, a phase designed to evaluate the highest dose that
can be given before experiencing unwanted drug effects followed
by an endotoxin challenge model designed to investigate whether
CTI-01 would affect cytokine production. The results from the
completed trial indicated:
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a reduction in the TNFα response to bacterial endotoxin
challenge compared to placebo; and |
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a maximum tolerated dose of 160mg/kg infused over 12 hours. |
At doses above the maximum tolerated dose, human volunteers in
the trial experienced local irritation in the vein at the
infusion site. In 2004, we conducted a second Phase I
clinical trial in healthy volunteers in the United States. In
this trial, in order to avoid the local venous irritation,
CTI-01 was administered using a PICC line, or peripherally
inserted central catheter line, positioned in a larger vein
where faster bloodflow rates caused a more rapid dispersal of
CTI-01 into the bloodstream. By overcoming the local irritation
issue, we were able to deliver higher doses of CTI-01 to the
volunteers. The results from the completed trial demonstrated
that doses of up to 75 mg/kg could be infused over 30
minutes without significant side effects and enabled us to
select a dose for use in a Phase II clinical trial.
In February 2005, we initiated a Phase II clinical trial to
determine the safety and efficacy of CTI-01 in the prevention of
organ damage in patients undergoing major cardiac surgery
involving the use of cardiopulmonary bypass, such as coronary
bypass graft and/or valve replacement or repair. This
double-blind, randomized, placebo-controlled trial is being
conducted at multiple centers in the United States, and we
expect to complete enrollment by the end of 2005.
We are evaluating mechanisms to prevent HMGB1 from effecting its
role in inflammation-mediated diseases. HMGB1 has been
identified as a potential late mediator of inflammation-induced
tissue damage. Unlike other previously identified cytokines,
such as interleukin-1 and TNFα, HMGB1 is expressed much
later in the inflammatory response and persists at elevated
levels for a longer time period and we believe therefore is a
unique target for the development of products to treat
inflammation-mediated diseases.
In 2003, we entered into an exclusive license and collaboration
agreement with MedImmune to jointly develop and commercialize
products directed towards HMGB1. In January 2005, we entered
into a collaboration with Beckman Coulter to develop a
diagnostic that could be used to identify which patients have
elevated levels of HMGB1 and would, therefore, be most likely to
respond to anti-HMGB1 therapy.
Our internal research programs are currently aimed at generating
antibodies that can neutralize circulating HMGB1 prior to it
binding to its receptor. We have developed in our laboratories
monoclonal antibodies directed towards HMGB1 that are currently
in preclinical development. We intend to initiate small molecule
programs directed towards HMGB1 once we are able to fully
characterize its receptor.
We believe that HMGB1’s delayed and prolonged expression
offers a new target for the development of products with a
significantly broader treatment window than TNFα for acute
diseases that can result in multiple organ failure, including
sepsis and septic shock, and acute exacerbations of chronic
diseases associated with the inflammatory response mediated by
cytokines, such as rheumatoid arthritis.
Sepsis is the body’s systemic inflammation response to
infection or trauma. In animal models of septic shock, both
polyclonal and monoclonal antibodies targeting HMGB1 were
successful in significantly reducing the mortality rate
associated with these models. To date, limited clinical
investigations have identified that patients with sepsis have
elevated levels of HMGB1 in their bloodstream, compared to
normal individuals, who do not have detectable levels of HMGB1
in their bloodstream. The elevated HMGB1 levels appeared to be
greatest in the patients who subsequently died as a result of
their disease.
10
Similar treatment opportunities also exist with other diseases
that include an HMGB1 component, such as rheumatoid arthritis.
Elevated levels of HMGB1 have been observed in the synovial
fluid in the joints of rheumatoid arthritis patients, and
positive symptom responses have been achieved in animal models
of rheumatoid arthritis with anti-HMGB1 therapy.
We have generated a number of monoclonal antibodies that bind to
HMGB1 and that are active in vitro and in
vivo. A number of these antibodies have demonstrated a
dose-dependent benefit on survival in a mouse model of
overwhelming infection and a reduction in clinical arthritis
symptoms in a mouse rheumatoid arthritis model. In both of these
tests, the monoclonal antibodies were administered in a
treatment model after disease onset, as opposed to the
preventive model in which the drug is administered before
disease onset.
We are currently collaborating with MedImmune in the further
preclinical investigation of our monoclonal antibodies in a
number of animal models. MedImmune is conducting programs
necessary to advance potential product candidates into
Phase I clinical trials of the lead product candidate.
Together with MedImmune, we plan to develop product candidates
in parallel for both acute and chronic diseases and conditions.
We are still investigating the receptor for HMGB1, and we plan
to commence programs directed towards small molecules that block
this receptor once we have isolated and fully characterized the
receptor.
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Cholinergic Anti-inflammatory Program |
Stimulation of the vagus nerve, a nerve that links the brain
with the major organs of the body, causes the release of a
chemical neurotransmitter called acetylcholine. Acetylcholine
has been shown to inhibit the release of cytokines that play a
fundamental role in the inflammatory response, including
TNFα. Research indicates that acetylcholine exerts
anti-inflammatory activity by stimulating the nicotinic
α-7 cholinergic receptor, or α-7 receptor, on the
macrophage cell.
Historically, a number of companies have focused on the
α-7 receptor target in the treatment of central nervous
system, or CNS, diseases. We believe the discovery of the role
of this receptor in inflammation has led to a new opportunity
for the development of products to treat diseases in which
inflammation plays a role. We are undertaking both a program to
develop a small molecule product that inhibits the inflammatory
response by acting on the α-7 receptor on human macrophage
cells and a program to develop an electrical device to stimulate
the vagus nerve to inhibit the release of proinflammatory
cytokines.
Our successful development of a product candidate targeting the
α-7 receptor could lead to a novel treatment for severe
acute inflammatory disease, as well as an oral anti-cytokine
therapy that could be directed at chronic inflammatory diseases
such as rheumatoid arthritis and Crohn’s disease. We
believe the previous work on this receptor will assist the
discovery of new, peripherally acting drugs that stimulate the
α-7 receptor. We believe a drug candidate taken orally
could have a strong market position against current injectable
anti-TNFα biological therapies, particularly if it avoids
the potential immunological response to therapy, which is a
known risk with antibody products.
Small Molecule. We are currently seeking to develop
novel, small molecules directed towards the α-7 receptor.
In September 2004, we licensed from the University of Florida
access to a family of molecules known to be active against the
α-7 receptor. We are currently conducting preclinical
evaluation
11
of these molecules in animal models of cytokine-mediated disease
to determine the extent of their activity against this receptor.
Electronic Vagal Stimulation. We are also exploring the
development of a medical device, similar to those already
marketed for the treatment of epileptic seizures, to stimulate
the vagus nerve, cause the release of acetylcholine and induce
an anti-inflammatory response. We would develop this device only
with a collaborator who has direct experience in device
development and commercialization. Vagus nerve stimulators are
currently approved and used for the treatment of epileptic
seizures in the United States. Electronic vagal stimulation may
provide a novel option for the treatment of acute exacerbations
of rheumatoid arthritis, Crohn’s disease, ulcerative
colitis and pancreatitis.
Collaborations
In July 2003, we entered into an exclusive license and
collaboration agreement with MedImmune to jointly develop
products directed towards HMGB1. Under the terms of the
agreement, we granted MedImmune an exclusive worldwide license,
under patent rights and know-how controlled by us, to make, use
and sell products, including small molecules and antibodies,
that bind to, inhibit or inactivate HMGB1 and are used in the
treatment or prevention, but not the diagnosis, of diseases,
disorders and medical conditions.
We and MedImmune determine the extent of our collaboration on
research and development matters each year upon the renewal of a
rolling three-year research plan. We are currently working with
MedImmune to evaluate the potential of a series of mouse
monoclonal antibodies, discovered and cloned at our
laboratories, as agents for development as therapeutic
antibodies to enable them to enter clinical development. Under
the terms of the agreement, MedImmune has agreed to fund and
expend efforts to research and develop at least one
HMGB1-inhibiting product for two indications through specified
clinical phases.
Under the collaboration, MedImmune has paid us initial fees of
$12.5 million. We may also receive under the collaboration
research and development payments from MedImmune, including a
minimum of $3.0 million of research and development
payments for the first three years of the agreement, of which
$1.5 million had been paid by December 31, 2004. In
addition, we may receive, subject to the terms and conditions of
the agreement, other payments upon the achievement of research,
development and commercialization milestones up to a maximum of
$124.0 million, after taking into account payments that we
are obligated to make to North Shore-Long Island Jewish Research
Institute on milestone payments we receive from MedImmune.
MedImmune also has agreed to pay royalties to us based upon net
sales by MedImmune of licensed products resulting from the
collaboration. MedImmune’s obligation to pay us royalties
continues on a product-by-product and country-by-country basis
until the later of ten years from the first commercial sale of a
licensed product in each country and the expiration of the
patent rights covering the product in that country. We are
obligated to pay a portion of any milestone payments or
royalties we receive from MedImmune to North Shore, which
initially licensed to us patent rights and know-how related to
HMGB1. In connection with entering into the collaboration
agreement, an affiliate of MedImmune purchased an aggregate of
$15.0 million of our series B convertible preferred
stock in October 2003 and March 2004, which converted into
2,857,142 shares of our common stock in June 2004 in
connection with our initial public offering.
We have agreed to work exclusively with MedImmune in the
research and development of HMGB1-inhibiting products. Under the
terms of the agreement, MedImmune’s license to
commercialize HMGB1-inhibiting products generally excludes us
from manufacturing, promoting or selling the licensed products.
However, we have the option to co-promote in the United States
the first product for the first indication approved in the
United States, for which we must pay a portion of the ongoing
development costs and will receive a proportion of the profits
in lieu of royalties that would otherwise be owed to us.
MedImmune has the right to terminate the agreement at any time
on six-months written notice. Each party has the right to
terminate the agreement upon the occurrence of a material
uncured breach by the
12
other party. Under specified conditions, we or MedImmune may
have certain payment or royalty obligations after the
termination of the agreement.
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Beckman Coulter Collaboration |
In January 2005, we entered into a license agreement with
Beckman Coulter relating to the development of diagnostic
products for measuring HMGB1. Under the terms of the agreement,
we granted to Beckman Coulter and its affiliates an exclusive
worldwide license, under patent rights and know-how controlled
by us relating to the use of HMGB1 and its antibodies in
diagnostics, to evaluate, develop, make, use and sell a kit or
assemblage of reagents for measuring HMGB1 that utilizes one or
more monoclonal antibodies to HMGB1 developed by us or on our
behalf.
In consideration for the license, Beckman Coulter paid us a
product evaluation license fee of $250,000. Under the agreement,
we may also receive additional aggregate license fees of up to
$850,000 upon the exercise by Beckman Coulter of its option to
continue the license prior to a future date and the achievement
of the first commercial sale of a licensed product. Beckman
Coulter also agreed to pay us royalties based on net sales of
licensed products by Beckman Coulter and its affiliates. Beckman
Coulter has the right to grant sublicenses under the license,
subject to our written consent, which we have agreed not to
unreasonably withhold. In addition, Beckman Coulter agreed to
pay us a percentage of any license fees, milestone payments or
royalties actually received by Beckman Coulter from its
sublicensees.
The license agreement will terminate if Beckman Coulter does not
exercise its option to continue the license by a future date. In
addition, Beckman Coulter has the right to terminate the license
agreement at any time on 90-days written notice. Each party has
the right to terminate the license agreement upon the occurrence
of a material uncured breach by the other party.
Research and Development
We believe that our research and development capabilities and
our sponsored research arrangements position us well to sustain
our product pipeline. As of December 31, 2004, we had 34
employees engaged in research, development and regulatory
affairs. Our research and development group seeks to identify
the most promising development candidates and the most
appropriate development pathways to maximize our chances of
successful development. We also augment our internal research
capabilities through sponsored research arrangements with
academic and research institutions and individual academics, as
well as in-licensed product candidates and technologies.
During the fiscal years ended December 31, 2002, 2003 and
2004, research and development expenses were $3.3 million,
$17.5 million and $25.6 million, respectively.
Sales and Marketing
We plan to develop a sales and marketing infrastructure to
commercialize ZYFLO and the controlled-release formulation of
zileuton in the United States. We believe that, by developing a
sales and marketing infrastructure to commercialize zileuton, we
will have a seasoned organization in place that we can leverage
if and when we launch any future respiratory or critical care
products. Accordingly, we have hired Frederick Finnegan as our
Senior Vice President of Sales and Marketing, four regional
sales directors and a national director for managed care to lead
the development of this infrastructure. Mr. Finnegan has
significant sales and marketing experience from previous roles
at biotechnology and large and small pharmaceutical companies.
We intend to focus our sales and marketing efforts for zileuton
on key opinion leaders and specialists who treat asthma,
including allergists, pulmonologists and ENTs, or ear, nose and
throat surgeons. Because we expect to target our marketing and
sales efforts to the moderate to severe asthma market, we
believe we can successfully focus our efforts with a relatively
small sales force on the approximately 16,000 specialists who
tend to treat the majority of these patients. These specialists
include a top tier of 100 to 200 national or key opinion leaders
who serve to influence the direction of the diagnosis and
treatment of
13
asthma through their research and publications, and a second
tier of practice-based specialists who are responsible for
treating the majority of patients.
Given the importance of these key opinion leaders, we plan to
direct our scientific message and support to help educate and
inform key opinion leaders regarding the scientific rationale
and data that support our commercialization strategy. Initially,
we will enter into consulting arrangements with approximately
ten key opinion leaders who will comprise our expert panel.
After our expert panel has been formed, we intend to expand our
reach to 100 to 200 key opinion leaders through a group of
medical liaisons who will be directed by our chief medical
officer.
We plan to initiate contact with the second tier of
practice-based specialists when we launch our sales force. In
the first two years following the launch of our sales force, we
do not expect to contact every practicing specialist who treats
asthma. Instead, we expect to target the top 50% of specialists
in terms of prescribing productivity within asthma and the top
400 to 500 physicians prescribing ZYFLO. As we expand our sales
force, we expect to expand our reach to the top 70% to 80% of
specialists who treat asthma.
Part of our overall strategy for zileuton also includes
repositioning the product within the managed care market. We
intend to position zileuton with managed care medical directors
and pharmacists as a treatment alternative when medications have
failed to provide adequate symptomatic control. As a result, in
addition to the awareness provided by office-based
representatives, we believe information regarding zileuton will
reach potential prescribing physicians through managed care
pharmacies communicating the product’s modified formulary
status.
We expect that our sales effort for zileuton will expand if we
develop and obtain regulatory approval for the intravenous
formulation of zileuton for urgent and inpatient treatment of
acute exacerbations of asthma. We believe the launch of an
intravenous formulation will increase awareness of zileuton
among those primary care physicians, or PCPs, whose patients are
prescribed zileuton after a visit to the emergency room due to
an acute exacerbation of asthma. In addition, we intend to seek
a co-promotion partner for the controlled-release and
immediate-release formulations of zileuton who would take
responsibility to promote zileuton to PCPs. We believe these
efforts should enable us to migrate our sales and marketing
focus and activities from solely office-based specialists to
include the hospital products marketplace.
Manufacturing
We have no experience in, and we do not own any facilities for,
manufacturing our product candidates. We currently outsource the
manufacturing of our product candidates for use in clinical
trials to qualified third parties and intend to continue to rely
on contract manufacturing from third parties to supply products
for both clinical use and commercial sale.
Prior to licensing zileuton to us, Abbott maintained its own
manufacturing capabilities for ZYFLO. Under the terms of our
license agreements, Abbott agreed to transfer its know-how and
technology for the manufacture and validation of zileuton API
and the immediate-release and controlled-release formulations of
zileuton and the manufacturing process to us or a designated
third party. We have established the following manufacturing
arrangements for zileuton.
We have contracted with Rhodia Pharma Solutions Ltd. to
establish and validate a manufacturing process for the API at
sites operated by Rhodia. The technology transfer to Rhodia has
been completed and Rhodia is validating the API manufacturing
process and preparing to commence commercial production. In
February 2005, we entered into a commercial supply agreement
with Rhodia for the commercial production of the API. Under the
commercial supply agreement, Rhodia has agreed to manufacture
our commercial supplies of API, subject to specified
limitations, through December 31, 2009. The agreement will
automatically extend for successive one-year periods after
December 31, 2009, unless
14
Rhodia provides us with 18-months prior written notice of
cancellation. We have the right to terminate the agreement upon
12-months prior written notice for any reason, provided that we
may not cancel prior to January 1, 2008 for the purpose of
retaining any other company to act as our exclusive supplier of
the API. We also have the right to terminate the agreement upon
six-months prior written notice if we terminate our plans to
commercialize zileuton for all therapeutic indications. If we
exercise our right to terminate the agreement prior to its
scheduled expiration, we are obligated to reimburse Rhodia for
specified raw material and out-of-pocket costs. In addition, if
we exercise our right to terminate the agreement due to
termination of our plans to commercialize zileuton for all
therapeutic indications, then we are also obligated to pay
Rhodia for all API manufactured by Rhodia through that date.
Furthermore, each party has the right to immediately terminate
the agreement for cause, including a material uncured default by
the other party.
We have contracted with Patheon Pharmaceuticals Inc. for the
manufacture of ZYFLO for clinical trials and regulatory review.
The agreement with Patheon has no specified term, and we can
terminate the agreement at any time for any reason, subject to
payment of fees and expenses incurred by Patheon through the
date of termination. Patheon may deem the agreement to be
terminated if any rescheduling of services requested by us
results in a delay in Patheon’s ability to provide services
beyond 120 days. Each party has the right to terminate the
agreement upon the occurrence of a material uncured breach by
the other party. In addition to this agreement, we have
initiated discussions with Patheon for an agreement relating to
the ongoing manufacture of commercial supplies of ZYFLO.
We have contracted with SkyePharma PLC, through its subsidiary
Jagotec AG, for the manufacture of the controlled-release tablet
formulation of zileuton for clinical trials, regulatory review
and commercial sale. SkyePharma has agreed to manufacture the
commercial supplies of the controlled-release formulation of
zileuton, upon FDA approval, under a manufacturing agreement
that we would enter into with SkyePharma having a term of no
less than five years. SkyePharma’s current manufacturing
obligations for the controlled-release formulation of zileuton
are reflected in our license agreement relating to our use of
SkyePharma’s controlled-release patent rights and know-how.
Both we and SkyePharma have the right to terminate that license
agreement upon the occurrence of a material uncured breach by
the other party. We have separately contracted with SkyePharma
to help establish a manufacturing process for ZYFLO and, if
needed, to manufacture ZYFLO for clinical trials and regulatory
review. In consideration for SkyePharma’s manufacturing and
development services, we agreed to pay SkyePharma an upfront fee
of $250,000 and additional amounts on a time and materials
basis. Both we and SkyePharma have the right to terminate the
contract upon the occurrence of a material uncured breach by the
other party, upon a change of control of the other party or,
with the consent of the other party, if results achieved during
testing or other technical, medical or scientific problems
reasonably require termination. We also have the right to
terminate the contract upon 120-days prior notice.
We expect to enter into manufacturing arrangements with third
parties for the manufacture of our other product candidates for
clinical use. For example, we will need to enter into
arrangements for the manufacture of products for clinical trials
in our cholinergic anti-inflammatory and CTI-01 programs. We
believe that MedImmune will be responsible for manufacturing of
any biologic products that result from our HMGB1 program.
License and Royalty Agreements
We have entered into a number of license agreements under which
we have licensed intellectual property and other rights needed
to develop our products, including the license agreements
summarized below.
15
In December 2003, we acquired an exclusive worldwide license,
under patent rights and know-how controlled by Abbott, to
develop, make, use and sell controlled-release and intravenous
formulations of zileuton for all clinical indications, except
for the treatment of children under age seven and use in
cardiovascular and vascular devices. This license included an
exclusive sublicense of Abbott’s rights in proprietary
controlled-release technology originally licensed to Abbott by
Jagotec AG, a subsidiary of SkyePharma. In consideration for the
license, we paid Abbott an initial $1.5 million license fee
and agreed to make aggregate milestone payments of up to
$13.0 million to Abbott upon the achievement of various
development and commercialization milestones, including the
completion of the technology transfer from Abbott to us, filing
and approval of a product in the United States and specified
minimum net sales of licensed products. In addition, we agreed
to pay royalties to Abbott based on net sales of licensed
products by us, our affiliates and sublicensees. Our obligation
to pay royalties continues on a country-by-country basis for a
period of ten years from the first commercial sale of a licensed
product in each country. Upon the expiration of our obligation
to pay royalties for licensed products in a given country, the
license will become perpetual, irrevocable and fully paid up
with respect to licensed products in that country. If we decide
to sublicense rights under the license, we must first enter into
good faith negotiations with Abbott for the commercialization
rights to the licensed product. Each party has the right to
terminate the license upon the occurrence of a material uncured
breach by the other party. We also have the right to terminate
the license at any time upon 60 days notice to Abbott and
payment of a termination fee.
In March 2004, we acquired from Abbott the U.S. trademark
ZYFLO® and an exclusive worldwide license, under patent
rights and know-how controlled by Abbott, to develop, make, use
and sell the immediate-release formulation of zileuton for all
clinical indications. In consideration for the license and the
trademark, we have agreed to pay Abbott an initial fee of
$500,000, a milestone payment of $750,000 upon approval of the
sNDA, and royalties based upon net sales of licensed products by
us, our affiliates and sublicensees. Our obligation to pay
royalties continues on a country-by-country basis for a period
of ten years from the first commercial sale of a licensed
product in each country. Upon the expiration of our obligation
to pay royalties in a given country, the license will become
perpetual, irrevocable and fully paid up with respect to
licensed products in that country. Each party has the right to
terminate the license upon the occurrence of a material uncured
breach by the other party.
In December 2003, we entered into an agreement with SkyePharma,
through its subsidiary Jagotec, under which SkyePharma consented
to Abbott’s sublicense to us of rights to make, use and
sell the controlled-release formulation of zileuton covered by
SkyePharma’s patent rights and know-how. Under the terms of
the agreement, SkyePharma also agreed to manufacture the
controlled-release formulation of zileuton for clinical trials,
regulatory review and, subject to negotiation of a commercial
manufacturing agreement, commercial sale. In consideration for
SkyePharma’s prior work associated with the licensed patent
rights and know-how, we paid SkyePharma an upfront fee of
$750,000. We also agreed to make aggregate milestone payments to
SkyePharma of up to $6.6 million upon the achievement of
various development and commercialization milestones. In
addition, we agreed to pay royalties to SkyePharma based upon
net sales of the product by us and our affiliates. We also
agreed to pay royalties to SkyePharma under the license
agreement between SkyePharma and Abbott based upon net sales of
the product by us and our affiliates. We also agreed to pay
SkyePharma fees if we sublicense our rights under the licensed
patent rights and know-how. Each party has the right to
terminate the agreement upon the occurrence of a material
uncured breach by the other party.
In July 2001, we acquired from North Shore an exclusive
worldwide license, under patent rights and know-how controlled
by North Shore relating to HMGB1, to make, use and sell products
covered by the licensed patent rights and know-how. North Shore
retained the right to make and use the licensed products in its
own laboratories solely for non-commercial, scientific purposes
and non-commercial
16
research. In consideration for the license, we paid an initial
license fee of $100,000. We also agreed to make milestone
payments to North Shore of up to $275,000 for the first product
covered by the licensed patent rights and an additional $100,000
for each additional distinguishable product covered by the
licensed patent rights, up to $137,500 for the first product
covered by the licensed know-how and not the licensed patent
rights and an additional $50,000 for each additional
distinguishable product covered by the licensed know-how and not
the licensed patent rights, in each case upon the achievement of
specified development and regulatory milestones for the
applicable licensed product. In addition, we agreed to pay North
Shore royalties based on net sales of licensed products by us
and our affiliates until the later of ten years from the first
commercial sale of each licensed product in a given country and
the expiration of the patent rights covering the licensed
product in that country. We agreed to pay minimum annual
royalties to North Shore beginning in July 2007 regardless of
whether we sell any licensed products. We also agreed to pay
North Shore fees if we sublicense our rights under the licensed
patent rights and know-how. Each party has the right to
terminate the agreement upon the occurrence of a material
uncured breach by the other party.
We also have entered into two sponsored research and license
agreements with North Shore. In July 2001, we entered into a
sponsored research and license agreement with North Shore under
which, as amended, we agreed to pay North Shore $200,000
annually until June 2006 to sponsor research activities at North
Shore to identify inhibitors and antagonists of HMGB1 and
related proteins, including antibodies. In January 2003, we
entered into a sponsored research and license agreement with
North Shore under which we agreed to pay North Shore $200,000
annually until January 2006 to sponsor research activities at
North Shore in the field of cholinergic anti-inflammatory
technology. Any future research terms under either of these
agreements are subject to agreement between North Shore and us.
Under the terms of these agreements, we acquired an exclusive
worldwide license to make, use and sell products covered by the
patent rights and know-how arising from the sponsored research.
North Shore retained the right under each of these agreements to
make and use the licensed products in its own laboratories
solely for non-commercial, scientific purposes and
non-commercial research.
In connection with the July 2001 sponsored research and license
agreement, we issued North Shore 27,259 shares of our
common stock and agreed to make milestone payments to North
Shore of $200,000 for the first product covered by the licensed
patent rights, and an additional $100,000 for each additional
distinguishable product covered by the licensed patent rights,
$100,000 for the first product covered by the licensed know-how
and not the licensed patent rights and an additional $50,000 for
each additional distinguishable product covered by the licensed
know-how and not the licensed patent rights, in each case upon
the achievement of specified development and regulatory approval
milestones with respect to the applicable licensed product. In
connection with the January 2003 sponsored research and license
agreement, we paid North Shore an initial license fee of
$175,000 and agreed to pay additional amounts in connection with
the filing of any U.S. patent application or issuance of a
U.S. patent relating to the field of cholinergic
anti-inflammatory technology. We also agreed to make aggregate
milestone payments to North Shore of up to $1.5 million in
both cash and shares of our common stock upon the achievement of
specified development and regulatory approval milestones with
respect to any licensed product. In addition, under each of
these agreements, we agreed to pay North Shore royalties based
on net sales of a licensed product by us and our affiliates
until the later of ten years from the first commercial sale of
licensed products in a given country and the expiration of the
patent rights covering the licensed product in that country.
Under the January 2003 sponsored research and license agreement,
we agreed to pay minimum annual royalties to North Shore
beginning in the first year after termination of research
activities regardless of whether we sell any licensed products.
We also agreed to pay North Shore certain fees if we sublicense
our rights under the licensed patent rights and know-how under
either agreement. In connection with our sublicense to MedImmune
of our rights with respect to HMGB1, we have paid North Shore
$2.0 million and issued to North Shore 66,666 shares
of our common stock. Each party has the right to terminate each
agreement upon the occurrence of a material uncured breach of
that agreement by the other party.
17
In September 2004, we acquired from the University of Florida an
exclusive worldwide license, under specified patent rights
controlled by the University relating to a family of compounds
known as cinnamylidene-anabaseines, to make, use and sell
products covered by the licensed patent rights. These compounds
target and stimulate the nicotinic alpha-7 cholinergic receptor.
In consideration for the license, we agreed to pay an initial
license fee and milestone payments upon the achievement of
specified development and regulatory milestones for the licensed
product. We also agreed to make certain minimum royalty payments
during the term of the agreement and royalty payments based on
net sales of a licensed product by us and our sublicensees. The
University has the right to terminate the agreement upon our
material uncured breach, including our failure to meet specified
development and commercialization milestones for a licensed
product. We may terminate the agreement upon 60-days notice to
the University.
In November 2002, we acquired from the University of Pittsburgh
an exclusive worldwide license, under specified patent rights
controlled by the University relating to CTI-01, to make, use
and sell products covered by the licensed patent rights. The
University retained the right to use the licensed patent rights
and products for its own non-commercial education and research
purposes. In consideration for the license, we paid an initial
license fee of $35,000 and also agreed to pay the University
annual maintenance fees until the first commercial sale of a
licensed product. After the first commercial sale, we have
agreed to pay the University royalties based on net sales of the
licensed product by us and our sublicensees. The University has
the right to terminate the agreement upon our material uncured
breach, including our failure to meet specified development and
commercialization milestones for a licensed product. We may
terminate the agreement upon three-months notice to the
University.
In December 2000, we acquired from Xanthus Life Sciences,
formerly known as Phenome Sciences, an exclusive worldwide
license, under specified patent rights and know-how controlled
by Xanthus relating to CTI-01, to make, use and sell products
covered by the licensed patent rights and know-how. Xanthus
retained the right to use the licensed patent rights for
non-commercial research purposes. In consideration for the
license, we paid an initial license fee of $103,000. We also
agreed to use diligent efforts to achieve specified development
and regulatory approval milestones and make aggregate milestone
payments to Xanthus of up to $2.0 million upon the
achievement of those milestones. In addition, we agreed to pay
Xanthus royalties based on net sales of licensed products by us
and our sublicensees until the expiration of the patent rights
covering the licensed product. We agreed to pay minimum annual
royalties to Xanthus beginning in 2006 regardless of whether we
sell any licensed products. Each party has the right to
terminate the agreement upon the occurrence of a material
uncured breach by the other party. In specified circumstances,
we may also terminate the agreement upon either three or
twelve-months notice to Xanthus.
In June 2004, we entered into an agreement with Baxter
Healthcare Corporation to conduct feasibility studies to analyze
the various properties of zileuton and determine the most
suitable technologies for the development of an intravenous
formulation of zileuton. In the event that we choose to pursue
the commercialization of a specified intravenous formulation
developed by Baxter that is based on the formulation technology
of a third party, we have agreed to license that specified
intravenous formulation and pay Baxter royalties based on net
sales of that formulation.
Proprietary Rights
Our success depends in part on our ability to obtain and
maintain proprietary protection for our product candidates,
technology and know-how, to operate without infringing on the
proprietary rights of others and to prevent others from
infringing our proprietary rights. Our policy is to seek to
protect our proprietary position by, among other methods, filing
U.S. and foreign patent applications related to our
18
proprietary technology, inventions and improvements that are
important to the development of our business and obtaining,
where possible, assignment of invention agreements from
employees and consultants. We also rely on trade secrets,
know-how, continuing technological innovation and in-licensing
opportunities to develop and maintain our proprietary position.
We own or exclusively license a total of 22 issued
U.S. patents, 42 issued foreign patents, 29 pending
U.S. patent applications and 73 pending foreign patent
applications consisting of:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
U.S. | |
|
Foreign | |
|
|
| |
|
| |
|
| |
|
Program | |
| |
|
Issued | |
|
Pending | |
|
Issued | |
|
Pending | |
|
Total | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Zileuton
|
|
|
15 |
|
|
|
1 |
|
|
|
36 |
|
|
|
9 |
|
|
|
61 |
|
|
HMGB1
|
|
|
3 |
|
|
|
13 |
|
|
|
— |
|
|
|
27 |
|
|
|
43 |
|
|
CTI-01
|
|
|
1 |
|
|
|
6 |
|
|
|
1 |
|
|
|
24 |
|
|
|
32 |
|
|
Cholinergic anti-inflammatory
|
|
|
3 |
|
|
|
9 |
|
|
|
5 |
|
|
|
13 |
|
|
|
30 |
|
|
Total
|
|
|
22 |
|
|
|
29 |
|
|
|
42 |
|
|
|
73 |
|
|
|
166 |
|
The U.S. patent covering the composition of matter of
zileuton that we licensed from Abbott expires in 2010, and the
U.S. patent covering the controlled-release formulation of
zileuton expires in 2012. The U.S. issued patents that we
own or exclusively license covering our product candidates other
than zileuton expire on various dates between 2017 and 2021.
The patent position of pharmaceutical or biotechnology
companies, including ours, is generally uncertain and involves
complex legal and factual considerations. Our success depends,
in part, on our ability to protect proprietary products, methods
and technologies that we develop under the patent and other
intellectual property laws of the United States and other
countries, so that we can prevent others from using our
inventions and proprietary information. If any parties should
successfully claim that our proprietary products, methods and
technologies infringe upon their intellectual property rights,
we might be forced to pay damages, and a court could require us
to stop the infringing activity. We do not know if our pending
patent applications will result in issued patents. Our issued
patents and those that may issue in the future, or those
licensed to us, may be challenged, invalidated or circumvented,
which could limit our ability to stop competitors from marketing
related products or the length of term of patent protection that
we may have for our products. In addition, the rights granted
under any issued patents may not provide us with proprietary
protection or competitive advantages against competitors with
similar technology. Furthermore, our competitors may
independently develop similar technologies or duplicate any
technology developed by us. Because of the extensive time
required for development, testing and regulatory review of a
potential product, it is possible that, before any of our
product candidates can be commercialized, any related patent may
expire or remain in force for only a short period following
commercialization, thereby reducing any advantage of the patent.
|
|
|
Trademarks, Trade Secrets and Other Proprietary
Information |
We currently have filed trademark applications to register the
Critical Therapeutics name and logo in both the United States
and Europe. We have also filed trademark applications to
register CT1 and CT2 in the United States. In March 2004, we
acquired the U.S. trademark ZYFLO® from Abbott.
In addition, we depend upon trade secrets, know-how and
continuing technological advances to develop and maintain our
competitive position. To maintain the confidentiality of trade
secrets and proprietary information, it is our general practice
to enter into confidentiality agreements with our employees,
consultants, strategic partners, outside scientific
collaborators and sponsored researchers and other advisors.
These agreements are designed to protect our proprietary
information. These agreements are designed to deter, but may not
prevent, unauthorized disclosure of our trade secrets, and any
such unauthorized disclosure would have a material adverse
effect on our business, for which monetary damages from the
party making such unauthorized disclosure may not be adequate to
compensate us.
19
Regulatory Matters
The research, testing, manufacture and marketing of drug and
biologic products and medical devices are extensively regulated
in the United States and abroad. In the United States, drugs,
biologics and medical devices are subject to rigorous regulation
by the FDA. The Federal Food, Drug and Cosmetic Act and other
federal and state statutes and regulations govern, among other
things, the research, development, testing, manufacture,
storage, record keeping, packaging, labeling, advertising and
promotion, marketing and distribution of pharmaceutical and
biologic products and medical devices. The failure to comply
with the applicable regulatory requirements may subject us to a
variety of administrative or judicially imposed sanctions,
including the FDA’s refusal to approve pending
applications, withdrawal of an approval, warning letters,
product recalls, product seizures, total or partial suspension
of production or distribution, injunctions, fines, civil
penalties and criminal prosecution.
The steps ordinarily required before a new pharmaceutical or
biologic product may be marketed in the United States include
preclinical laboratory tests, animal tests and formulation
studies, the submission to the FDA of an investigational new
drug application, or IND, which must become effective prior to
commencement of human clinical testing, and adequate and
well-controlled clinical trials to establish that the product is
safe and effective for the indication for which FDA approval is
sought. Satisfaction of FDA approval requirements typically
takes several years and the actual time taken may vary
substantially depending upon the complexity of the product or
disease. Government regulation may impose costly procedures on
our activities, and may delay or prevent marketing of potential
products for a considerable period of time or prevent such
marketing entirely. Success in early stage clinical trials does
not necessarily assure success in later stage clinical trials.
Data obtained from clinical activities are not always conclusive
and may be subject to alternative interpretations that could
delay, limit or even prevent regulatory approval. Even if a
product receives regulatory approval, later discovery of
previously unknown problems with a product may result in
restrictions on the product or even complete withdrawal of the
product from the market.
Preclinical tests include laboratory evaluation of product
chemistry, toxicity and formulation, as well as animal studies
to assess the potential safety and efficacy of the product. The
conduct of the preclinical tests and formulation of compounds
for testing must comply with federal regulations and
requirements. The results of preclinical testing are submitted
to the FDA as part of an IND.
An IND must become effective prior to the commencement of
clinical testing of a drug or biologic in humans. An IND will
automatically become effective 30 days after receipt by the
FDA if the FDA has not commented on or questioned the
application during this 30-day waiting period. If the FDA has
comments or questions, these must be resolved to the
satisfaction of the FDA prior to commencement of clinical
trials. In addition, the FDA may, at any time, impose a clinical
hold on ongoing clinical trials. If the FDA imposes a clinical
hold, clinical trials cannot commence or recommence without FDA
authorization and then only under terms authorized by the FDA.
The IND process can result in substantial delay and expense.
Clinical trials involve the administration of the
investigational new drug or biologic to healthy volunteers or
patients under the supervision of a qualified investigator.
Clinical trials must be conducted in compliance with federal
regulations and requirements, under protocols detailing the
objectives of the trial, the parameters to be used in monitoring
safety and the safety and effectiveness criteria to be
evaluated. Each protocol involving testing on subjects in the
United States must be submitted to the FDA as part of the IND.
The trial protocol and informed consent information for patients
in clinical trials must be submitted to institutional review
boards for approval.
Clinical trials to support new drug or biologic product
applications for marketing approval are typically conducted in
three sequential phases, but the phases may overlap. In
Phase I, the initial introduction of the product into
healthy human subjects or patients, the product is tested to
assess metabolism, pharmacokinetics and pharmacological actions
and safety, including side effects associated with increasing
doses. Phase II usually involves trials in a limited
patient population, to determine dosage tolerance and optimum
dosage, identify possible adverse effects and safety risks, and
provide preliminary support for the efficacy of the product in
the indication being studied.
20
If a compound demonstrates evidence of effectiveness and an
acceptable safety profile in Phase II evaluations,
Phase III trials are undertaken to evaluate further
clinical efficacy and to test further for safety within an
expanded patient population, typically at geographically
dispersed clinical trial sites. Phase I, Phase II or
Phase III testing of any product candidates may not be
completed successfully within any specified time period, if at
all. Furthermore, the FDA, an institutional review board or we
may suspend or terminate clinical trials at any time on various
grounds, including a finding that the subjects or patients are
being exposed to an unacceptable health risk.
After successful completion of the required clinical testing for
a drug, generally an NDA is prepared and submitted to the FDA.
FDA approval of the NDA is required before marketing of the
product may begin in the United States. The NDA must include the
results of extensive clinical and other testing and a
compilation of data relating to the product’s pharmacology,
chemistry, manufacture and controls. The cost of preparing and
submitting an NDA is substantial. Under federal law, the
submission of NDAs are additionally subject to substantial
application user fees, currently exceeding $600,000, the fee for
submission of supplemental applications exceeds $300,000 and the
manufacturer and/or sponsor under an approved NDA are also
subject to annual product and establishment user fees, currently
exceeding $40,000 per product and $200,000 per
establishment. These fees are typically increased annually.
The FDA has 60 days from its receipt of an NDA to determine
whether the application will be accepted for filing based on the
agency’s threshold determination that the NDA is
sufficiently complete to permit substantive review. Once the
submission is accepted for filing, the FDA begins an in-depth
review of the NDA. The review process is often significantly
extended by FDA requests for additional information or
clarification regarding information already provided in the
submission. The FDA may also refer applications for novel drug
products or drug products which present difficult questions of
safety or efficacy to an advisory committee, typically a panel
that includes clinicians and other experts, for review,
evaluation and a recommendation as to whether the application
should be approved. The FDA is not bound by the recommendation
of an advisory committee. The FDA normally also will conduct a
pre-approval inspection to ensure the manufacturing facility,
methods and controls are adequate to preserve the drug’s
identity, strength, quality, purity and stability, and are in
compliance with regulations governing current good manufacturing
practices.
If the FDA’s evaluations of the NDA and the manufacturing
facilities are favorable, the FDA may issue an approval letter,
or, in some cases, an approvable letter followed by an approval
letter. An approvable letter generally contains a statement of
specific conditions that must be met in order to secure final
approval of the NDA. If and when those conditions have been met
to the FDA’s satisfaction, the FDA will typically issue an
approval letter. An approval letter authorizes commercial
marketing of the drug with specific prescribing information for
specific indications. As a condition of NDA approval, the FDA
may require post-approval testing and surveillance to monitor
the drug’s safety or efficacy and may impose other
conditions, including labeling restrictions which can materially
impact the potential market and profitability of the drug. Once
granted, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or problems are
identified following initial marketing. Supplemental
applications must be filed for many post-approval changes,
including changes in manufacturing facilities.
Some of our products may be regulated as biologics under the
Public Health Service Act. Biologics must have a biologics
license application, or BLA, approved prior to
commercialization. Like NDAs, BLAs are subject to user fees. To
obtain BLA approval, an applicant must provide preclinical and
clinical evidence and other information to demonstrate that the
biologic product is safe, pure and potent and that the
facilities in which it is manufactured processed, packed or held
meet standards, including good manufacturing practices and any
additional standards in the license designed to ensure its
continued safety, purity and potency. Biologics establishments
are subject to preapproval inspections. The review process for
BLAs is time consuming and uncertain, and BLA approval may be
conditioned on post-approval testing and surveillance. Once
granted, BLA approvals may be suspended or revoked under certain
circumstances, such as if the product fails to conform to the
standards established in the license.
Once the NDA or BLA is approved, a product will be subject to
certain post-approval requirements, including requirements for
adverse event reporting and submission of periodic reports. In
addition, the
21
FDA strictly regulates the promotional claims that may be made
about prescription drug products and biologics. In particular,
the FDA requires substantiation of any claims of superiority of
one product over another, including that such claims be proven
by adequate and well-controlled head-to-head clinical trials. To
the extent that market acceptance of our products may depend on
their superiority over existing therapies, any restriction on
our ability to advertise or otherwise promote claims of
superiority, or requirements to conduct additional expensive
clinical trials to provide proof of such claims, could
negatively affect the sales of our products or our costs.
We must also notify the FDA of any change in an approved product
beyond variations already allowed in the approval. Certain
changes to the product, its labeling or its manufacturing
require prior FDA approval, including conduct of further
clinical investigations to support the change. Major changes in
manufacturing site require submission of an sNDA and approval by
the FDA prior to distribution of the product using the change.
Such supplements, referred to as Prior Approval Supplements,
must contain information validating the effects of the change.
An applicant may ask the FDA to expedite its review of such a
supplement for public health reasons, such as a drug shortage.
Approvals of labeling or manufacturing changes may be expensive
and time-consuming and, if not approved, the product will not be
allowed to be marketed as modified.
If the FDA’s evaluation of the NDA submission or
manufacturing facilities is not favorable, the FDA may refuse to
approve the NDA or issue a not approvable letter. The not
approvable letter outlines the deficiencies in the submission
and often requires additional testing or information in order
for the FDA to reconsider the application. Even after submitting
this additional information, the FDA ultimately may decide that
the application does not satisfy the regulatory criteria for
approval. With limited exceptions, the FDA may withhold approval
of an NDA regardless of prior advice it may have provided or
commitments it may have made to the sponsor.
Once an NDA is approved, the product covered thereby becomes a
“listed drug” that can, in turn, be cited by potential
competitors in support of approval of an abbreviated NDA. An
abbreviated NDA provides for marketing of a drug product that
has the same active ingredients in the same strengths and dosage
form as the listed drug and has been shown through
bioequivalence testing to be therapeutically equivalent to the
listed drug. There is no requirement, other than the requirement
for bioequivalence testing, for an abbreviated NDA applicant to
conduct or submit results of preclinical or clinical tests to
prove the safety or efficacy of its drug product. Drugs approved
in this way are commonly referred to as “generic
equivalents” to the listed drug, are listed as such by the
FDA, and can often be substituted by pharmacists under
prescriptions written for the original listed drug.
Federal law provides for a period of three years of exclusivity
following approval of a listed drug that contains previously
approved active ingredients but is approved in a new dosage,
dosage form, route of administration or combination, or for a
new use, the approval of which was required to be supported by
new clinical trials conducted by or for the sponsor. During such
three-year exclusivity period, the FDA cannot grant effective
approval of an abbreviated NDA to commercially distribute a
generic version of the drug based on that listed drug. However,
the FDA can approve generic equivalents of that listed drug
based on other listed drugs, such as a generic that is the same
in every way but its indication for use, and thus the value of
such exclusivity may be undermined. Federal law also provides a
period of five years following approval of a drug containing no
previously approved active ingredients. During such five-year
period, abbreviated NDAs for generic versions of those drugs
cannot be submitted unless the submission accompanies a
challenge to a listed patent, in which case the submission may
be made four years following the original product approval.
Additionally, in the event that the sponsor of the listed drug
has properly informed the FDA of patents covering its listed
drug, applicants submitting an abbreviated NDA referencing that
drug are required to make one of four certifications, including
certifying that it believes one or more listed patents are
invalid or not infringed. If an applicant certifies invalidity
or non-infringement, it is required to provide notice of its
filing to the NDA sponsor and the patent holder. If the patent
holder then initiates a suit for patent infringement against the
abbreviated NDA sponsor within 45 days of receipt of the
notice, the FDA cannot grant effective approval of the
abbreviated NDA until either 30 months has passed or there
has been a court decision holding that the patents in question
are invalid or not infringed. If the NDA holder and patent
owners do not begin an infringement action within
22
45 days, the ANDA applicant may bring a declaratory
judgment action to determine patent issues prior to marketing.
If the abbreviated NDA applicant certifies that it does not
intend to market its generic product before some or all listed
patents on the listed drug expire, then FDA cannot grant
effective approval of the abbreviated NDA until those patents
expire. If more than one applicant files a substantially
complete ANDA on the same day for a previously unchallenged
drug, each such “first applicant” will be entitled to
share the 180-day exclusivity period, but there will only be one
such period, beginning on the date of first marketing by any of
the first applicants. The first abbreviated NDA submitting
substantially complete applications certifying that listed
patents for a particular product are invalid or not infringed
may qualify for a period of 180 days after the first
marketing of the generic product, during which subsequently
submitted abbreviated NDAs cannot be granted effective approval.
We expect any devices that we develop for vagal nerve
stimulation to be regulated as Class III medical devices
subject to premarket approval, or PMA, requirements. Our
diagnostic device could be subject to a PMA or to premarket
510(k) clearance. A PMA requires an applicant to prove the
safety and effectiveness of a device to the FDA, and must
contain clinical trial data. An investigational device
exemption, or IDE, must become effective prior to commencement
of clinical testing of a medical device in humans. An IDE will
automatically become effective 30 days after receipt by the
FDA if the FDA has not commented on or questioned the
application during this 30-day period. If the FDA has comments
or questions, these must be resolved to the satisfaction of the
FDA prior to commencement of clinical trials. In addition, the
FDA may, at any time, impose a clinical hold on ongoing clinical
trials. If the FDA imposes a clinical hold, clinical trials
cannot commence or recommence without FDA authorization and then
only under terms authorized by the FDA. The IDE process can
result in substantial delay and expense.
After successful completion of the required clinical testing,
the PMA or 510(k) is prepared and submitted to the FDA. The
process of obtaining PMA approval is expensive and uncertain and
includes the imposition of user fees, which currently exceed
$200,000. Among other things, PMAs must include preclinical and
clinical data and manufacturing information. FDA approval of a
PMA application can take years, and the agency may deny approval
of an application. Any change affecting the safety or
effectiveness of the device will require approval of a
supplemental PMA. Premarket 510(k) clearance requires the
submission to the FDA of a premarket notification, which may
include clinical data. A premarket notification requires the
applicant to establish that the device is substantially
equivalent to a legally marketed device. The process of
obtaining 510(k) clearance is expensive, uncertain and includes
the imposition of user fees. 510(k) clearance is typically
faster than approval of a PMA, but can take years. Any change
that could significantly affect the safety or effectiveness of
the device will require clearance of a new 510(k) submission. We
cannot be sure that approval of a PMA or supplement or 510(k)
clearance will be granted on a timely basis, if at all, or that
FDA approval processes will not involve costs and delays that
will adversely affect our ability to commercialize our products.
We must also comply with pervasive regulation of any medical
device after approval or clearance, including FDA regulation of
our manufacturing practices and adverse event reporting
activities. Violation of any FDA requirements could result in
enforcement actions, such as withdrawal of approval, product
recalls, product seizures, injunctions, total or partial
suspension of production or distribution, fines, civil penalties
and criminal prosecutions, which could have a material adverse
effect on our business.
From time to time, legislation is drafted and introduced in
Congress that could significantly change the statutory
provisions governing the approval, manufacturing and marketing
of drug products and medical devices. In addition, FDA
regulations and guidance are often revised or reinterpreted by
the agency in ways that may significantly affect our business
and our products. It is impossible to predict whether
legislative changes will be enacted, or FDA regulations,
guidance or interpretations changed, or what the impact of such
changes, if any, may be.
Approval of a product by comparable regulatory authorities may
be necessary in foreign countries prior to the commencement of
marketing of the product in those countries, whether or not FDA
approval has been obtained. The approval procedure varies among
countries and can involve requirements for
23
additional testing. The time required may differ from that
required for FDA approval. Although there are some procedures
for unified filings for some European countries with the
sponsorship of the country which first granted marketing
approval, in general each country has its own procedures and
requirements, many of which are time consuming and expensive.
Thus, there can be substantial delays in obtaining required
approvals from foreign regulatory authorities after the relevant
applications are filed.
Under European Union regulatory systems, marketing authorization
applications may be submitted at a centralized, a decentralized
or a national level. The centralized procedure is mandatory for
the approval of biotechnology products and provides for the
grant of a single marketing authorization that is valid in all
European Union member states. As of January 1995, a mutual
recognition procedure is available at the request of the
applicant for all medicinal products that are not subject to the
centralized procedure. We will choose the appropriate route of
European regulatory filing to accomplish the most rapid
regulatory approvals. However, our chosen regulatory strategy
may not secure regulatory approvals on a timely basis or at all.
Our research and development processes involve the controlled
use of hazardous materials, chemicals and radioactive materials
and produce waste products. We are subject to federal, state and
local laws and regulations governing the use, manufacture,
storage, handling and disposal of hazardous materials and waste
products. We do not expect the cost of complying with these laws
and regulations to be material.
Competition
The pharmaceutical and biotechnology industries in which we
operate are characterized by rapidly advancing technologies and
intense competition. Our competitors include pharmaceutical
companies, biotechnology companies, specialty pharmaceutical and
generic drug companies, academic institutions, government
agencies and research institutions. All of these competitors
currently engage in or may engage in the future in the
development, manufacture and commercialization of new
pharmaceuticals, some of which may compete with our present or
future products and product candidates. Many of our competitors
have greater development, financial, manufacturing, marketing
and sales experience and resources than we do, and they may
develop new products or technologies that will render our
products or technologies obsolete or noncompetitive. We cannot
assure you that our products will compete successfully with
these newly emerging technologies. In some cases, competitors
will have greater name recognition and may offer discounts as a
competitive tactic.
ZYFLO, our asthma product, and our controlled-release
formulation of zileuton will face heavy competition in the
asthma field. Many established therapies currently command large
market shares in the mild to moderate asthma market.
Merck’s Singulair® and GlaxoSmithKline’s
Advair® are two widely-prescribed medicines for asthma in
the United States. Singulair is a tablet taken once a day.
Annual sales for Singulair in the United States are estimated to
be over $1.0 billion, and the majority of prescribing
physicians are primary care physicians. Singulair costs
approximately $2.50 per day, which was approximately 10% to
12% less than the daily cost of ZYFLO when sold by Abbott.
Singulair is also approved for pediatric asthma and allergic
rhinitis. We believe that Singulair is prescribed less often for
severe asthma patients and patients whose asthma is being
managed by specialists.
Advair is an inhaled product taken twice a day that provides
both bronchodilatory and anti-inflammatory benefits. Advair was
launched in the United States in 2001, and annual sales are
estimated to be over $1.0 billion. The daily cost of Advair
ranges from approximately $3.50 to $6.00 depending upon the
strength of the dose. The daily costs of Advair at the lowest
dose are approximately 20% more than daily cost of ZYFLO when
sold by Abbott. When first launched, Advair was targeted to
moderate to severe asthma where additional steroid use was often
required, but is now targeted to mild to moderate asthma as well
as COPD. Advair competes significantly with Singulair in the
mild to moderate asthma market.
The severe asthma market, where we believe zileuton has great
potential, is currently served by the therapies developed for
mild to moderate asthma and oral, inhaled and injectable steroid
treatments. One
24
product, Xolair®, an anti-IgE antibody developed jointly by
Novartis, Genentech and Tanox, recently gained approval for
severe allergic asthma. Xolair is a monoclonal antibody
delivered in a monthly or semi-monthly subcutaneous injection
for the treatment of moderate to severe allergic asthma that
acts by blocking the immunoglobin E antibody that is an
underlying cause of allergic asthma. The FDA approved the
product in June 2003 and as of the end of 2004 was used to treat
over 30,000 patients. Xolair is an injectable product, and
the annual cost for treatment is approximately $12,000 to
$20,000, depending on the dose. Xolair is targeted to patients
with severe allergic asthma, particularly those patients who do
not respond to therapies such as steroids. However, many managed
care plans restrict its use through extensive prior
authorization and step care requirements, such as a prior,
failed course of therapy on Singulair, Accolade, Advair and/or
in some cases ZYFLO, before Xolair can be considered.
If zileuton is developed as a treatment for COPD or acne, it
will also face intense competition. COPD is a disease treated
predominantly with asthma drugs and lung reduction surgery. Many
physicians regard bronchodilators and inhaled steroids as
effective in the treatment of mild to moderate COPD. Advair,
which has a new approved indication for COPD, is also now being
promoted as a treatment for COPD by GlaxoSmithKline.
Spiriva®, a once-a-day muscarinic antagonist from
Boehringer Ingleheim and Pfizer, already approved in Europe, is
expected to be approved in the United States. Other novel
approaches are also in the development process. GlaxoSmithKline
is developing a neurokinin-3 receptor antagonist and an
α-4 integrin antagonist. Because both are in early
development, their potential impact on the market is difficult
to assess. Acne is a disease treated predominantly with
antibiotics and, in the case of severe acne, retinoids. The
leading branded retinoid is Roche Pharmaceutical’s
Accutane® (isotretinoin). Generic isotretinoin is now
available from several manufacturers, and generic versions of
the antibiotics used in mild to moderate forms of acne are
common. Given the wide use of generic agents and the number of
manufacturers competing in this category, penetration into this
market will be difficult.
Our therapeutic programs directed toward the body’s
inflammatory response will compete predominantly with therapies
that have been approved for diseases such as rheumatoid
arthritis, like Amgen, Inc.’s Enbrel® and
Johnson & Johnson’s Remicade®, and diseases
such as sepsis, such as Eli Lilly and Company’s
Xigris®. While non-steroidal, anti-inflammatory drugs like
ibuprofen are often used for the treatment of rheumatoid
arthritis and offer efficacy in reducing pain and inflammation,
we believe that our cytokine-based therapeutic programs will
compete predominantly with the anti-TNFα therapies that
have been approved for diseases such as rheumatoid arthritis,
like Enbrel® and Remicade®. Xigris®, a product
developed by Eli Lilly for sepsis, has received regulatory
approval for severe sepsis patients. Other than a wide range of
anti-infective drugs, Xigris is one of the only drugs approved
by the FDA for the treatment of sepsis. Other companies are
developing therapies directed towards cytokines. We do not know
whether any or all of these products under development will ever
reach the market and if they do, whether they will do so before
or after our products are approved.
Employees
As of December 31, 2004, we had 66 full-time
employees, 34 of whom were engaged in research and development
and 32 of whom were engaged in management, marketing, sales,
administration and finance. None of our employees are
represented by a labor union or covered by a collective
bargaining agreement. We have not experienced any work
stoppages. We believe that relations with our employees are good.
Available Information
We maintain a web site with the address www.crtx.com. We are not
including the information contained on our web site as part of,
or incorporating it by reference into, this annual report. We
make available free of charge on or through our web site 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 as soon as practicable after such
material is electronically filed with or furnished to the
Securities and Exchange Commission. In addition, we intend to
post on our web site all disclosures that are required by
applicable law, the rules of the Securities and Exchange
Commission or Nasdaq listing standards concerning any amendment
to, or waiver from, our code of business conduct and ethics.
25
Factors That May Affect Future Results
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If the market is not receptive to ZYFLO or the
controlled-release formulation of zileuton upon their commercial
introduction, we will be unable to generate significant
revenues. |
The commercial success of ZYFLO and the controlled-release
formulation of zileuton will depend upon the acceptance of these
product candidates by the medical community, third-party payors
and patients. Physicians will prescribe ZYFLO and the
controlled-release formulation of zileuton only if they
determine, based on experience, clinical data, side effect
profiles or other factors, that these products either alone or
in combination with other products are preferable to other
available products or combinations of products.
Despite being approved by the FDA since 1997, ZYFLO has not
achieved broad market acceptance. In the 12-month period ending
September 2003, only 1,700 physicians prescribed the product. We
may have difficulty expanding the prescriber and patient base
for ZYFLO if physicians view the product as outdated or less
effective than other products on the market. In addition, ZYFLO
requires four-times-a-day dosing, which some physicians and
patients may find inconvenient compared to other available
asthma therapies that require dosing only once or twice daily.
Moreover, perceptions about the safety of ZYFLO could limit
their market acceptance. In the placebo-controlled clinical
trials that formed the basis for FDA approval of ZYFLO, 1.9% of
patients taking ZYFLO experienced increased levels of a liver
enzyme called alanine transaminase, or ALT, of over three times
the levels normally seen in the bloodstream, compared to 0.2% of
patients receiving placebo. In addition, prior to FDA approval,
a long-term trial was conducted in 2,947 patients to
evaluate the safety of ZYFLO, particularly in relation to liver
enzyme effects. In this safety trial, 4.6% of the patients
taking ZYFLO experienced increased levels of ALT of over three
times the levels normally seen in the bloodstream, compared to
1.1% of patients receiving placebo. The overall percentage of
patients that experienced increases in ALT of over three times
the levels normally seen in the bloodstream was 3.2% in
approximately 5,000 asthma patients who received ZYFLO in the
clinical trials that were reviewed by the FDA prior to its
approval of ZYFLO. In these trials, one patient developed
symptomatic hepatitis with jaundice, which resolved upon
discontinuation of therapy, and three patients developed mild
elevations in bilirubin, a protein. Furthermore, because ZYFLO
can elevate liver enzyme levels, periodic liver function tests
are recommended for patients taking ZYFLO and may be advisable
for patients taking our other zileuton product candidates. Some
physicians and patients may perceive liver function tests as
inconvenient or indicative of safety issues, which would make
them reluctant to prescribe or accept ZYFLO and other zileuton
product candidates. As a result, many physicians may have
negative perceptions about the safety of ZYFLO and other
zileuton product candidates, which could limit their commercial
acceptance.
While we transfer manufacturing capabilities of ZYFLO from
Abbott to our contract manufacturing sites and seek regulatory
approval of our related sNDA, the product will not be
commercially available. The absence of ZYFLO from the market
could exacerbate any negative perceptions about ZYFLO if
physicians believe the absence of ZYFLO from the market is
related to safety or efficacy issues.
The position of ZYFLO in managed care formularies, which are
lists of products approved by managed care organizations, may
also make it difficult to expand the current market for this
product. As a result of a lack of a sustained sales and
marketing effort, ZYFLO has been removed from some formularies
or relegated to third-tier status, which requires the highest
co-pay for patients. In addition, ZYFLO may be removed from some
managed care formularies as a result of the absence of ZYFLO
from the market while we transfer manufacturing from Abbott to
our contract manufacturing sites and seek regulatory approval of
our related sNDA.
If we are unable to expand the use of ZYFLO and existing
negative perceptions about ZYFLO persist, we will have
difficulty achieving market acceptance for our other zileuton
product candidates, such as the controlled-release formulation
of zileuton. If we are unable to achieve market acceptance of
ZYFLO or the controlled-release formulation of zileuton, we will
not generate significant revenues unless we are able to
successfully develop and commercialize other product candidates.
26
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Our business will depend heavily on the commercial success
of ZYFLO and the controlled-release formulation of
zileuton. |
Other than ZYFLO and the controlled-release formulation of
zileuton, our product candidates are in early clinical,
preclinical and research stages of development and are a number
of years away from commercialization. As a result, if we obtain
regulatory approval to market ZYFLO and the controlled-release
formulation of zileuton, they will account for almost all of our
revenues for the foreseeable future. Research and development of
product candidates is a lengthy and expensive process. Our
early-stage product candidates in particular will require
substantial funding for us to complete preclinical testing and
clinical trials and, if approved, for us to initiate
manufacturing and commercialization. If ZYFLO and the
controlled-release formulation of zileuton are not commercially
successful, we may be forced to find additional sources of
funding earlier than we anticipated. If we are not successful in
obtaining additional funding on acceptable terms, we may be
forced to significantly delay, limit or eliminate one or more of
our research, development or commercialization programs. In
addition, we may be forced to dismantle or redeploy the sales
force that we are building in connection with the anticipated
launch of these product candidates.
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If we do not successfully recruit and train qualified
sales and marketing personnel and build a marketing and sales
infrastructure, our ability to independently launch and market
our product candidates, including ZYFLO, will be impaired. We
will be required to incur significant costs and devote
significant efforts to establish a direct sales force. |
We intend to independently launch and market ZYFLO, the
controlled-release formulation of zileuton and other of our
product candidates where we believe the target physician market
can be effectively reached by our planned sales and marketing
force. We intend to have a sales force of approximately 80
personnel by the time of our expected launch of ZYFLO in the
second half of 2005. We believe that the aggregate sales and
marketing costs to launch ZYFLO, including the cost of the sales
force, will be approximately $5.0 million. We currently
have no distribution capabilities and have limited sales and
marketing capabilities. We may not be able to attract, hire and
train qualified sales and marketing personnel to build a
significant or successful sales force. If we are not successful
in our efforts to develop an internal sales force, our ability
to independently launch and market our product candidates,
including ZYFLO and the controlled-release formulation of
zileuton, will be impaired.
We will have to invest significant amounts of money and
management resources to develop internal sales and marketing
capabilities. We intend to use a third party for distribution.
Because we plan to minimize sales and marketing expenditures and
activities, including the hiring and training of sales
personnel, prior to obtaining the regulatory approval for ZYFLO,
we may have insufficient time to build our sales and marketing
capabilities in advance of the launch of ZYFLO. If we are not
successful in building adequate sales and marketing capabilities
in advance of the launch of ZYFLO, our ability to successfully
commercialize the product may be impaired. If we develop these
capabilities in advance of the launch of ZYFLO and approval of
ZYFLO or the controlled-release formulation of zileuton is
delayed substantially or not granted at all, we will have
incurred significant unrecoverable expenses.
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If the market is not receptive to our other product
candidates, we will be unable to generate revenues from sales of
these products. |
The probability of commercial success of each of our product
candidates is subject to significant uncertainty. Factors that
we believe will materially affect market acceptance of our
product candidates under development include:
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the timing of our receipt of any marketing approvals, the terms
of any approval and the countries in which approvals are
obtained; |
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the safety, efficacy and ease of administration; |
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the therapeutic or other improvement over existing comparable
products; |
27
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pricing and cost effectiveness; |
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the ability to be produced in commercial quantities at
acceptable costs; and |
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the extent and success of our sales and marketing efforts. |
The failure of our product candidates other than ZYFLO and the
controlled-release formulation of zileuton to achieve market
acceptance would prevent us from ever generating meaningful
revenues from sales of these product candidates.
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We may not be successful in our efforts to advance and
expand our portfolio of product candidates. |
A key element of our strategy is to develop and commercialize
product candidates that address large unmet medical needs in the
critical care market. We seek to do so through:
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internal research programs; |
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sponsored research programs with academic and other research
institutions and individual doctors, chemists and
researchers; and |
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in-licensing or acquisition of product candidates or approved
products for the critical care market. |
A significant portion of the research that we are conducting
involves new and unproven technologies. Research programs to
identify new product candidates, whether conducted by us or by
academic or other research institutions under sponsored research
agreements, require substantial technical, financial and human
resources. These research programs may initially show promise in
identifying potential product candidates, yet fail to yield
product candidates for clinical development for a variety of
reasons, including:
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the research methodology used may not be successful in
identifying potential product candidates; or |
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potential product candidates may, on further study, be shown to
have harmful side effects or other characteristics that indicate
that they are unlikely to be effective products. |
We may be unable to license or acquire suitable product
candidates or products from third parties for a number of
reasons. In particular, the licensing and acquisition of
pharmaceutical products is competitive. A number of more
established companies are also pursuing strategies to license or
acquire products in the critical care market. These established
companies may have a competitive advantage over us due to their
size, cash resources or greater clinical development and
commercialization capabilities. Other factors that may prevent
us from licensing or otherwise acquiring suitable product
candidates or approved products include the following:
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we may be unable to license or acquire the relevant technology
on terms that would allow us to make an appropriate return from
the product; |
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companies that perceive us as a competitor may be unwilling to
assign or license their product rights to us; or |
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we may be unable to identify suitable products or product
candidates within our areas of expertise. |
If we are unable to develop suitable potential product
candidates through internal research programs, sponsored
research programs or by obtaining rights from third parties, we
will not be able to increase our revenues in future periods,
which could result in significant harm to our financial position
and adversely impact our stock price.
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We face substantial competition. If we are unable to
compete effectively, our product candidates may be rendered
noncompetitive or obsolete. |
The development and commercialization of new drugs is highly
competitive. We will face competition with respect to the
development of product candidates and for any products that we
commercialize in the future from pharmaceutical companies,
biotechnology companies, specialty pharmaceutical companies,
companies selling low-cost generic substitutes, academic
institutions, government agencies or research
28
institutions. A number of large pharmaceutical and biotechnology
companies currently market and sell products to treat asthma
that will compete with ZYFLO and the controlled-release
formulation of zileuton, if approved. Many established therapies
currently command large market shares in the mild to moderate
asthma market, including Merck & Co., Inc.’s
Singulair® and GlaxoSmithKline plc’s Advair®. We
will also face competition from other pharmaceutical companies
seeking to develop drugs for the severe asthma market. The
severe asthma market is currently served by the therapies
developed for mild to moderate asthma and oral and injectable
steroid treatments. One product, Xolair®, developed jointly
by Novartis AG, Genentech, Inc. and Tanox, Inc., was approved in
2004 for severe allergic asthma and has established a strong
sales base.
Zileuton will also face intense competition if we are able to
develop it as a treatment for COPD or acne. COPD is a disease
that is currently treated predominantly with asthma drugs and
lung reduction surgery. Spiriva®, a once daily muscarinic
antagonist from Boehringer Ingleheim GmbH and Pfizer, has been
approved in Europe and the United States. Other novel approaches
are also in the development process. Acne is a disease treated
predominantly with antibiotics and, in the case of severe acne,
retinoids. The leading branded retinoid is Roche
Pharmaceutical’s Accutane® (isotretinoin). Generic
isotretinoin is now available from several manufacturers, and
generic versions of the antibiotics used in mild to moderate
forms of acne are common. Given the wide use of generic agents
and the number of manufacturers competing in this category,
penetration into this market will be difficult.
Our therapeutic programs directed toward the body’s
inflammatory response will compete predominantly with therapies
that have been approved for diseases such as rheumatoid
arthritis, like Amgen, Inc.’s Enbrel® and
Johnson & Johnson’s Remicade®, and diseases
such as sepsis, like Eli Lilly and Company’s Xigris®.
Our competitors’ products may be more effective, or more
effectively marketed and sold, than any of our products. Many of
our competitors have:
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significantly greater financial, technical and human resources
than we have and may be better equipped to discover, develop,
manufacture and commercialize products; |
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more extensive experience than we have in conducting preclinical
studies and clinical trials, obtaining regulatory approvals and
manufacturing and marketing pharmaceutical products; |
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competing products that have already received regulatory
approval or are in late-stage development; and |
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collaborative arrangements in our target markets with leading
companies and research institutions. |
We will face competition based on the safety and effectiveness
of our products, the timing and scope of regulatory approvals,
the availability and cost of supply, marketing and sales
capabilities, reimbursement coverage, price, patent position and
other factors. Our competitors may develop or commercialize more
effective, safer or more affordable products, or obtain more
effective patent protection, than we are able to. Accordingly,
our competitors may commercialize products more rapidly or
effectively than we are able to, which would adversely affect
our competitive position, the likelihood that our product
candidates will achieve initial market acceptance and our
ability to generate meaningful revenues from our product
candidates. Even if our product candidates achieve initial
market acceptance, competitive products may render our products
obsolete or noncompetitive. If our product candidates are
rendered obsolete, we may not be able to recover the expenses of
developing and commercializing those product candidates.
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As we evolve from a company primarily involved in
discovery and development to one also involved in
commercialization activities, we may encounter difficulties in
managing our growth and expanding our operations
successfully. |
In order to evolve from a company primarily engaged in research
and development to one involved in the commercialization of
product candidates, we will need to expand our administrative
and operational infrastructure. As we advance our product
candidates through clinical trials, we will need to expand our
29
development, regulatory and sales capabilities or contract with
third parties to provide these capabilities for us. As our
operations expand, we expect that we will need to manage
additional relationships with various collaborators, suppliers
and other third parties. Our need to manage our operations and
growth will require us to continue to improve our operational,
financial and management controls, our reporting systems and our
procedures in the United States and the other countries in which
we operate. We may not be able to implement improvements to our
management information and control systems in an efficient or
timely manner, or we may discover deficiencies in existing
systems and controls that could expose us to an increased risk
of incurring financial or accounting irregularities or fraud.
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If we are unable to retain key personnel and hire
additional qualified scientific and other management personnel,
we may not be able to successfully achieve our goals. |
We depend on the principal members of our scientific and
management staff, including Paul Rubin, M.D., our president
and chief executive officer, Walter Newman, Ph.D., our
chief scientific officer and senior vice president of research
and development, Trevor Phillips, Ph.D., our chief
operating officer and senior vice president of operations, Frank
Thomas, our chief financial officer, senior vice president of
finance and treasurer, and Frederick Finnegan, our senior vice
president of sales and marketing. The loss of any of these
individuals’ services would diminish the knowledge and
experience that we, as an organization, possess and might
significantly delay or prevent the achievement of our research,
development or commercialization objectives and could cause us
to incur additional costs to recruit replacement executive
personnel. We do not maintain key person life insurance on any
of these individuals. We are not aware of any present intention
of any of these individuals to leave our company.
Our success depends in large part on our ability to attract and
retain qualified scientific and management personnel such as
these individuals. We expect that our potential expansion into
areas and activities requiring additional expertise, such as
clinical trials, governmental approvals, contract manufacturing
and sales and marketing, will place additional requirements on
our management, operational and financial resources. We expect
these demands will require us to hire additional management and
scientific personnel and will require our existing management
personnel to develop additional expertise. We face intense
competition for personnel. The failure to attract and retain
personnel or to develop such expertise could delay or halt the
research, development, regulatory approval and commercialization
of our product candidates.
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Our corporate compliance program cannot guarantee that we
are in compliance with all potentially applicable
regulations. |
The development, manufacturing, pricing, sales and reimbursement
of our product candidates, together with our general operations,
are subject to extensive regulation by federal, state and other
authorities within the United States and numerous entities
outside of the United States. We are a relatively small company
with 66 employees as of December 31, 2004, the majority of
whom joined us in 2004. We rely heavily on third parties to
conduct many important functions. Further, as a publicly traded
company we are subject to significant legal and regulatory
requirements, including the Sarbanes-Oxley Act of 2002 and
regulations promulgated thereunder, some of which have either
only recently been adopted or are subject to change. While we
have developed and instituted a corporate compliance program
based on what we believe are the current best practices and
continue to update the program in response to newly implemented
and changing regulatory requirements, it is possible that we may
not be in compliance with all potentially applicable
regulations. If we fail to comply with any of these regulations
we could be subject to a range of regulatory actions, including
significant fines, litigation, the suspension or termination of
clinical trials, the failure to approve a product candidate,
restrictions on our products or manufacturing processes,
withdrawal of products from the market or other sanctions.
30
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The recent Medicare prescription drug coverage legislation
and future legislative or regulatory reform of the health care
system may affect our ability to sell our product candidates
profitably. |
We believe that the efforts of governments and third-party
payors to contain or reduce the cost of healthcare will continue
to affect the business and financial condition of pharmaceutical
and biopharmaceutical companies such as ours. A number of
legislative and regulatory proposals to change the healthcare
system in the United States and other major healthcare markets
have been proposed in recent years. In addition, ongoing
initiatives in the United States have and will continue to
increase pressure on drug pricing. In some foreign countries,
particularly countries of the European Union, the pricing of
prescription pharmaceuticals is subject to governmental control.
In addition, as a result of the trend towards managed healthcare
in the United States, as well as legislative proposals to
constrain the growth of federal healthcare program expenditures,
third-party payors are increasingly attempting to contain
healthcare costs by demanding price discounts or rebates and
limiting both coverage and the level of reimbursement of new
drug products. Consequently, significant uncertainty exists as
to the reimbursement status of newly approved healthcare
products.
In particular, in December 2003, President Bush signed into law
new Medicare prescription drug coverage legislation. The
prescription drug program established by this legislation and
future amendments or regulatory interpretations of the
legislation could have the effect of reducing the prices that we
are able to charge for any products we develop and sell through
these plans. This prescription drug legislation and related
amendments or regulations could also cause third-party payors
other than the federal government, including the states under
the Medicaid program, to discontinue coverage for any products
we develop or to lower reimbursement amounts that they pay.
The Centers for Medicare and Medicaid Services, or CMS, the
agency within the Department of Health and Human Services that
administers Medicare and that may be responsible for setting
reimbursement payment rates and coverage policies for any
product candidates that we commercialize, has authority to
decline to cover particular drugs if it determines that they are
not “reasonable and necessary” for Medicare
beneficiaries or to cover them at lower rates to reflect
budgetary constraints or to match previously approved
reimbursement rates for products that CMS considers to be
therapeutically comparable. Furthermore, federal and state
budgetary constraints may cause state Medicaid programs to
restrict coverage or limit reimbursement rates for any product
candidates that we may market. In addition, current
U.S. laws and regulations restrict the importation of drugs
from countries where they are sold at lower prices. Any future
relaxation of these import restrictions could reduce the prices
of drugs in the United States.
Further federal, state and foreign healthcare proposals and
reforms are likely. While we cannot predict the legislative or
regulatory proposals that will be adopted or what effect those
proposals may have on our business, including the future
reimbursement status of any of our product candidates, the
announcement or adoption of such proposals could have an adverse
effect on potential revenues from product candidates that we may
successfully develop.
If we succeed in bringing any more of our product candidates to
market, third-party payors may establish and maintain price
levels insufficient for us to realize a sufficient return on our
investment in product development. Significant changes in the
healthcare system in the United States or elsewhere, including
changes resulting from the implementation of the Medicare
prescription drug coverage legislation and adverse trends in
third-party reimbursement programs, would limit our ability to
raise capital and successfully commercialize our product
candidates.
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If we are subject to unfavorable pricing regulations or
third-party reimbursement practices, we might not be able to
recover the development and other costs of our product
candidates. |
The regulations governing drug product licensing, pricing and
reimbursement vary widely from country to country. Some
countries require approval of the sale price of a drug before it
can be marketed. In many countries, the pricing review period
begins after product licensing approval is granted. In some
foreign markets, prescription pharmaceutical pricing remains
subject to continuing governmental control even after
31
initial approval is granted. Although we monitor these
regulations, our product candidates other than ZYFLO and the
controlled-release formulation of zileuton are currently in the
development stage, and we will not be able to assess the impact
of price regulations for at least several years. We may obtain
regulatory approval for a product in a particular country but
then be subject to price regulations, which may delay the
commercial launch of the product and may negatively impact the
revenues we are able to derive from our sales of the product in
that country.
Successful commercialization of our product candidates will also
depend in part on the extent to which reimbursement for our
product candidates and related treatments will be available from
government health administration authorities, private health
insurers and other organizations. If we succeed in bringing one
or more product candidates to the market, these product
candidates may not be considered cost effective and
reimbursement to the patient may not be available or sufficient
to allow us to sell our product candidates on a competitive
basis to a sufficient patient population. Because our product
candidates other than ZYFLO and the controlled-release
formulation of zileuton are in the development stage, we are
unable at this time to determine the cost-effectiveness of these
product candidates. We may need to conduct expensive
pharmacoeconomic trials in order to demonstrate their
cost-effectiveness. Sales of prescription drugs are highly
dependent on the availability and level of reimbursement to the
consumer from third-party payors, such as government and private
insurance plans. These third-party payors frequently require
that drug companies provide them with predetermined discounts or
retroactive rebates from list prices, and third-party payors are
increasingly challenging the prices charged for medical
products. Because our product candidates other than ZYFLO and
the controlled-release formulation of zileuton are in the
development stage, we do not know the level of reimbursement, if
any, we will receive for those product candidates if they are
successfully developed. If the reimbursement we receive for any
of our product candidates is inadequate in light of our
development and other costs, our ability to realize profits from
the affected product candidate would be limited.
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Our business has a substantial risk of product liability
claims. If we are unable to obtain appropriate levels of
insurance, a product liability claim against us could interfere
with the development and commercialization of our product
candidates or subject us to unanticipated damages or settlement
amounts. |
Our business exposes us to significant potential product
liability risks that are inherent in the development,
manufacturing and marketing of drugs. If the use of one or more
of our product candidates harms people, we may be subject to
costly and damaging product liability claims. We currently have
clinical trial insurance that covers our clinical trials up to a
$10.0 million annual aggregate limit and will seek to
obtain product liability insurance prior to marketing ZYFLO, the
controlled-release version of zileuton or any of our other
product candidates. However, our insurance may not provide
adequate coverage against potential liabilities. Furthermore,
clinical trial and product liability insurance is becoming
increasingly expensive. As a result, we may be unable to
maintain current amounts of insurance coverage, obtain
additional insurance or obtain sufficient insurance at a
reasonable cost to protect against losses that we have not
anticipated in our business plans.
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We handle hazardous materials and must comply with laws
and regulations, which can be expensive and restrict how we do
business. If we are involved in a hazardous waste spill or other
accident, we could be liable for damages, penalties or other
forms of censure. |
Our research and development work involves, and any future
manufacturing processes that we conduct may involve, the use of
hazardous, controlled and radioactive materials. We are subject
to federal, state and local laws and regulations governing the
use, manufacture, storage, handling and disposal of these
materials. Despite precautionary procedures that we implement
for handling and disposing of these materials, we cannot
eliminate the risk of accidental contamination or injury. In the
event of a hazardous waste spill or other accident, we could be
liable for damages, penalties or other forms of censure.
In addition, we may be required to incur significant costs to
comply with laws and regulations in the future or we may be
materially and adversely affected by current or future laws or
regulations.
32
While we have a property insurance policy that covers
bio-contamination up to a $25,000 per-occurrence limit and
covers radioactive contamination up to a
$25,000 per-occurrence limit, this policy may not provide
adequate coverage against potential losses, damages, penalties
or costs relating to accidental contamination or injury as a
result of hazardous, controlled or radioactive materials.
Risks Relating to Development, Clinical Testing and
Regulatory Approval of Our Product Candidates
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If we do not obtain the regulatory approvals or clearances
required to market and sell ZYFLO, the controlled-release
formation of zileuton or our other product candidates under
development, our business will be unsuccessful. |
Neither we nor any of our collaborators may market any of our
products in the United States, Europe or in any other country
without marketing approval from the FDA or the equivalent
foreign regulatory agency. Although ZYFLO has been approved by
the FDA, we are required to submit an sNDA with the FDA for
ZYFLO because we are changing the manufacturing process and
transferring the manufacturing production for the active
pharmaceutical ingredient, or API, of zileuton and the
immediate-release ZYFLO finished product from Abbott to contract
manufacturing sites. We expect to submit our sNDA for ZYFLO at
the end of the first quarter of 2005. The FDA may not approve
our sNDA on a timely basis or at all.
We expect to submit a new drug application, or NDA, to the FDA
for the controlled-release formulation of zileuton in the fourth
quarter of 2005. At present, we are conducting production
campaigns and assessing performance of the manufactured tablets,
prior to initiation of a bioavailability trial in healthy
volunteers designed to confirm that our manufactured tablets
behave similarly in the body to the tablets that had been
manufactured by Abbott. We believe that any significant
variability in product performance or delay in manufacturing
could delay the submission of the NDA by up to six months.
Abbott conducted all of the preclinical and clinical trials on
the controlled-release formulation of zileuton before we
in-licensed the product candidate. We intend to rely on the
results of these prior clinical trials to support our NDA for
this product candidate. If the FDA does not permit us to rely on
the prior clinical data or if the data is not available at the
clinical sites for required FDA audits, we would be required to
repeat some or all of the clinical trials, which would lead to
unanticipated costs and delays. Problems with the previous
trials, such as incomplete, outdated or otherwise unacceptable
data, could cause our NDA to be delayed or rejected.
The regulatory process to obtain market approval or clearance
for a new drug, biologic or medical device takes many years,
requires expenditures of substantial resources, is uncertain and
is subject to unanticipated delays. We have had only limited
experience in preparing applications and obtaining regulatory
approvals and clearances. Adverse side effects of a product
candidate or adverse device effects on subjects or patients in a
clinical trial could result in the FDA or foreign regulatory
authorities refusing to approve or clear a particular product
candidate for any or all indications for use.
The FDA and foreign regulatory agencies have substantial
discretion in the drug approval process and can deny, delay or
limit approval of a product candidate for a variety of reasons.
If we do not receive required regulatory approval or clearance
to market ZYFLO, the controlled-release formulation of zileuton
or any of our other product candidates under development, our
ability to generate product revenue and achieve profitability,
our reputation and our ability to raise additional capital will
be materially impaired.
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If clinical trials for our product candidates are not
successful, we may not be able to develop, obtain regulatory
approval for and commercialize these product candidates
successfully. |
All of our product candidates remain subject to regulatory
approval or clearance, and all of our product candidates other
than ZYFLO are still in development and remain subject to
clinical testing. In order to obtain regulatory approvals or
clearances for the commercial sale of our product candidates, we
and our collaborators will be required to complete extensive
clinical trials in humans to demonstrate the safety and efficacy
of our product candidates. We may not be able to obtain
authority from the FDA, institutional review boards or other
regulatory agencies to commence or complete these clinical
trials. If
33
permitted, such clinical testing may not prove that our product
candidates are safe and effective to the extent necessary to
permit us to obtain marketing approvals or clearances from
regulatory authorities. One or more of our product candidates
may not exhibit the expected therapeutic results in humans, may
cause harmful side effects or have other unexpected
characteristics that may delay or preclude regulatory approval
or clearance or limit commercial use if approved or cleared.
Furthermore, we, one of our collaborators, institutional review
boards, or regulatory agencies may hold, suspend or terminate
clinical trials at any time if it is believed that the subjects
or patients participating in such trials are being exposed to
unacceptable health risks or for other reasons.
Preclinical testing and clinical trials of new drug, biologic
and device candidates are lengthy and expensive and the
historical failure rate for such candidates is high. We may not
be able to advance any more product candidates into clinical
trials. Even if we do successfully enter into clinical trials,
the results from preclinical testing of a product candidate may
not predict the results that will be obtained in human clinical
trials. In addition, positive results demonstrated in
preclinical studies and clinical trials that we complete may not
be indicative of results obtained in later clinical trials.
Clinical trials may take several years to complete, and failure
can occur at any stage of testing.
Adverse or inconclusive clinical trial results concerning any of
our product candidates could require us to conduct additional
clinical trials, result in increased costs and significantly
delay the submission for marketing approval or clearance for
such product candidates with the FDA or other regulatory
authorities or result in a submission or approval for a narrower
indication. If clinical trials fail, our product candidates may
not become commercially viable.
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If clinical trials for our product candidates are delayed,
we would be unable to commercialize our product candidates on a
timely basis, which would require us to incur additional costs
and delay the receipt of any revenues from product sales. |
We cannot predict whether we will encounter problems with any of
our completed, ongoing or planned clinical trials that will
cause regulatory authorities, institutional review boards or us
to delay or suspend those clinical trials, or delay the analysis
of data from our completed or ongoing clinical trials.
Any of the following could delay the completion of our ongoing
and planned clinical trials:
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ongoing discussions with the FDA or comparable foreign
authorities regarding the scope or design of our clinical trials; |
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delays or the inability to obtain required approvals from
institutional review boards or other governing entities at
clinical sites selected for participation in our clinical trials; |
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delays in enrolling patients and volunteers into clinical trials; |
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lower than anticipated retention rates of patients and
volunteers in clinical trials; |
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the need to repeat clinical trials as a result of inconclusive
or negative results or poorly executed testing; |
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insufficient supply or deficient quality of product candidate
materials or other materials necessary to conduct our clinical
trials; |
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unfavorable FDA inspection and review of a clinical trial site
or records of any clinical or preclinical investigation; |
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serious and unexpected drug-related side effects or adverse
device effects experienced by participants in our clinical
trials; or |
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the placement of a clinical hold on a trial. |
Our ability to enroll patients in our clinical trials in
sufficient numbers and on a timely basis will be subject to a
number of factors, including the size of the patient population,
the nature of the protocol, the proximity of patients to
clinical sites, the availability of effective treatments for the
relevant disease,
34
competing trials with other drug candidates and the eligibility
criteria for the clinical trial. Delays in patient enrollment
can result in increased costs and longer development times. In
addition, subjects may drop out of our clinical trials and
thereby impair the validity or statistical significance of the
trials.
We expect to rely on academic institutions and clinical research
organizations to supervise or monitor some or all aspects of the
clinical trials for the product candidates we advance into
clinical testing. Accordingly, we have less control over the
timing and other aspects of these clinical trials than if we
conducted them entirely on our own.
As a result of these factors, we or third parties on whom we
rely may not successfully begin or complete our clinical trials
in the time periods we have forecasted, if at all. If the
results of our ongoing or planned clinical trials for our
product candidates are not available when we expect or if we
encounter any delay in the analysis of data from our preclinical
studies and clinical trials, we may be unable to submit for
regulatory approval or clearance or conduct additional clinical
trials on the schedule we currently anticipate.
If clinical trials are delayed, the commercial viability of our
product candidates may be reduced. If we incur costs and delays
in our programs, or if we do not successfully develop and
commercialize our products, our future operating and financial
results will be materially affected.
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Even if we obtain regulatory approvals or clearances, our
product candidates will be subject to ongoing regulatory review.
If we fail to comply with continuing U.S. and applicable foreign
regulations, we could lose those approvals and the sale of our
product candidates could be suspended. |
Approvals and clearances of our product candidates are subject
to continuing regulatory review, including the review of medical
device reports, adverse drug or device experiences and clinical
results from any post-market testing or vigilance required as a
condition of approval that are reported after our product
candidates become commercially available. The manufacturer and
the manufacturing facilities we use to make any of our product
candidates will also be subject to periodic review and
inspection by the FDA. The subsequent discovery of previously
unknown problems with a product, manufacturer or facility may
result in restrictions on the product or manufacturer or
facility, including withdrawal of the product from the market.
Our product promotion and advertising will also be subject to
regulatory requirements and continuing FDA review.
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If we or our third-party manufacturers or service
providers fail to comply with regulatory laws and regulations,
we or they could be subject to enforcement actions, which could
affect our ability to market and sell our product candidates and
may harm our reputation. |
If we or our third-party manufacturers or service providers fail
to comply with applicable federal, state or foreign laws or
regulations, we could be subject to enforcement actions, which
could affect our ability to develop, market and sell our product
candidates successfully and could harm our reputation and lead
to less market acceptance of our product candidates. These
enforcement actions include:
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product seizures; |
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voluntary or mandatory recalls; |
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suspension of review or refusal to approve pending applications; |
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voluntary or mandatory patient or physician notification; |
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withdrawal of product approvals; |
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restrictions on, or prohibitions against, marketing our product
candidates; |
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restrictions on applying for or obtaining government bids; |
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fines; |
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restrictions on importation of our product candidates; |
35
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injunctions; and |
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civil and criminal penalties. |
Risks Relating to Our Dependence on Third Parties
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We depend on MedImmune and Beckman Coulter and expect to
depend on additional collaborators in the future for a
significant portion of our revenues and to develop, conduct
clinical trials with, obtain regulatory approvals for, and
manufacture, market and sell some of our product candidates.
These collaborations may not be successful. |
We are relying on MedImmune to fund the development of and to
commercialize product candidates in our HMGB1 program. All of
our revenues for the years ended December 31, 2003 and 2004
were derived from fees paid to us by MedImmune under our
collaboration agreement. We are relying on Beckman Coulter to
fund the development and to commercialize diagnostics in our
HMGB1 program. We expect that until we generate revenue from the
sale of ZYFLO, all of our revenues will continue to be derived
from our collaboration agreements with MedImmune and Beckman
Coulter. Additional payments due to us under the collaboration
agreements with MedImmune and Beckman Coulter are generally
based on our achievement of specific development and
commercialization milestones that we may not meet. In addition,
the collaboration agreements entitle us to royalty payments that
are based on the sales of products developed and marketed
through the collaborations. These future royalty payments may
not materialize or may be less than expected if the related
products are not successfully developed or marketed or if we are
forced to license intellectual property from third parties.
Accordingly, we cannot predict if our collaborations with
MedImmunes and Beckman Coulter will continue to generate
revenues for us.
Our collaboration agreement with MedImmune generally is
terminable by MedImmune at any time upon six-months notice to us
or upon our material uncured breach of the agreement. Under the
collaboration agreement, we are obligated to use commercially
reasonable, good faith efforts to conduct the collaboration in
accordance with rolling three-year research plans that describe
and allocate between MedImmune and us responsibility for, among
other things, the proposed research, preclinical studies,
toxicology formulation activities and clinical studies for that
time period. In addition, we and MedImmune agreed to work
exclusively in the development and commercialization of
HMGB1-inhibiting products for a period of four years, and, after
such time, we have agreed to work exclusively with MedImmune in
the development of HMGB1-inhibiting products for the remaining
term of the agreement. If MedImmune were to terminate or breach
our arrangement, and we were unable to enter into a similar
collaboration agreement with another qualified third party in a
timely manner or devote sufficient financial resources or
capabilities to continue development and commercialization on
our own, the development and commercialization of our HMGB1
program likely would be delayed, curtailed or terminated. The
delay or termination of our HMGB1 program could significantly
harm our future prospects. We intend to enter into collaboration
agreements with other parties in the future that relate to other
product candidates, and we are likely to have similar risks with
regard to any such future collaborations.
Our license agreement with Beckman Coulter relating to the use
of HMGB1 and its antibodies in diagnostics will terminate if
Beckman Coulter does not exercise its option to continue the
license by a future date. In addition, Beckman Coulter has the
right to terminate the license agreement on 90-days written
notice. Each party has the right to terminate the license
agreement upon the occurrence of a material uncured breach by
the other party. If Beckman Coulter were to terminate or breach
our arrangement, and we were unable to enter into a similar
agreement with another qualified third party in a timely manner
or devote sufficient financial resources or capabilities to
continue development and commercialization on our own, the
development and commercialization of a diagnostic based on the
use of HMGB1 and its antibodies likely would be delayed,
curtailed or terminated.
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In addition, our collaborations with MedImmune and Beckman
Coulter and any future collaborative arrangements that we enter
into with third parties may not be scientifically or
commercially successful. Factors that may affect the success of
our collaborations include the following:
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our collaborators may be pursuing alternative technologies or
developing alternative products, either on their own or in
collaboration with others, that may be competitive with the
product on which they are collaborating with us or that could
affect our collaborators’ commitment to us; |
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reductions in marketing or sales efforts or a discontinuation of
marketing or sales of our products by our collaborators would
reduce our revenues, which we expect will be based on a
percentage of net sales by collaborators; |
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our collaborators may terminate their collaborations with us,
which could make it difficult for us to attract new
collaborators or adversely affect how we are perceived in the
business and financial communities; |
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our collaborators may not devote sufficient time and resources
to any collaboration with us, which could prevent us from
realizing the potential commercial benefits of that
collaboration; and |
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our collaborators may pursue higher priority programs or change
the focus of their development programs, which could affect
their commitments to us. |
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We have no manufacturing experience or resources and we
must incur significant costs to develop this expertise or rely
on third parties to manufacture our product candidates. |
We have no manufacturing experience. In order to continue to
develop product candidates, apply for regulatory approvals and
commercialize our product candidates, we will need to develop,
contract for or otherwise arrange for the necessary
manufacturing capabilities. We currently rely on third parties
for the production of our product candidates for preclinical and
clinical testing purposes and we expect to continue to do so in
the future. We have contracted with Rhodia Pharma Solutions to
establish and validate a manufacturing process for the API and
for commercial production of API, subject to specified
limitations, through December 31, 2009. We have also
contracted with SkyePharma PLC, through its subsidiary Jagotec
AG, for the manufacture of tablets of the controlled-release
formulation of zileuton for clinical trials, regulatory review
and, subject to negotiation of a commercial manufacturing
agreement, commercial sale. In addition, we have contracted with
Patheon Pharmaceuticals to establish a manufacturing process for
ZYFLO and to manufacture ZYFLO for clinical trials and
regulatory review.
Only a limited number of manufacturers have the capability to
supply us with zileuton, and we have not secured a long-term
commercial supply arrangement for any of our product candidates,
other than the controlled-release formulation of zileuton and
the API. The manufacturing process for our product candidates is
an element of the FDA approval process and we will need to
contract with manufacturers who can meet the FDA requirements,
including current Good Manufacturing Practices, on an ongoing
basis. As part of obtaining regulatory approval for ZYFLO and
the controlled-release formulation of zileuton, we are required
to engage a commercial manufacturer to produce registration and
validation batches of the drug consistent with regulatory
approval requirements. Rhodia Pharma Solutions has produced the
validation batches of API. We are dependent upon Rhodia Pharma
Solutions, SkyePharma and Patheon, and will be dependent on any
other third parties who manufacture our product candidates, to
perform their obligations in a timely manner and in accordance
with applicable government regulations. In addition, if we
receive the necessary regulatory approval for our product
candidates, we also expect to rely on third parties, including
our collaborators, to produce materials required for commercial
production. We may experience difficulty in obtaining adequate
manufacturing capacity or timing for our needs. If we are unable
to obtain or maintain contract manufacturing of these product
candidates, or to do so on commercially reasonable terms, we may
not be able to successfully develop and commercialize our
product candidates.
The manufacturing process for the zileuton API involves an
exothermic reaction that generates heat and, if not properly
controlled by the safety and protection mechanisms in place at
the manufacturing
37
sites, could result in unintended combustion of the product. The
manufacture of the API could be disrupted or delayed if a batch
is destroyed or damaged or if local health and safety
regulations require a third-party manufacturer to implement
additional safety procedures or cease production.
We are and will continue to be dependent upon these third-party
manufacturers to perform their obligations in a timely manner
and consistent with regulatory requirements. If third-party
manufacturers with whom we contract fail to perform their
obligations, we may be adversely affected in a number of ways,
including the following:
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we may not be able to initiate or continue clinical trials of
our product candidates that are under development; |
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we may be delayed in submitting applications for regulatory
approvals or clearances for our product candidates; |
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we may be required to cease distribution or recall some or all
batches of our product candidates; and |
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ultimately, we may not be able to meet commercial demands for
our product candidates. |
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If we are unable to enter into additional collaboration
agreements, we may not be able to continue development of our
product candidates. |
Our drug development programs and potential commercialization of
our product candidates will require substantial additional cash
to fund expenses to be incurred in connection with these
activities. We may seek to enter into additional collaboration
agreements with pharmaceutical companies to fund all or part of
the costs of drug development and commercialization of product
candidates. We may not be able to enter into future
collaboration agreements, and the terms of the collaboration
agreements, if any, may not be favorable to us. If we are not
successful in efforts to enter into a collaboration arrangement
with respect to a product candidate, we may not have sufficient
funds to develop this or any other product candidate internally.
If we do not have sufficient funds to develop our product
candidates, we will not be able to bring these product
candidates to market and generate revenue. In addition, our
inability to enter into collaboration agreements could delay or
preclude the development, manufacture and/or commercialization
of a product candidate and could have a material adverse effect
on our financial condition and results of operations because:
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we may be required to expend our own funds to advance the
product candidate to commercialization; |
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revenue from product sales could be delayed; or |
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we may elect not to commercialize the product candidate. |
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We plan to rely significantly on third parties to market
some product candidates and these third parties may not
successfully commercialize these product candidates. |
For product candidates with large target physician markets, we
plan to rely significantly on sales, marketing and distribution
arrangements with third parties. For example, we plan to rely on
MedImmune for the commercialization of any anti-HMGB1 products
that we develop, and we plan to rely on Beckman Coulter for the
commercialization of any diagnostic based on HMGB1 or its
antibodies. We may not be successful in entering into additional
marketing arrangements in the future and, even if successful, we
may not be able to enter into these arrangements on terms that
are favorable to us. In addition, we may have limited or no
control over the sales, marketing and distribution activities of
these third parties. If these third parties are not successful
in commercializing the products covered by these arrangements,
our future revenues may suffer.
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Risks Relating to Intellectual Property and Licenses
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If we are not able to obtain and enforce patent and other
intellectual property protection for our discoveries, our
ability to prevent third parties from using our inventions and
proprietary information will be limited and we may not be able
to operate our business profitably. |
Our success depends, in part, on our ability to protect
proprietary products, methods and technologies that we invent
and develop under the patent and other intellectual property
laws of the United States and other countries, so that we can
prevent others from using our inventions and proprietary
information. Because certain U.S. patent applications are
confidential until patents issue, such as applications filed
prior to November 29, 2000, or applications filed after
such date that will not be filed in foreign countries and for
which a request for non-publication is filed, third parties may
have already filed patent applications for technology covered by
our pending patent applications, and our patent applications may
not have priority over any patent applications of others. There
may also be prior art that may prevent allowance of our patent
applications.
Our patent strategy depends on our ability to rapidly identify
and seek patent protection for our discoveries. This process is
expensive and time consuming, and we may not be able to file and
prosecute all necessary or desirable patent applications at a
reasonable cost or in a timely or successful manner. Moreover,
the mere issuance of a patent does not guarantee that it is
valid or enforceable. As a result, even if we obtain patents,
they may not be valid or enforceable against third parties.
Our pending patent applications may not result in issued
patents. In addition, the patent positions of pharmaceutical or
biotechnology companies, including ours, are generally uncertain
and involve complex legal and factual considerations. The
standards that the U.S. Patent and Trademark Office and its
foreign counterparts use to grant patents are not always applied
predictably or uniformly and can change. There is also no
uniform, worldwide policy regarding the subject matter and scope
of claims granted or allowable in pharmaceutical or
biotechnology patents. Accordingly, we do not know the degree of
future protection for our proprietary rights or the breadth of
claims which will be allowed in any patents issued to us or to
others with respect to our products in the future.
We also rely on trade secrets, know-how and technology, which
are not protected by patents, to maintain our competitive
position. If any trade secret, know-how or other technology not
protected by a patent were to be disclosed to, or independently
developed by a competitor, any competitive advantage that we may
have had in the development or commercialization of our product
candidates would be minimized or eliminated.
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Litigation regarding patents, patent applications and
other proprietary rights is expensive and time consuming. If we
are unsuccessful in litigation concerning patents or patent
applications owned or co-owned by us or licensed to us, we may
not be able to protect our products from competition or we may
be precluded from selling our products. If we are involved in
such litigation, it could cause delays in, or prevent us from,
bringing products to market and harm our ability to
operate. |
Our success will depend in part on our ability to uphold and
enforce the patents or patent applications owned or co-owned by
us or licensed to us that cover our products and product
candidates. Litigation, interferences or other adversarial
proceedings relating to our patents or applications could take
place in the United States in a federal court or in the
U.S. Patent and Trademark Office or other administrative
agencies. These proceedings could also take place in a foreign
country, in either the court or the patent office of that
country. Proceedings involving our patents or patent
applications could result in adverse decisions regarding:
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the patentability of our inventions, including those relating to
our products; and/or |
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the enforceability, validity or scope of protection offered by
our patents, including those relating to our products. |
39
These proceedings are costly and time consuming. We may not have
sufficient resources to bring these actions to a successful
conclusion. Even if we are successful in these proceedings, we
may incur substantial cost and divert time and attention of our
management and scientific personnel in pursuit of these
proceedings, which could have a material adverse effect on our
business.
Our success will also depend in part on our ability to avoid
infringement of the patent rights of others. For example, we are
aware of third-party patents and patent applications that relate
to a class of chemicals known as pyruvates, of which CTI-01 is a
member. We believe that our anticipated uses of CTI-01 do not
infringe any valid third-party patents. If any use of CTI-01
that we pursue for a particular indication were found to
infringe a valid third-party patent, we could be precluded from
selling CTI-01 for that indication and be forced to pay damages.
If it is determined that we do infringe a patent right of
another, we may be required to seek a license, defend an
infringement action or challenge the validity of the patent in
court. In addition, if we are not successful in infringement
litigation brought against us and we do not license or develop
non-infringing technology, we may:
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incur substantial monetary damages, potentially including treble
damages, if we are found to have willfully infringed on such
parties’ patent rights; |
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encounter significant delays in bringing our product candidates
to market; or |
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be precluded from participating in the manufacture, use or sale
of our products or methods of treatment. |
If any parties should successfully claim that our creation or
use of proprietary technologies infringes upon their
intellectual property rights, we might be forced to pay damages.
In addition to any damages we might have to pay, a court could
require us to stop the infringing activity. Moreover, any legal
action against us or our collaborators claiming damages and
seeking to enjoin commercial activities relating to the affected
products and processes could, in addition to subjecting us to
potential liability for damages, require us or our collaborators
to obtain a license in order to continue to manufacture or
market the affected products and processes. Any such required
license may not be made available on commercially acceptable
terms, if at all. In addition, some licenses may be
non-exclusive and, therefore, our competitors may have access to
the same technology licensed to us.
If we fail to obtain a required license or are unable to design
around a patent, we may be unable to effectively market some of
our technology or products, which could limit our ability to
generate revenues or achieve profitability and possibly prevent
us from generating revenue sufficient to sustain our operations.
In addition, our MedImmune collaboration provides that a portion
of the royalties payable to us by MedImmune for licenses to our
intellectual property may be offset by amounts paid by MedImmune
to third parties who have competing or superior intellectual
property positions in the relevant fields, which could result in
significant reductions in our revenues.
Some of our competitors may be able to sustain the costs of
complex intellectual property litigation more effectively than
we can because they have substantially greater resources.
Uncertainties resulting from the initiation and continuation of
any litigation could limit our ability to continue our
operations.
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We in-license a significant portion of our principal
proprietary technologies, and if we fail to comply with our
obligations under any of the related agreements, we could lose
license rights that are necessary to develop and market HMGB1
products and some of our other product candidates. |
We are a party to a number of licenses that give us rights to
third-party intellectual property that is necessary for our
business. In fact, we acquired the rights to each of our product
candidates under licenses with third parties. These licenses
impose various development, commercialization, funding, royalty,
diligence and other obligations on us. If we breach these
obligations, our licensors may have the right to terminate the
licenses or render the licenses non-exclusive, which would
result in our being unable to
40
develop, manufacture and sell products that are covered by the
licensed technology, or at least to do so on an exclusive basis.
|
|
|
Confidentiality agreements with employees and others may
not adequately prevent disclosure of trade secrets and other
proprietary information. |
In order to protect our proprietary technology and processes, it
is our general practice to enter into confidentiality agreements
with our collaborators, employees, consultants, outside
scientific collaborators and sponsored researchers and other
advisors. These agreements may not effectively prevent
disclosure of confidential information and may not provide an
adequate remedy in the event of unauthorized disclosure of
confidential information. In addition, others may independently
discover trade secrets and proprietary information and, in such
cases, we could not assert any trade secret rights against such
parties. Costly and time-consuming litigation could be necessary
to enforce and determine the scope of our proprietary rights,
and failure to obtain or maintain trade secret protection could
adversely affect our competitive business position.
Risks Relating to Our Financial Results and Need for
Additional Financing
|
|
|
We have incurred losses since inception and we anticipate
that we will continue to incur losses for the foreseeable
future. If we do not generate significant revenues, we will not
be able to achieve profitability. |
We have experienced significant operating losses in each year
since our inception in 2000. We had net losses of
$31.1 million in the year ended December 31, 2004 and
$20.1 million in the year ended December 31, 2003. As
of December 31, 2004, we had an accumulated deficit of
approximately $58.5 million. We expect that we will
continue to incur substantial losses for at least the next
several years as we spend significant amounts to fund research,
development and commercialization of our product candidates and
to enhance our core technologies. We expect that the losses that
we incur will fluctuate from quarter to quarter and that these
fluctuations may be substantial. We will need to generate
significant revenues to pay these costs and achieve
profitability. Until we are able to generate such revenues, we
will need to raise substantial additional capital to fund our
operations.
|
|
|
We will require substantial additional capital to fund our
operations. If additional capital is not available, we may need
to delay, limit or eliminate our development and
commercialization processes. |
We expect to devote substantial resources to continue our
research and development efforts, including preclinical testing
and clinical trials, establish our sales and marketing
infrastructure, achieve regulatory approvals and, subject to
regulatory approval, commercially launch ZYFLO and the
controlled-release formulation of zileuton and any future
product candidates. Our funding requirements will depend on
numerous factors, including:
|
|
|
| |
• |
the costs and timing of the commercial launch of ZYFLO, if and
when it is approved by regulatory authorities; |
| |
| |
• |
the costs and timing of the development, regulatory submission
and approval and the commercial launch of the controlled-release
formulation of zileuton, if and when it is approved by
regulatory authorities; |
| |
| |
• |
the scope and results of our clinical trials; |
| |
| |
• |
advancements of other product candidates into development; |
| |
| |
• |
potential acquisition or in-licensing of other products or
technologies; |
| |
| |
• |
the time and costs involved in preparing, submitting and
obtaining regulatory approvals; |
| |
| |
• |
the timing, receipt and amount of milestone and other payments,
if any, from MedImmune or future collaborators; |
| |
| |
• |
the timing, receipt and amount of sales and royalties, if any,
from our potential products; |
41
|
|
|
| |
• |
continued progress in our research and development programs, as
well as the magnitude of these programs; |
| |
| |
• |
the cost of manufacturing, marketing and sales activities; |
| |
| |
• |
the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims; |
| |
| |
• |
the cost of obtaining and maintaining licenses to use patented
technologies; and |
| |
| |
• |
our ability to establish and maintain additional collaborative
arrangements. |
We do not expect to generate significant additional funds from
operations, other than payments that we receive from our
collaboration with MedImmune or Beckman Coulter, until we
successfully conduct clinical trials, achieve regulatory
approvals and commercially launch ZYFLO and the
controlled-release formulation of zileuton. In addition to the
foregoing factors, we believe that our ability to access
external funds will depend upon the success of our other
preclinical and clinical development programs, the receptivity
of the capital markets to financings by biopharmaceutical
companies, our ability to enter into additional strategic
collaborations with corporate and academic collaborators and the
success of such collaborations.
The extent of our future capital requirements is difficult to
assess and will depend largely on our ability to obtain
regulatory approval for and successfully commercialize ZYFLO and
the controlled-release formulation of zileuton. Based on our
operating plans, we believe that our available cash and cash
equivalents will be sufficient to fund anticipated levels of
operations until the middle of 2006.
For the year ended December 31, 2004, our net cash used for
operating activities was $25.1 million and we had capital
expenditures of $2.0 million. If our existing resources are
insufficient to satisfy our liquidity requirements or if we
acquire or license rights to additional product candidates, we
will need to raise additional external funds through
collaborative arrangements and public or private financings.
Additional financing may not be available to us on acceptable
terms or at all. In addition, the terms of the financing may
adversely affect the holdings or the rights of our stockholders.
For example, if we raise additional funds by issuing equity
securities, further dilution to our then-existing stockholders
will result. If we are unable to obtain funding on a timely
basis, we may be required to significantly delay, limit or
eliminate one or more of our research, development or
commercialization programs, which could harm our financial
condition and operating results. We also could be required to
seek funds through arrangements with collaborators or others
that may require us to relinquish rights to some of our
technologies, product candidates or products which we would
otherwise pursue on our own.
|
|
| |
Changes in or interpretations of accounting rules and
regulations, such as expensing of employee stock options, could
result in unfavorable accounting charges or require us to change
our compensation policies. |
Accounting methods and policies for business and market
practices of biopharmaceutical companies are subject to review,
interpretation and guidance from relevant accounting
authorities, including the SEC. For example, a new accounting
rule, which will become effective for us on July 1, 2005,
requires us to record stock-based compensation expense for the
fair value of stock options granted to employees. We rely
heavily on stock options to compensate existing employees and
attract new employees. Because we will be required to expense
stock options, we may reduce our reliance on stock options as a
compensation tool. If we reduce our reliance on stock options,
it may be more difficult for us to attract and retain qualified
employees. If we do not reduce our reliance on stock options,
our reported losses would increase. Although we believe that our
accounting practices are consistent with current accounting
pronouncements, changes to or interpretations of accounting
methods or policies in the future may require us to reclassify,
restate or otherwise change or revise our financial statements.
42
Risks Relating to Our Common Stock
|
|
|
Our stock price is subject to fluctuation, which may cause
an investment in our stock to suffer a decline in value. |
The market price of our common stock may fluctuate significantly
in response to factors that are beyond our control. The stock
market in general has recently experienced extreme price and
volume fluctuations. The market prices of securities of
pharmaceutical and biotechnology companies have been extremely
volatile, and have experienced fluctuations that often have been
unrelated or disproportionate to the operating performance of
these companies. These broad market fluctuations could result in
extreme fluctuations in the price of our common stock, which
could cause a decline in the value of our common stock.
|
|
|
If our quarterly results of operations fluctuate, this
fluctuation may subject our stock price to volatility, which may
cause an investment in our stock to suffer a decline in
value. |
Our quarterly operating results have fluctuated in the past and
are likely to fluctuate in the future. A number of factors, many
of which are not within our control, could subject our operating
results and stock price to volatility, including:
|
|
|
| |
• |
achievement of, or the failure to achieve, milestones under our
development agreement with MedImmune, our license agreement with
Beckman Coulter and, to the extent applicable, other licensing
and collaboration agreements; |
| |
| |
• |
the results of ongoing and planned clinical trials of our
product candidates; |
| |
| |
• |
production problems occurring at our third party manufacturers; |
| |
| |
• |
the results of regulatory reviews relating to the approval of
our product candidates; and |
| |
| |
• |
general and industry-specific economic conditions that may
affect our research and development expenditures. |
Due to the possibility of significant fluctuations, we do not
believe that quarterly comparisons of our operating results will
necessarily be indicative of our future operating performance.
If our quarterly operating results fail to meet the expectations
of stock market analysts and investors, the price of our common
stock may decline.
|
|
|
If announcements of business developments by us or our
competitors cause fluctuations in our stock price, an investment
in our stock may suffer a decline in value. |
The market price of our common stock may be subject to
substantial volatility as a result of announcements by us or
other companies in our industry, including our collaborators.
Announcements which may subject the price of our common stock to
substantial volatility include announcements regarding:
|
|
|
| |
• |
our licensing and collaboration agreements and the products or
product candidates that are the subject of those agreements; |
| |
| |
• |
the results of discovery, preclinical studies and clinical
trials by us or our competitors; |
| |
| |
• |
the acquisition of technologies, product candidates or products
by us or our competitors; |
| |
| |
• |
the development of new technologies, product candidates or
products by us or our competitors; |
| |
| |
• |
regulatory actions with respect to our product candidates or
products or those of our competitors; and |
| |
| |
• |
significant acquisitions, strategic partnerships, joint ventures
or capital commitments by us or our competitors. |
43
|
|
|
Insiders have substantial control over us and could delay
or prevent a change in corporate control, including a
transaction in which our stockholders could sell or exchange
their shares for a premium. |
As of February 28, 2005, our directors, executive officers
and principal stockholders, together with their affiliates,
beneficially owned, in the aggregate, approximately 67% of our
outstanding common stock. As a result, our directors, executive
officers and principal stockholders, together with their
affiliates, if acting together, may have the ability to
determine the outcome of matters submitted to our stockholders
for approval, including the election and removal of directors
and any merger, consolidation or sale of all or substantially
all of our assets. In addition, these persons, acting together,
may have the ability to control the management and affairs of
our company. Accordingly, this concentration of ownership may
harm the market price of our common stock by:
|
|
|
| |
• |
delaying, deferring or preventing a change in control of our
company; |
| |
| |
• |
impeding a merger, consolidation, takeover or other business
combination involving our company; or |
| |
| |
• |
discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control of our company. |
|
|
|
Anti-takeover provisions in our charter documents and
under Delaware law could prevent or frustrate attempts by our
stockholders to change our management and hinder efforts by a
third party to acquire a controlling interest in us. |
We are incorporated in Delaware. Anti-takeover provisions of
Delaware law and our charter documents may make a change in
control more difficult, even if the stockholders desire a change
in control. For example, our anti-takeover provisions include
provisions in our by-laws providing that stockholders’
meetings may be called only by the president or the majority of
the board of directors and a provision in our certificate of
incorporation providing that our stockholders may not take
action by written consent.
Additionally, our board of directors has the authority to issue
5,000,000 shares of preferred stock and to determine the
terms of those shares of stock without any further action by our
stockholders. The rights of holders of our common stock are
subject to the rights of the holders of any preferred stock that
we issue. As a result, our issuance of preferred stock could
cause the market value of our common stock to decline and could
make it more difficult for a third party to acquire a majority
of our outstanding voting stock.
Delaware law also prohibits a corporation from engaging in a
business combination with any holder of 15% or more of its
capital stock until the holder has held the stock for three
years unless, among other possibilities, the board of directors
approves the transaction. The board may use this provision to
prevent changes in our management. Also, under applicable
Delaware law, our board of directors may adopt additional
anti-takeover measures in the future.
We lease a facility that contains approximately
40,200 square feet of laboratory and office space in
Lexington, Massachusetts, which we occupied and began leasing in
March 2004. The lease expires on April 1, 2009. We believe
our facilities are sufficient to meet our needs for the
foreseeable future and, if needed, additional space will be
available in the near term at a reasonable cost to us.
|
|
| ITEM 3. |
LEGAL PROCEEDINGS |
We are not currently a party to any material legal proceedings.
|
|
| 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 last
quarter of the year ended December 31, 2004.
44
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers, their ages and their positions as of
February 28, 2005 are as follows:
| |
|
|
|
|
|
|
| Name |
|
Age | |
|
Position |
| |
|
| |
|
|
|
Paul D. Rubin, M.D.
|
|
|
51 |
|
|
President and Chief Executive Officer |
|
Walter Newman, Ph.D.
|
|
|
59 |
|
|
Senior Vice President of Research and Discovery and Chief
Scientific Officer |
|
Trevor Phillips, Ph.D.
|
|
|
43 |
|
|
Senior Vice President of Operations and Chief Operating Officer |
|
Frank E. Thomas
|
|
|
35 |
|
|
Senior Vice President of Finance, Chief Financial Officer and
Treasurer |
|
Frederick Finnegan
|
|
|
45 |
|
|
Senior Vice President of Sales and Marketing |
|
Scott B. Townsend, J.D.
|
|
|
38 |
|
|
Vice President of Legal Affairs and Secretary |
Paul Rubin, M.D. has served as our President
and Chief Executive Officer since August 2002 and as a member of
our board of directors since October 2002. From April 1996 to
August 2002, Dr. Rubin served as Executive Vice President
of Research and Development for Sepracor, Inc., a pharmaceutical
company. From July 1993 to March 1996, Dr. Rubin served as
Vice President and Worldwide Director Early Clinical Development
and Clinical Pharmacology for GlaxoWellcome, Inc., a
pharmaceutical company. From June 1987 to June 1993,
Dr. Rubin served as Vice President of Immunology and
Endocrine Development for Abbott Laboratories, a health care
company. Dr. Rubin holds a B.S. in Biology from Occidental
College and an M.D. from Rush Medical College.
Walter Newman, Ph.D. has served as our Chief
Scientific Officer since May 2002, as our Senior Vice President
of Research and Discovery since December 2004 and as our Vice
President of Research and Discovery from May 2002 to December
2004. From October 2001 to May 2002, Dr. Newman served as
an independent consultant to companies in the biotechnology
industry. From January 2000 to September 2001, Dr. Newman
served as Senior Vice President of Biotherapeutics for
Millennium Pharmaceuticals, Inc., a pharmaceutical company. From
April 1993 to December 1999, Dr. Newman served as Senior
Vice President of Research for LeukoSite, Inc., a biotechnology
company. Dr. Newman holds a B.S. in Chemistry and a Ph.D.
in Immunochemistry from Columbia University.
Trevor Phillips, Ph.D. has served as our Chief
Operating Officer since November 2003, as our Senior Vice
President of Operations since December 2004, as our Secretary
from March 2004 to September 2004, as our Treasurer from
September 2003 to May 2004 and as our Vice President of
Operations from October 2002 to December 2004. From November
2001 to September 2002, Dr. Phillips served as Senior
Program Director for Sepracor, Inc., a pharmaceutical company.
From October 1999 to November 2001, Dr. Phillips served as
Director of Drug Development, Strategy and Planning for Scotia
Holdings plc, a biotechnology company. From March 1997 to
October 1999, Dr. Phillips served as a Senior Manager,
Strategic Planning for Accenture Ltd. (formerly known as
Andersen Consulting), a management consulting company. From
March 1990 to March 1997, Dr. Phillips served in a variety
of positions, including Director of Strategic Direction, for
GlaxoWellcome plc, a pharmaceutical company. Dr. Phillips
holds a B.Sc. in Microbiology from the University of Reading, a
Ph.D. in Microbial Biochemistry from the University of Wales and
an M.B.A from Henley Management College.
Frank E. Thomas has served as our Chief Financial
Officer since April 2004, as our Treasurer since May 2004, as
our Senior Vice President of Finance since December 2004 and as
our Vice President of Finance from June 2004 to December 2004.
From February 2000 to April 2004, Mr. Thomas served in a
variety of finance positions with Esperion Therapeutics, Inc., a
biopharmaceutical company, including most recently as Chief
Financial Officer. Esperion was acquired by Pfizer Inc. in
February 2004. From September 1997 to March 2000,
Mr. Thomas served as Director of Finance and Corporate
Controller for Mechanical Dynamics, Inc., a publicly-held
software company. Prior to that, Mr. Thomas was a manager
with Arthur Andersen LLP where he was a certified public
accountant. Mr. Thomas holds a Bachelor in Business
Administration from the University of Michigan.
45
Frederick Finnegan has served as our Senior Vice
President of Sales and Marketing since December 2004 and as our
Vice President of Sales and Marketing from September 2003 to
December 2004. From April 2001 to March 2003, Mr. Finnegan
served as Vice President of New Products Marketing for Genzyme
Corporation, a biotechnology company. From July 1990 to April
2001, Mr. Finnegan served in a number of marketing and
sales assignments for Merck & Co., a pharmaceutical
company, including most recently as Senior Director, New
Products/ Anti-Infectives Worldwide Human Health Division, with
responsibility for worldwide marketing of in-line and pre-launch
products. Mr. Finnegan holds a B.S. in Business
Administration and Pre-Medical Sciences from the University of
New Hampshire and an M.S. in Management from the Massachusetts
Institute of Technology’s Sloan School of Management.
Scott B. Townsend has served as our Vice President of
Legal Affairs since August 2004 and as our Secretary since
September 2004. From August 2000 to August 2004,
Mr. Townsend was employed by the law firm Wilmer Cutler
Pickering Hale and Dorr LLP (formerly known as Hale and Dorr
LLP) as a junior partner from May 2002 to August 2004 and as an
associate from August 2000 to May 2002. Mr. Townsend was an
associate with the law firm Kilpatrick Stockton LLP in
Charlotte, NC from July 1999 to July 2000 and an associate with
the law firm Goodwin Procter LLP in Boston, MA from September
1997 to July 1999. Mr. Townsend holds an A.B. in Economics
and Government from Bowdoin College and a J.D. from The
University of Virginia School of Law.
PART II
|
|
| ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES |
Market Price of and Dividends on Critical Therapeutics’s
Common Stock and Related Stockholder Matters
Our common stock began trading on the Nasdaq National Market
under the symbol “CRTX” on May 27, 2004. The
following table sets forth, for the period indicated, the high
and low sales closing prices of our common stock on the Nasdaq
National Market.
| |
|
|
|
|
|
|
|
|
| Year Ended December 31, 2004 |
|
High | |
|
Low | |
| |
|
| |
|
| |
|
Second Quarter (from May 27 to June 30)
|
|
$ |
7.65 |
|
|
$ |
6.71 |
|
|
Third Quarter (from July 1 to September 30)
|
|
$ |
7.05 |
|
|
$ |
4.74 |
|
|
Fourth Quarter (from October 1 to December 31)
|
|
$ |
8.49 |
|
|
$ |
5.25 |
|
On February 28, 2005, the closing price per share of our
common stock was $6.89, as reported on the Nasdaq National
Market, and we had approximately 79 stockholders of record.
This may not be an accurate indication of the total number of
beneficial owners of our common stock as of February 28,
2005 because many shares are held by nominees in street name for
beneficial owners.
We have never paid or declared any cash dividends on our common
stock. We currently intend to retain earnings, if any, to
finance the growth and development of our business, and we do
not expect to pay any cash dividends on our common stock in the
foreseeable future. Payment of future dividends, if any, will be
at the discretion of our board of directors. Pursuant to our
credit agreement with Silicon Valley Bank, we are required to
obtain Silicon Valley Bank’s prior written consent before
paying any dividends.
Calculation of Aggregate Market Value of Non-Affiliate
Shares
For purposes of calculating the aggregate market value of shares
of our common stock held by non-affiliates as set forth on the
cover page of this Annual Report on Form 10-K, we have
assumed that all outstanding shares are held by non-affiliates,
except for shares held by each of our executive officers,
directors and 5% or greater stockholders. However, this
assumption should not be deemed to constitute an admission that
all executive officers, directors and 5% or greater stockholders
are, in fact, affiliates of our
46
company, or that there are not other persons who may be deemed
to be affiliates of our company. Further information concerning
shareholdings of our officers, directors and principal
stockholders is included or incorporated by reference in
Part II, Item 12 of this Annual Report on
Form 10-K.
Recent Sales of Unregistered Securities; Uses of Proceeds
From Registered Securities
|
|
|
Recent Sales of Unregistered Securities |
Not applicable.
|
|
|
Use of Proceeds from Registered Securities |
In June 2004, we sold 6,110,000 shares of our common stock
in our initial public offering, including 110,000 shares
upon the exercise of an over-allotment option by the
underwriters, pursuant to a registration statement on
Form S-1 (File No. 333-113727), which was declared
effective by the SEC on May 26, 2004. Our net proceeds from
the offering equaled approximately $37.8 million. Through
December 31, 2004, we have not used any of the net proceeds
from the offering. The net proceeds of the offering are invested
in short-term, investment grade corporate and
U.S. government securities. There has been no material
change in our planned use of the net proceeds of the offering as
described in our final prospectus filed with the SEC pursuant to
Rule 424(b) under the Securities Act of 1933, as amended.
|
|
| ITEM 6. |
SELECTED CONSOLIDATED FINANCIAL DATA |
This section presents our historical consolidated financial
data. You should read carefully the following selected
consolidated financial data together with our consolidated
financial statements and the related notes included in this
report, and the “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” section
of this report. The selected consolidated financial data in this
section are not intended to replace our consolidated financial
statements.
We derived the statements of operations data for the years ended
December 31, 2004, 2003 and 2002 and the balance sheet data
as of December 31, 2004 and 2003 from our audited
consolidated financial statements, which are included at the end
of this report. We derived the statements of operations data for
the year ended December 31, 2001 and for the period from
July 14, 2000 (inception) through December 31, 2000
and the balance sheet data as of December 31, 2002, 2001
and 2000 from our audited consolidated financial statements not
included in this report. Historical results are not necessarily
indicative of future results. You should read the notes to our
consolidated financial statements for an explanation of the
method used to determine the number of shares used in computing
basic and diluted net loss per share.
47
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
July 14, 2000 | |
| |
|
Year Ended December 31, | |
|
(Inception) | |
| |
|
| |
|
Through | |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
December 31, 2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands, except share and per share data) | |
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue under collaboration agreement
|
|
$ |
4,436 |
|
|
$ |
1,021 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
25,578 |
|
|
|
17,458 |
|
|
|
3,284 |
|
|
|
957 |
|
|
|
25 |
|
|
General and administrative expenses
|
|
|
10,878 |
|
|
|
3,771 |
|
|
|
1,792 |
|
|
|
605 |
|
|
|
41 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
36,456 |
|
|
|
21,229 |
|
|
|
5,076 |
|
|
|
1,562 |
|
|
|
66 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(32,020 |
) |
|
|
(20,208 |
) |
|
|
(5,076 |
) |
|
|
(1,562 |
) |
|
|
(66 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,098 |
|
|
|
191 |
|
|
|
149 |
|
|
|
119 |
|
|
|
— |
|
|
Interest expense
|
|
|
(172 |
) |
|
|
(93 |
) |
|
|
(8 |
) |
|
|
(5 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(31,094 |
) |
|
|
(20,110 |
) |
|
|
(4,935 |
) |
|
|
(1,448 |
) |
|
|
(66 |
) |
|
Accretion of dividends and offering costs on preferred stock
|
|
|
(2,209 |
) |
|
|
(2,264 |
) |
|
|
(1,032 |
) |
|
|
(432 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$ |
(33,303 |
) |
|
$ |
(22,374 |
) |
|
$ |
(5,967 |
) |
|
$ |
(1,880 |
) |
|
$ |
(66 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic and diluted
|
|
$ |
(2.28 |
) |
|
$ |
(33.99 |
) |
|
$ |
(23.74 |
) |
|
$ |
(2.63 |
) |
|
$ |
(0.05 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted-average basic and diluted shares outstanding
|
|
|
14,631,371 |
|
|
|
658,204 |
|
|
|
251,346 |
|
|
|
714,820 |
|
|
|
1,226,664 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
2000 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments
|
|
$ |
78,829 |
|
|
$ |
40,078 |
|
|
$ |
13,539 |
|
|
$ |
8,580 |
|
|
$ |
— |
|
|
Working capital
|
|
|
64,357 |
|
|
|
25,218 |
|
|
|
13,017 |
|
|
|
8,501 |
|
|
|
(66 |
) |
|
Total assets
|
|
|
83,114 |
|
|
|
45,054 |
|
|
|
14,382 |
|
|
|
8,638 |
|
|
|
— |
|
|
Long term debt, net of current portion
|
|
|
1,367 |
|
|
|
720 |
|
|
|
202 |
|
|
|
— |
|
|
|
— |
|
|
Redeemable convertible preferred stock
|
|
|
— |
|
|
|
51,395 |
|
|
|
21,080 |
|
|
|
10,270 |
|
|
|
— |
|
|
Accumulated deficit
|
|
|
(58,527 |
) |
|
|
(27,433 |
) |
|
|
(7,323 |
) |
|
|
(1,517 |
) |
|
|
(69 |
) |
|
Total stockholders’ equity (deficit)
|
|
|
65,408 |
|
|
|
(24,851 |
) |
|
|
(7,554 |
) |
|
|
(1,750 |
) |
|
|
(66 |
) |
48
|
|
| ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
You should read the following discussion and analysis of
financial condition and results of operations together with the
“Selected Consolidated Financial Data” section of this
annual report on Form 10-K and our consolidated financial
statements and accompanying notes appearing in this report. In
addition to historical information, the following discussion
contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results could differ
materially from those anticipated by the forward-looking
statements due to important factors including, but not limited
to, those set forth under the caption “Factors That May
Affect Future Results” in this report.
Financial Operations Overview
We are a biopharmaceutical company and have devoted
substantially all of our efforts since inception to the research
and development and in-licensing of product candidates designed
to treat respiratory, inflammatory and critical care diseases
linked to the body’s inflammatory response. We were
incorporated in July 2000 as Medicept, Inc. and changed our name
to Critical Therapeutics, Inc. in March 2001.
Since our inception, we have incurred significant losses each
year. As of December 31, 2004, we had an accumulated
deficit of $58.5 million. We expect to incur significant
and growing losses for the foreseeable future. Although the size
and timing of our future operating losses are subject to
significant uncertainty, we expect our operating losses to
continue to increase as we continue to fund our development
programs and prepare for potential commercial launch of our
product candidates. Since inception, we have raised proceeds to
fund our operations through our initial public offering of
common stock, private placements of equity securities, debt
financings, the receipt of interest income and payments from our
collaborators MedImmune and Beckman Coulter.
In July 2003, we entered into an exclusive license and
collaboration agreement with MedImmune for the discovery and
development of novel drugs for the treatment of acute and
chronic inflammatory diseases associated with HMGB1, a newly
discovered cytokine. Under this collaboration, MedImmune paid us
initial fees of $12.5 million and an additional
$1.5 million during 2004 to fund certain research expenses
incurred by us for the HMGB1 program. In addition, in connection
with entering into this collaboration, an affiliate of MedImmune
purchased $15.0 million of our series B convertible
preferred stock, which converted into 2,857,142 shares of
common stock in June 2004 in connection with our initial public
offering.
In June 2004, we sold 6,110,000 shares of our common stock
in our initial public offering, including 110,000 shares
pursuant to the underwriters’ partial exercise of their
over-allotment option. Our net proceeds from the offering were
approximately $37.8 million.
In January 2005, we entered into a license agreement with
Beckman Coulter relating to the development of diagnostics for
measuring HMGB1. In consideration for the license, Beckman
Coulter paid us a product evaluation license fee of $250,000 in
February 2005.
Revenue. We have not generated any revenues from product
sales since our inception on July 14, 2000, and do not
expect to generate any revenues from product sales until at
least the fourth quarter of 2005. All of our revenues to date
have been derived from license fees, research and development
payments and milestone payments that we received from MedImmune.
In the future, we expect to generate revenues from a combination
of product sales and payments under corporate collaborations.
Research and Development Expenses. Research and
development expenses consist of expenses incurred in
identifying, developing and testing product candidates. These
expenses consist primarily of salaries and related expenses for
personnel, fees paid to professional service providers for
independently monitoring and analyzing clinical trials, costs of
contract research and manufacturing and the cost of facilities.
After FDA approval of a product candidate, manufacturing
expenses associated with a product will be recorded as cost of
sales rather than research and development expenses. We expense
research and development costs and patent related costs as
incurred. Because of our ability to utilize resources across
49
several projects, many of our research and development costs are
not tied to any particular project and are allocated among
multiple projects. We record direct costs on a
project-by-project basis. We record indirect costs in the
aggregate in support of all research and development.
Development costs for later stage programs such as CTI-01 tend
to be higher than earlier stage programs such as our HMGB1
program, due to the costs associated with conducting clinical
trials and larger scale manufacturing.
We expect that research and development expenses relating to our
development portfolio will continue to increase for the
foreseeable future. In particular, we expect to incur increased
expenses over the next several years for clinical trials of our
product development candidates, including all formulations of
zileuton and CTI-01. We also expect manufacturing expenses
included in research and development expenses to increase as we
complete the technology transfer and scale-up relating to the
manufacturing of ZYFLO and the controlled-release formulation of
zileuton and produce inventory in preparation for the commercial
launch of ZYFLO.
General and Administrative Expenses. General and
administrative expenses consist primarily of salaries and other
related costs for personnel in executive, finance, accounting,
legal, business development, human resource and sales and
marketing functions. Other costs reflected in general and
administrative expenses include facility costs not otherwise
included in research and development expenses and professional
fees for legal and accounting services.
We anticipate that our general and administrative expenses will
also increase as we expand our operations, facilities and other
activities and as we continue operating as a publicly traded
company. In addition, we expect to incur increased sales and
marketing expenses as we commercialize ZYFLO and the
controlled-release formulation of zileuton.
Deferred Stock-Based Compensation Expense. As discussed
more fully in Note 6 to our consolidated financial
statements included herein, in lieu of cash payments we granted
117,999 and 268,409 shares of common stock, restricted
shares of our common stock and options to purchase common stock
to non-employees during the year ended December 31, 2004
and 2003, respectively. We recorded these grants at fair value
when granted. We periodically remeasure the fair value of the
unvested portion of these grants, resulting in charges or
credits to operations in periods when such remeasurement results
in differences between the fair value of the underlying common
stock and the exercise price of the options that is greater than
or less than the differences, if any, between the fair value of
the underlying common stock and the exercise price of the
options at their respective previous measurement dates. We
recorded stock-based compensation expense of $1.8 million
and $4.9 million during the years ended December 31,
2004 and 2003, respectively, related to grants of common stock,
restricted shares and stock options to non-employees.
As discussed more fully in Note 7 to our consolidated
financial statements included herein we granted 2,855,288 and
1,165,027 stock options to employees during the years ended
December 31, 2004 and 2003, respectively. Certain of the
employee options granted during these periods were deemed for
accounting purposes to have been granted with exercise prices
below their then-current market value. We recorded the value of
these differences as deferred stock-based compensation. We
amortize the deferred amounts as charges to operations over the
vesting periods of the grants, resulting in stock-based
compensation expense. We recorded stock-based compensation
expense of $1.8 million and $165,000 during the years ended
December 31, 2004 and 2003, respectively, related to stock
options granted to employees at exercise prices below their
current market value on the date of grant. We anticipate
recording additional stock-based compensation expense of
$1.8 million in 2005, $1.8 million in 2006,
$1.6 million in 2007 and $18,000 in 2008, less adjustment
for forfeitures, relating to the amortization of employee
deferred stock-based compensation recorded as of
December 31, 2004.
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 of
America. The preparation of these financial statements requires
50
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 or assumption underlying our
financial statements as a “critical accounting
estimate” where:
|
|
|
| |
• |
the nature of the estimate or assumption is material due to the
level of subjectivity and judgment necessary to account for
highly uncertain matters or the susceptibility of such matters
to change; and |
| |
| |
• |
the impact of the estimates and assumptions on financial
condition or operating performance is material. |
Our significant accounting policies are more fully described in
Note 2 to our consolidated financial statements included
herein. Not all of these significant accounting policies,
however, fit the definition of “critical accounting
estimates.” We have discussed our accounting policies with
the audit committee of our board of directors, and we believe
that our estimates relating to revenue recognition, accrued
expenses, stock-based compensation and income taxes described
below fit the definition of “critical accounting
estimates.”
Revenue Recognition. Under our collaboration agreements
with MedImmune and Beckman Coulter, we are entitled to receive
non-refundable license fees, milestone payments and other
research and development payments. Payments received are
initially deferred from revenue and subsequently recognized in
our statement of operations when earned. We must make
significant estimates in determining the performance period and
periodically review these estimates, based on joint management
committees and other information shared by our collaborators
with us. We recognize these revenues over the estimated
performance period as set forth in the contracts based on
proportional performance and adjusted from time to time for any
delays or acceleration in the development of the product. For
example, a delay or acceleration of the performance period by
our collaborator may result in further deferral of revenue or
the acceleration of revenue previously deferred. Because
MedImmune and Beckman Coulter can each cancel its agreement with
us, we do not recognize revenues in excess of cumulative cash
collections. It is difficult to estimate the impact of the
adjustments on the results of our operations because, in each
case, the amount of cash received would be a limiting factor in
determining the adjustment.
Accrued Expenses. As part of the process of preparing our
consolidated financial statements, we are required to estimate
certain expenses. This process involves identifying services
which have been performed on our behalf and estimating the level
of service performed and the associated cost incurred for such
service as of each balance sheet date in our consolidated
financial statements. Examples of estimated expenses for which
we accrue include professional service fees, such as fees paid
to lawyers and accountants, contract service fees, such as
amounts paid to clinical monitors, data management organizations
and investigators in connection with clinical trials, and fees
paid to contract manufacturers in connection with the production
of clinical materials. In connection with service fees, our
estimates are most affected by our understanding of the status
and timing of services provided relative to the actual levels of
services incurred by such service providers. The majority of our
service providers invoice us monthly in arrears for services
performed, however, certain service providers invoice us based
upon milestones in the agreement. In the event that we do not
identify certain costs which have begun to be incurred or we
under- or over-estimate the level of services performed or the
costs of such services, our reported expenses for such period
would be too low or too high. The date on which certain services
commence, the level of services performed on or before a given
date and the cost of such services are often judgmental. We make
these judgments based upon the facts and circumstances known to
us in accordance with generally accepted accounting principles.
Stock-Based Compensation. To date, we have elected to
follow Accounting Principles Board Opinion, or APB, No. 25,
Accounting for Stock Issued to Employees, or APB 25,
and related
51
interpretations, in accounting for our stock-based compensation
plans, rather than the alternative fair value accounting method
provided for under Statement of Financial Accounting Standards,
or SFAS, No. 123, Accounting for Stock-Based
Compensation Accounting Principles Board Opinion, or
SFAS 123. Accordingly, we have not recorded stock-based
compensation expense for stock options issued to employees in
fixed amounts with exercise prices at least equal to the fair
value of the underlying common stock on the date of grant. In
the notes to our consolidated financial statements included
herein, we provide pro forma disclosures in accordance with
SFAS 123 and related pronouncements. We account for
transactions in which services are received in exchange for
equity instruments based on the fair value of such services
received from non-employees or of the equity instruments issued,
whichever is more reliably measured, in accordance with
SFAS 123 and Emerging Issues Task Force, or EITF, Issue
No. 96-18, Accounting for Equity Instruments that Are
Issued to Other than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services, or EITF 96-18. The two
factors which most affect charges or credits to operations
related to stock-based compensation are the fair value of the
common stock underlying stock options for which stock-based
compensation is recorded and the volatility of such fair value.
Accounting for equity instruments granted or sold by us under
APB 25, SFAS 123 and EITF 96-18 requires fair value
estimates of the equity instrument granted or sold. If our
estimates of the fair value of these equity instruments are too
high or too low, it would have the effect of overstating or
understating expenses. When equity instruments are granted or
sold in exchange for the receipt of goods or services and the
value of those goods or services can be readily estimated, we
use the value of such goods or services to determine the fair
value of the equity instruments. When equity instruments are
granted or sold in exchange for the receipt of goods or services
and the value of those goods or services cannot be readily
estimated, as is true in connection with most stock options and
warrants granted to employees or non-employees, we estimate the
fair value of the equity instruments based upon consideration of
factors which we deem to be relevant at the time using cost,
market or income approaches to such valuations. Because shares
of our common stock have only recently become publicly traded,
market factors historically considered in valuing stock and
stock option grants include comparative values of public
companies discounted for the risk and limited liquidity provided
for in the shares we are issuing, pricing of private sales of
our convertible preferred stock, prior valuations of stock
grants and the effect of events that have occurred between the
time of such grants, economic trends, perspective provided by
investment banks and the comparative rights and preferences of
the security being granted compared to the rights and
preferences of our other outstanding equity.
Income Taxes. As part of the process of preparing our
consolidated financial statements we are required to estimate
our income taxes in each of the jurisdictions in which we
operate. This process involves us estimating our actual current
tax exposure together with assessing temporary differences
resulting from differing treatments of items for tax and
accounting purposes. These differences result in deferred tax
assets and liabilities. In addition, as of December 31,
2004, we had federal and state tax net operating loss
carryforwards of $38.8 million, which expire beginning in
2021 and 2006, respectively. We also have research and
experimentation credit carryforwards of $619,000, which expire
beginning in 2021. We have recorded a valuation allowance of
$17.6 million as an offset against these otherwise
recognizable net deferred tax assets due to the uncertainty
surrounding the timing of the realization of the tax benefit. In
the event that we determine in the future that we will be able
to realize all or a portion of its net deferred tax benefit, an
adjustment to deferred tax valuation allowance would increase
net income in the period in which such a determination is made.
The Tax Reform Act of 1986 contains provisions that may limit
the utilization of net operating loss carryforwards and credits
available to be used in any given year in the event of
significant changes in ownership interest, as defined.
Results of Operations
|
|
|
Years Ended December 31, 2004 and 2003 |
Revenue Under Collaboration Agreement. We recognized
revenues of $4.4 million in the year ended
December 31, 2004 compared to $1.0 million in the year
ended December 31, 2003. These revenues represent the
portion of the $12.5 million of initial fees MedImmune paid
us that we recognized in each
52
year and a portion of the $1.5 million billed to MedImmune
in 2004 for development support that we recognized in 2004. We
have reported the balance of the payments as deferred revenue
and will recognize such amount over the initial estimated
41-month research term of our agreement with MedImmune based on
the proportion of cumulative costs incurred as a percentage of
the total costs estimated for the performance period. In
September 2004, we revised our estimate of remaining total costs
under the collaboration agreement with MedImmune, which resulted
in an increase in revenue recognized of $1.1 million in
2004. As of December 31, 2004, we had $8.5 million in
deferred revenue remaining to be recognized under the
collaboration agreement with MedImmune.
Research and Development Expenses. Research and
development expenses for the year ended December 31, 2004
were $25.6 million compared to $17.5 million for the
year ended December 31, 2003. The $8.1 million
increase in 2004 was primarily attributable to $1.8 million
in increased clinical and preclinical activity for our CTI-01
program, and $9.1 million of additional expense incurred in
connection with our zileuton program, including expenses
associated with initiating the transfer of Abbott’s
manufacturing technology to third parties and our up-front
license fee paid to Abbott for the immediate-release formulation
of zileuton. In addition, research and development expenses
increased as a result of higher expenses associated with the
growth in the number of employees performing research and
development functions, and increased facilities, equipment and
laboratory charges associated with our increased research and
development activities during the year ended December 31,
2004. These increases were partially offset by a decrease of
$1.8 million in expense related to our HMGB1 program from
$3.5 million in 2003 to $1.7 million in 2004 and a
decrease of $2.9 million in stock-based compensation
expense from $4.9 million in 2003 to $2.0 million in
2004.
The following table summarizes the primary components of our
direct research and development expenses for the years ended
December 31, 2004 and 2003:
| |
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
CTI-01
|
|
$ |
3,329 |
|
|
$ |
1,579 |
|
|
HMGB1
|
|
|
1,702 |
|
|
|
3,483 |
|
|
Cholinergic anti-inflammatory
|
|
|
1,533 |
|
|
|
630 |
|
|
Zileuton
|
|
|
12,369 |
|
|
|
3,269 |
|
|
General research and development expenses
|
|
|
4,637 |
|
|
|
3,589 |
|
|
Stock-based compensation expense
|
|
|
2,008 |
|
|
|
4,908 |
|
| |
|
|
|
|
|
|
|
Total research and development expenses
|
|
$ |
25,578 |
|
|
$ |
17,458 |
|
| |
|
|
|
|
|
|
Our general research and development expenses, which are not
allocated to any specific program, increased by
$1.0 million in the year ended December 31, 2004
compared to the year ended December 31, 2003. This increase
was primarily due to a $667,000 increase in rent expense
resulting from our move into a larger research facility and a
$653,000 increase in depreciation and amortization, partially
offset by a $242,000 reduction in allocated salaries and
benefits of employees performing general research and
development functions and a $96,000 reduction in contract
research expenses.
We anticipate that our research and development expenses will
continue to increase as we further advance our research and
development projects. The following summarizes the expenses
associated with our primary research and development programs:
|
|
|
| |
• |
Zileuton. During the year ended December 31, 2004,
we incurred substantial costs for the development and
commercialization of both ZYFLO and the controlled-release
formulation of zileuton, including costs associated with the
technology transfer and scale-up of manufacturing of API and
tablets for both formulations. Continuing throughout 2005, we
expect our research and development expenses for zileuton will
principally relate to the scale up and manufacture of
registration batches of the controlled-release formulation of
zileuton and the anticipated clinical |
53
|
|
|
| |
|
trials of the controlled-release and intravenous formulations of
zileuton. We are also pursuing development of zileuton for
additional indications, including acne. We initiated a
Phase II clinical trial in moderate to severe inflammatory
acne patients during 2004 and expect to incur additional costs
in conducting further development of zileuton for this
indication in 2005. We believe that the aggregate technology
transfer and validation costs associated with the change of
manufacturing sites for ZYFLO and the controlled-release
formulation of zileuton will be approximately
$10.5 million, of which $7.2 million had been incurred
through December 31, 2004. However, the actual costs and
timing for the development and commercialization of our zileuton
products are highly uncertain, subject to risk and will change
depending upon the clinical indication developed and the
development strategy adopted. As a result, we are unable to
estimate the costs or the timing of advancing our zileuton
products through clinical development and commercialization. |
| |
| |
• |
CTI-01. Expenses for CTI-01 increased in the year ended
December 31, 2004 primarily due to costs associated with
the completion of the first Phase I clinical trial that we
initiated in 2003 and completed in 2004 in the United Kingdom
and the costs of our second Phase I clinical trial that we
initiated and completed in 2004 in the United States. In
addition, we incurred costs in 2004 related to manufacturing of
clinical supplies of CTI-01 in preparation for our Phase II
clinical trial, which we initiated in February 2005. We expect
our costs for this program will continue to increase in 2005 as
we conduct our Phase II clinical trial of CTI-01, including
the 150-patient trial in patients which we initiated in February
2005. These trials and the other development work required for
this program will require significant expenditures before we can
seek regulatory approval. We estimate that the total direct
costs that we will need to incur to advance CTI-01 through
clinical development will be at least $25.0 million.
However, the actual costs and timing of clinical trials and
associated activities to enable a regulatory submission are
highly uncertain, subject to risk and will change depending upon
the clinical indication developed and the development strategy
adopted. As a result, we believe that these estimated direct
costs may change significantly as the product advances through
clinical development. |
| |
| |
• |
HMGB1. Expenses for the research and development of
HMGB1-inhibiting products decreased significantly in the year
ended December 31, 2004 primarily due to the collaboration
agreement entered into with MedImmune in the second half of
2003. As part of the agreement, MedImmune is funding a
significant portion of the development costs including those
incurred by us subject to certain annual limitations. We
currently anticipate that most, if not all, research and
development costs in 2005 will continue to be covered by
MedImmune. However, we expect to undertake some internal
research and preclinical testing, and we cannot be certain that
the research payments received from MedImmune will fully cover
the costs associated with these activities. Because our HMGB1
program is still in preclinical development, the actual costs
and timing of preclinical development, clinical trials and
associated activities are highly uncertain, subject to risk and
will change depending upon the clinical indication developed and
the development strategy adopted. As a result, we are not able
to estimate the costs or the timing of advancing an
HMGB1-inhibiting product or products through clinical
development. |
| |
| |
• |
Cholinergic anti-inflammatory. Expenses for our
cholinergic anti-inflammatory program increased in the year
ended December 31, 2004 primarily due to costs associated
with our efforts to develop small molecules and a medical device
to stimulate the vagus nerve. We anticipate that significant
additional expenditures will be required to advance any product
candidate or device through preclinical and clinical
development. However, because these projects are at a very early
stage, the actual costs and timing of research, preclinical
development, clinical trials and associated activities are
highly uncertain, subject to risk and will change depending upon
the project we choose to develop, the clinical indication
developed and the development strategy adopted. As a result, we
are unable to estimate the costs or the timing of advancing a
small molecule or device from our cholinergic anti-inflammatory
program through clinical development. |
54
General and Administrative Expenses. General and
administrative expenses for the year ended December 31,
2004 were $10.9 million compared to $3.8 million for
the year ended December 31, 2003. The $7.1 million
increase in 2004 was primarily attributable to the following:
|
|
|
| |
• |
a $2.8 million increase in personnel costs primarily as a
result of the increase in the number of employees performing
general and administrative functions from nine employees at
December 31, 2003 to thirty-two employees at
December 31, 2004; |
| |
| |
• |
a $349,000 increase in fees for professional services associated
with our licensing and other corporate activity; |
| |
| |
• |
a $415,000 increase in directors and officers insurance costs as
a result of an increase in premiums following our initial public
offering; |
| |
| |
• |
a $1.7 million increase in facility and equipment costs as
a result of our move in April 2004 to a larger facility; |
| |
| |
• |
a $419,000 increase in cancellation of employee loans and
gross-up payments for state and federal taxes; and |
| |
| |
• |
a $1.4 million increase in stock-based compensation expense. |
The increase in stock-based compensation expense was primarily
attributable to the additional amortization on the issuance of
certain employee stock options during 2003 and the first half of
2004 with an exercise price below the fair value at the date of
grant prior to our initial public offering. This difference has
been recorded as deferred stock-based compensation expense and
is being amortized over the vesting period of the related stock
awards. Therefore, the effect of such amortization, together
with the effect of previously issued stock awards, resulted in
an increase in stock-based compensation expense for the year
ended December 31, 2004.
Interest Income and Expense. Interest income and interest
expense amounted to $1.1 million and $172,000 respectively,
for the year ended December 31, 2004, compared to $191,000
and $94,000, respectively, for the year ended December 31,
2003. The increase in interest income in 2004 was primarily
attributable to interest earned on the $56.2 million in
gross proceeds from our series B preferred stock financing
in October 2003 and March 2004 and the $37.8 million in net
proceeds from our initial public offering in June 2004. The
increase in interest expense was primarily attributable to
increased borrowings outstanding on our credit agreement in 2004
to finance capital purchases as compared to 2003.
Accretion of Dividends and Offering Costs on Preferred
Stock. Accretion of dividends and offering costs on our
convertible preferred stock for the year ended December 31,
2004 was $2.2 million. Upon the completion of our initial
public offering on June 2, 2004, our convertible preferred
stock automatically converted into shares of common stock, and
as a result there were no further accretion of dividends and
offering costs on these shares for the periods subsequent to
June 2, 2004.
|
|
|
Years Ended December 31, 2003 and 2002 |
Revenue Under Collaboration Agreement. We recognized
revenues of $1.0 million in the year ended
December 31, 2003. These revenues represent the portion of
the $12.5 million MedImmune paid us under our collaboration
with MedImmune that we recognized in 2003. We have recorded the
balance of the payment as deferred revenue and will recognize
such amount over the initial estimated 41-month research term of
our agreement with MedImmune. The year ended December 31,
2003 was the first year in which we generated revenue.
55
Research and Development Expenses. Research and
development expenses for the year ended December 31, 2003
were $17.5 million compared to $3.3 million for the
year ended December 31, 2002. The $14.2 million
increase in 2003 was attributable to $3.1 million in
increased research activity on our HMGB1 program,
$3.3 million incurred in connection with the commencement
of our zileuton program, including expenses associated with
initiating the transfer of Abbott’s manufacturing
technology, the initial $1.5 million payable to Abbott in
connection with our in-license of the controlled-release and
intravenous formulations of zileuton, increased expenses
associated with the increase in the number of employees
performing research and development functions and increased
facilities, equipment and laboratory charges associated with our
increased research and development activities during 2003, and a
$4.8 million increase in stock-based compensation.
The following table summarizes the primary components of our
research and development expenses for the years ended
December 31, 2003 and 2002:
| |
|
|
|
|
|
|
|
|
| |
|
Year Ended | |
| |
|
December 31, | |
| |
|
| |
| |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
CTI-01
|
|
$ |
1,579 |
|
|
$ |
1,793 |
|
|
HMGB1
|
|
|
3,483 |
|
|
|
428 |
|
|
Cholinergic anti-inflammatory
|
|
|
630 |
|
|
|
62 |
|
|
Zileuton
|
|
|
3,269 |
|
|
|
— |
|
|
General research and development expenses
|
|
|
3,589 |
|
|
|
881 |
|
|
Stock-based compensation expense
|
|
|
4,908 |
|
|
|
120 |
|
| |
|
|
|
|
|
|
|
Total research and development expenses
|
|
$ |
17,458 |
|
|
$ |
3,284 |
|
| |
|
|
|
|
|
|
Our general research and development expenses, which are not
allocated to any specific program, increased in 2003 due to a
$1.1 million increase in compensation expenses related to
research and development employees, a $440,000 increase in
science services and a $630,000 increase in expenses related to
facilities and equipment.
Stock-based compensation expense, which is not allocated to any
specific program, increased by $4.8 million in 2003,
primarily due to the effect of the increase in the value of our
common stock on unvested non-employee options and restricted
shares of common stock.
We anticipate that our research and development expenses will
continue to increase as we further advance our research and
development projects. The following summarizes the expenses
associated with our primary research and development programs:
|
|
|
| |
• |
Zileuton. In 2003, we incurred costs with respect to the
development of the controlled-release formulation of zileuton,
including costs associated with the technology transfer relating
to the manufacture of zileuton, including the API and the
controlled-release tablets. |
| |
| |
• |
CTI-01. Expenses for CTI-01 increased in 2003 primarily
due to costs associated with the Phase I clinical trial of
CTI-01 that we conducted in 2003. |
| |
| |
• |
HMGB1. Expenses for HMGB1 increased significantly in 2003
primarily due to costs associated with the research and
development of HMGB1-inhibiting products. |
| |
| |
• |
Cholinergic Anti-inflammatory. Expenses for our
cholinergic anti-inflammatory program increased in 2003
primarily due to costs associated with our efforts to develop
small molecules and a medical device to stimulate the vagus
nerve. |
General and Administrative Expenses. General and
administrative expenses for the year ended December 31,
2003 were $3.8 million compared to $1.8 million for
the year ended December 31, 2002. The $2.0 million
increase in 2003 was primarily attributable to a
$1.0 million increase in personnel costs relating to the
increase in the number of employees performing general and
administrative functions from
56
five employees to nine employees, a $535,000 increase in fees
for professional services associated with our licensing
transactions and other corporate activities, and a $164,000
increase in stock-based compensation expense. The increase in
stock-based compensation expense was primarily attributable to
the effect of the increase of the value of our common stock on
unvested employee options.
Interest Income and Expense. Interest income for the year
ended December 31, 2003 was $191,000 compared to $149,000
for the year ended December 31, 2002. The $42,000 increase
in 2003 was primarily attributable to interest income received
from the $28.1 million in proceeds from our series B
preferred stock financing in October 2003. Interest expense for
the year ended December 31, 2003 was $93,000 compared to
$8,000 for the year ended December 31, 2002. The $85,000
increase was primarily attributable to an increase in borrowing
to finance our equipment purchases.
Accretion of Dividends and Offering Costs on Preferred
Stock. Accretion of dividends and offering costs on our
convertible preferred stock for the year ended December 31,
2003 was $2.3 million compared to $1.0 million for the
year ended December 31, 2002. The $1.3 million
increase in 2003 reflects the accretion of dividends on our
series B convertible preferred stock issued in October
2003. Upon the closing of our initial public offering on
June 2, 2004, our outstanding convertible preferred stock
automatically converted into shares of common stock, and as a
result, there were no further accretion of dividends and
offering costs on these shares for the periods subsequent to
June 2, 2004.
Liquidity and Capital Resources
Since our inception on July 14, 2000, we have raised
proceeds to finance our operations through our initial public
offering of common stock, private placements of equity
securities, debt financings, the receipt of interest income, and
payments from our collaborators MedImmune and Beckman Coulter.
As of December 31, 2004, we had $78.8 million in cash,
cash equivalents and short-term investments.
In June 2004, we sold 6,110,000 shares of our common stock
in our initial public offering, including 110,000 shares
pursuant to the underwriters’ partial exercise of their
over-allotment option. Our net proceeds from the offering
equaled approximately $37.8 million. In March 2004, we
issued and sold 20,055,160 shares of our series B
convertible preferred stock, resulting in net proceeds of
approximately $28.1 million. All of our outstanding
preferred stock was converted to common stock in connection with
our initial public offering. We have invested the net proceeds
from both financings in highly-liquid, interest-bearing,
investment grade securities in accordance with our established
corporate investment policy.
Under our collaboration with MedImmune, MedImmune paid us
initial fees of $12.5 million from August 2003 through
January 2004. In connection with entering into this
collaboration, an affiliate of MedImmune purchased
$15.0 million of our series B convertible preferred
stock, which converted into 2,857,142 shares of our common
stock upon the closing of our initial public offering. In
addition, under our collaboration agreement with MedImmune, we
may receive additional payments upon the achievement of
research, development and commercialization milestones, up to a
maximum of $124.0 million, after taking into account
payments we are obligated to make to North Shore-Long Island
Jewish Research Institute on milestone payments we receive from
MedImmune. We anticipate that we will receive $2.0 million
in aggregate milestone payments from MedImmune in 2005, after
taking into account payments we are obligated to make to North
Shore.
We finance the purchase of general purpose computer equipment,
office equipment, fixtures and furnishings, test and laboratory
equipment and software licenses and the completion of leasehold
improvements through advances under our credit agreement with
Silicon Valley Bank, which was most recently modified as of
June 30, 2004. As of December 31, 2004, there was
$2.2 million in debt outstanding under our credit
agreement, of which $2.0 million was outstanding under
equipment advances and $155,000 was outstanding under leasehold
advances.
57
The equipment advances made prior to the modification of our
credit agreement on June 30, 2004 accrue interest at an
effective interest rate between 8.6% and 9.1% per year, and
the leasehold advances made prior to June 30, 2004 accrue
interest at an effective interest rate between 10.5% and
11.0% per year. We are required to make equal monthly
payments of principal and interest with respect to each advance
made prior to June 30, 2004. The total repayment term for
equipment advances made prior to June 30, 2004 is
48 months. The total repayment term for leasehold advances
made prior to June 30, 2004 is 24 months. Upon the
maturity of any advance made prior to June 30, 2004, we are
required to make a final payment to Silicon Valley Bank, in
addition to the repayment of principal and interest, in an
amount equal to a specified percentage of the original advance
amount. The applicable percentage is 7.0% for advances to
finance leasehold improvements and 8.5% for advances to finance
equipment purchases. As of December 31, 2004, there was
$720,000 outstanding for advances made prior to June 30,
2004 bearing interest between 8.5% and 11%. Under the
modification agreement signed as of June 30, 2004, we had
the ability to borrow up to an additional $3.0 million
under our credit agreement from July 1, 2004 to
December 31, 2004. Furthermore, we have additional
borrowing capacity of up to $1.3 million in 2005. Advances
made under this modification agreement accrue interest at a rate
equal to the prime rate plus 2% per year. Advances made
under this modification agreement are required to be repaid in
equal monthly installments of principal plus interest accrued
through the date of repayment. The repayment term for advances
made in 2004 is 42 months. The repayment term for advances
made in 2005 is 36 months. Repayment begins the first day
of the month following the advance. During the year ended
December 31, 2004, we received $1.6 million in
advances under this modified credit agreement, of which
$1.5 million is outstanding as of December 31, 2004
bearing interest at the prime rate plus 2% per year.
We granted Silicon Valley Bank a first priority security
interest in substantially all of our assets, excluding
intellectual property, to secure our obligations under the
credit agreement. In connection with entering into the original
credit agreement in June 2002, we issued Silicon Valley Bank a
warrant exercisable for 90,000 shares of our series A
convertible preferred stock that became exercisable for
24,000 shares of our common stock upon the completion of
our initial public offering. In November 2004, Silicon Valley
Bank exercised its rights under the warrant through a cashless
transaction that resulted in the issuance of 12,157 shares
of common stock. As of December 31, 2004, there are no
remaining warrants outstanding.
For the year ended December 31, 2004, net cash used for
operating activities was $25.1 million compared to
$1.0 million net cash used for operating activities for the
year ended December 31, 2003. The increase in cash used to
fund operations resulted from lower cash received under our
collaboration agreement with MedImmune and increased net losses
from higher research and development activities on our zileuton,
CTI-01 and cholinergic anti-inflammatory research and
development programs. In 2003, we received $10.0 million in
up front fees from MedImmune compared to approximately
$4.0 million received in 2004 from additional up front
license payments and funding to support our development costs on
the HMGB1 program.
Net cash used in operations for the year ended December 31,
2004 consisted of a net loss of $31.1 million and changes
in working capital accounts resulting in $28.1 million of
cash used. These were partially offset by non-cash expenses of
$3.6 million in stock-based compensation and
$1.8 million in depreciation and amortization. Net cash
used for investing activities for the year ended
December 31, 2004 was $70.0 million, including
$120.9 million used to purchase short-term investments and
$2.0 million used for the purchase of fixed assets.
Short-term investments are defined as securities that have a
maturity date greater than 90 days that can be sold within
one year.
Net cash provided by financing activities for the year ended
December 31, 2004 was $67.0 million, relating
principally to the proceeds from our initial public offering of
our common stock in June 2004 and the issuance of our
series B convertible preferred stock in March 2004. We sold
6,110,000 shares of our common stock in our initial public
offering, including 110,000 shares pursuant to the
underwriters’ partial exercise of their over-allotment
option. Our net proceeds from the offering equaled approximately
58
$37.8 million. Our net proceeds from the issuance of our
series B convertible preferred stock in March 2004 equaled
approximately $28.1 million.
We have accumulated net operating losses and tax credits
available to offset future taxable income for federal and state
income tax purposes as of December 31, 2004. If not
utilized, federal and state net operating loss carryforwards
will begin to expire in 2021 and 2006, respectively. The federal
tax credits expire beginning in 2021. To date, we have not
recognized the potential tax benefit of our net operating loss
carryforwards or credits on our balance sheet 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.
We expect to devote substantial resources in 2005 to continue
our research and development efforts, including preclinical
testing and clinical trials, establish our sales and marketing
infrastructure, achieve regulatory approvals and, subject to
regulatory approval, commercially launch ZYFLO and the
controlled-release formulation of zileuton and any future
product candidates. We also expect to spend approximately
$2.5 million in capital expenditures in 2005 for the
purchase of new equipment for our laboratories and software to
support our growing infrastructure. Our funding requirements
will depend on numerous factors, including:
|
|
|
| |
• |
the costs and timing of the commercial launch of ZYFLO, if and
when it is approved by regulatory authorities; |
| |
| |
• |
the costs and timing of the development and the commercial
launch of the controlled-release formulation of zileuton, if and
when it is approved by regulatory authorities; |
| |
| |
• |
the scope and results of our clinical trials; |
| |
| |
• |
advancement of our other product candidates into development; |
| |
| |
• |
potential acquisition or in-licensing of other products or
technologies; |
| |
| |
• |
the time and costs involved in obtaining regulatory approvals; |
| |
| |
• |
the timing, receipt and amount of milestone and other payments,
if any, from MedImmune, Beckman Coulter or future collaborators; |
| |
| |
• |
the timing, receipt and amount of sales and royalties, if any,
from our potential products; |
| |
| |
• |
continued progress in our research and development programs, as
well as the magnitude of these programs; |
| |
| |
• |
the cost of manufacturing, marketing and sales activities; |
| |
| |
• |
the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims; |
| |
| |
• |
the cost of obtaining and maintaining licenses to use patented
technologies; and |
| |
| |
• |
our ability to establish and maintain additional collaborative
arrangements. |
We do not expect to generate significant additional funds, other
than payments that we receive under our collaboration with
MedImmune or Beckman Coulter, until we successfully conduct
clinical trials, achieve regulatory approvals and, subject to
regulatory approval, commercially launch ZYFLO and the
controlled-release formulation of zileuton. In addition to the
foregoing factors, we believe that our ability to access
external funds will depend upon the success of our other
preclinical and clinical development programs, the receptivity
of the capital markets to financings by biopharmaceutical
companies, our ability to enter into additional strategic
collaborations with corporate and academic collaborators and the
success of such collaborations.
Based on our operating plans, we believe that our available cash
and cash equivalents will be sufficient to fund anticipated
levels of operations until the middle of 2006.
59
If our existing resources are insufficient to satisfy our
liquidity requirements or if we acquire or license rights to
additional product candidates, we will need to raise additional
external funds through collaborative arrangements and public or
private financings. Additional financing may not be available to
us on acceptable terms or at all. In addition, the terms of the
financing may adversely affect the holdings or the rights of our
stockholders. For example, if we raise additional funds by
issuing equity securities, dilution to our then-existing
stockholders will result. If we are unable to obtain funding on
a timely basis, we may be required to significantly delay, limit
or eliminate one or more of our research, development or
commercialization programs, which could harm our financial
condition and operating results. We also could be required to
seek funds through arrangements with collaborators or others
that may require us to relinquish rights to some of our
technologies, product candidates or products which we would
otherwise pursue on our own.
We have summarized in the table below our fixed contractual
obligations as of December 31, 2004.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments Due by Period | |
| |
|
| |
| |
|
|
|
Less than | |
|
One to | |
|
Three to | |
|
After Five | |
| Contractual Obligations |
|
Total | |
|
One Year | |
|
Three Years | |
|
Five Years | |
|
Years | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
(In thousands) | |
|
Short and long term debt
|
|
$ |
2,204 |
|
|
$ |
837 |
|
|
$ |
1,367 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Research and license agreements
|
|
|
7,995 |
|
|
|
695 |
|
|
|
256 |
|
|
|
234 |
|
|
|
6,810 |
|
|
Consulting agreements
|
|
|
760 |
|
|
|
413 |
|
|
|
347 |
|
|
|
— |
|
|
|
— |
|
|
Manufacturing and clinical trial agreements
|
|
|
7,317 |
|
|
|
6,443 |
|
|
|
874 |
|
|
|
— |
|
|
|
— |
|
|
Operating lease obligations
|
|
|
5,622 |
|
|
|
1,503 |
|
|
|
2,613 |
|
|
|
1,506 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations
|
|
$ |
23,898 |
|
|
$ |
9,891 |
|
|
$ |
5,457 |
|
|
$ |
1,740 |
|
|
$ |
6,810 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts listed for short and long term debt represent the
principal amounts we owe under our credit agreement with Silicon
Valley Bank.
The amounts listed for research and license agreements represent
our fixed obligations payable to sponsor research and minimum
royalty payments for licensed patents. These amounts do not
include any additional amounts that we may be required to pay
under our license agreements upon the achievement of scientific,
regulatory and commercial milestones that may become payable
depending on the progress of scientific development and
regulatory approvals, including milestones such as the
submission of an investigational new drug application to the
FDA, similar submissions to foreign regulatory authorities and
the first commercial sale of our products in various countries.
In January 2005, we executed an exclusive license agreement with
a third party. We are obligated to make a non-refundable license
fee payment of approximately $200,000 and up to an additional
$900,000 upon the achievement of future milestones. These
amounts are not included in the table because the agreement was
signed after December 31, 2004.
We are party to a number of agreements that require us to make
milestone payments. In particular, under our license agreement
with Abbott Laboratories for zileuton, we agreed to make
aggregate milestone payments of up to $13.0 million to
Abbott upon the achievement of various development and
commercialization milestones relating to zileuton, including the
completion of the technology transfer from Abbott to us, filing
and approval of a product in the United States and specified
minimum net sales of licensed products. In addition, under our
manufacturing agreement with SkyePharma, through its subsidiary
Jagotec, for the controlled-release version of zileuton, we
agreed to make aggregate milestone payments of up to
$6.6 million upon the achievement of various development
and commercialization milestones. We anticipate that, in
addition to payments already made, we will pay approximately
$4.4 million in aggregate milestone payments related to
zileuton by the end of 2005.
These amounts also do not include royalties on net sales of our
products and payments on sublicense income that we may owe as a
result of receiving payments under our collaboration agreement
with
60
MedImmune. Our license agreements are described more fully in
Note 11 of our consolidated financial statements.
The amounts listed for consulting agreements are for fixed
payments due to our scientific and business consultants. In
early 2005, we executed agreements with third parties to provide
business consulting services. We expect to pay approximately
$121,000 for these services over the next twelve months. These
amounts are not included in the table because the agreements
were signed after December 31, 2004.
The amounts listed for manufacturing and clinical trial
agreements represent amounts due to third parties for
manufacturing, clinical trials and pre-clinical studies. In
early 2005, we executed agreements with third parties to provide
research, manufacturing and support services for clinical trials
of our zileuton program. We expect to pay approximately $327,000
for these services over the next twelve months. These amounts
are not included in the table because the agreements were signed
after December 31, 2004.
We have contracted with Rhodia Pharma Solutions Ltd. to
establish and validate a manufacturing process for the API at
sites operated by Rhodia. The technology transfer to Rhodia has
been completed and Rhodia is validating the zileuton
manufacturing process and preparing to commence commercial
production of the API. In February 2005, we entered into a
commercial supply agreement with Rhodia for the commercial
production of the API. Under the commercial supply agreement,
Rhodia has agreed to manufacture our commercial supplies of API,
subject to specified limitations, through December 31, 2009. The
agreement will automatically extend for successive one-year
periods after December 31, 2009, unless Rhodia provides us
with 18-months prior written notice of cancellation. We have the
right to terminate the agreement upon 12-months prior written
notice for any reason, provided that we may not cancel prior to
January 1, 2008 for the purpose of retaining any other
company to act as our exclusive supplier of the API. We also
have the right to terminate the agreement upon six-months prior
written notice if we terminate our plans to commercialize
zileuton for all therapeutic indications.
The amounts listed for research and license agreements,
consulting agreements and manufacturing and clinical trial
agreements include amounts that we owe under agreements that are
subject to cancellation or termination by us under various
circumstances, including a material uncured breach by the other
party, minimum notice to the other party or payment of a
termination fee.
The amounts listed for operating lease obligations represent the
amount we owe under our office, vehicle and laboratory space
lease agreements.
Effects of Inflation
Our assets are primarily monetary, consisting of cash, cash
equivalents and short-term investments. Because of their
liquidity, these assets are not significantly affected by
inflation. We also believe that we have intangible assets in the
value of our technology. In accordance with generally accepted
accounting principles, we have not capitalized the value of this
intellectual property on our consolidated balance sheet. Because
we intend to retain and continue to use our equipment, furniture
and fixtures and leasehold improvements, we believe that the
incremental inflation related to the replacement costs of such
items will not materially affect our operations. However, the
rate of inflation affects our expenses, such as those for
employee compensation and contract services, which could
increase our level of expenses and the rate at which we use our
resources.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards
No. 123R, Share-Based Payment, or SFAS
No. 123R. This Statement is a revision of SFAS
No. 123, Accounting for Stock-Based Compensation,
and supersedes Accounting Principals Board Opinion No. 25,
Accounting for Stock Issued to Employees, and its related
implementation guidance. SFAS No. 123R focuses primarily on
accounting for transactions in which an entity obtains employee
services in share-based payment transactions. The Statement
requires entities to recognize stock compensation expense for
awards of equity instruments to employees based on the grant-
61
date fair value of those awards (with limited exceptions). SFAS
No. 123R is effective for the first interim or annual
reporting period that begins after June 15, 2005.
We are evaluating the two methods of adoption allowed by SFAS
No. 123R: the modified-prospective transition method and
the modified-retrospective transition method.
Adoption of SAFS No. 123R will significantly increase
compensation expense. In addition, SFAS No. 123R requires
that excess tax benefits related to stock compensation expense
be reported as a financing cash inflow rather than as a
reduction of taxes paid in cash flow from operations.
|
|
| ITEM 7A. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK |
We are exposed to market risk related to changes in interest
rates. Our current investment policy is to maintain an
investment portfolio consisting mainly of U.S. money market
and corporate notes, directly or through managed funds, with
maturities of two years or less. Our cash is deposited in and
invested through highly rated financial institutions in North
America. Our short-term investments are subject to interest rate
risk and will fall in value if market interest rates increase.
If market interest rates were to increase immediately and
uniformly by 10% from levels at December 31, 2004, we
estimate that the fair value of our investment portfolio would
decline by approximately $142,000. In addition, we could be
exposed to losses related to these securities should one of our
counterparties default. We attempt to mitigate this risk through
credit monitoring procedures. We have the ability to hold our
fixed income investments until maturity, and therefore we would
not expect our operating results or cash flows to be affected to
any significant degree by the effect of a change in market
interest rates on our investments.
62
|
|
| ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
| |
|
|
|
|
|
| |
|
Page | |
| |
|
| |
|
|
|
|
64 |
|
|
CONSOLIDATED FINANCIAL STATEMENTS:
|
|
|
|
|
| |
|
|
|
65 |
|
| |
|
|
|
66 |
|
| |
|
|
|
67 |
|
| |
|
|
|
69 |
|
| |
|
|
|
70 |
|
63
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Critical Therapeutics, Inc.:
We have audited the accompanying consolidated balance sheets of
Critical Therapeutics, Inc. and its subsidiary (the
“Company”) as of December 31, 2004 and 2003, and
the related consolidated statements of operations, redeemable
convertible preferred stock, stockholders’ equity (deficit)
and comprehensive loss, and cash flows for each of the three
years in the period ended December 31, 2004. These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (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. The Company is not required, nor
have we been engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Critical Therapeutics, Inc. and its subsidiary at
December 31, 2004 and 2003, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2004 in conformity with
accounting principles generally accepted in the United States of
America.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 14, 2005
64
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
| |
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
| |
|
In thousands | |
|
ASSETS |
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents
|
|
$ |
11,980 |
|
|
$ |
40,078 |
|
| |
Amount due under collaboration agreement
|
|
|
16 |
|
|
|
2,500 |
|
| |
Short-term investments
|
|
|
66,849 |
|
|
|
— |
|
| |
Prepaid expenses and other
|
|
|
1,851 |
|
|
|
430 |
|
| |
|
|
|
|
|
|
| |
|
Total current assets
|
|
|
80,696 |
|
|
|
43,008 |
|
| |
|
|
|
|
|
|
|
FIXED ASSETS, NET
|
|
|
2,205 |
|
|
|
1,556 |
|
|
NOTE RECEIVABLE FROM OFFICER
|
|
|
— |
|
|
|
50 |
|
|
OTHER ASSETS
|
|
|
213 |
|
|
|
440 |
|
| |
|
|
|
|
|
|
|
TOTAL
|
|
$ |
83,114 |
|
|
$ |
45,054 |
|
| |
|
|
|
|
|
|
| |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) |
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
| |
Current portion of long-term debt
|
|
$ |
837 |
|
|
$ |
552 |
|
| |
Accounts payable
|
|
|
4,218 |
|
|
|
323 |
|
| |
Accrued license fees
|
|
|
— |
|
|
|
4,460 |
|
| |
Accrued expenses
|
|
|
2,741 |
|
|
|
977 |
|
| |
Revenue deferred under collaboration agreement
|
|
|
8,543 |
|
|
|
11,478 |
|
| |
|
|
|
|
|
|
| |
|
Total current liabilities
|
|
|
16,339 |
|
|
|
17,790 |
|
| |
|
|
|
|
|
|
|
COMMITMENTS (Note 12)
|
|
|
|
|
|
|
|
|
|
LONG-TERM DEBT, less current portion
|
|
|
1,367 |
|
|
|
720 |
|
| |
|
|
|
|
|
|
|
REDEEMABLE CONVERTIBLE PREFERRED STOCK —
par value $0.001; authorized 0 shares in 2004 and
70,000,000 shares in 2003; issued and outstanding
0 shares in 2004 and 40,355,167 shares in 2003
|
|
|
— |
|
|
|
51,395 |
|
| |
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
| |
Common stock, par value $0.001; authorized
90,000,000 shares; issued and outstanding
24,085,481 shares in 2004 and 1,565,353 shares in 2003
|
|
|
24 |
|
|
|
2 |
|
| |
Preferred stock, par value $0.001; authorized
5,000,000 shares in 2004; no shares issued and outstanding
in 2004
|
|
|
— |
|
|
|
— |
|
| |
Additional paid-in capital
|
|
|
130,374 |
|
|
|
11,156 |
|
| |
Deferred stock-based compensation
|
|
|
(6,101 |
) |
|
|
(8,536 |
) |
| |
Due from stockholders
|
|
|
— |
|
|
|
(40 |
) |
| |
Accumulated deficit
|
|
|
(58,527 |
) |
|
|
(27,433 |
) |
| |
Accumulated other comprehensive loss
|
|
|
(362 |
) |
|
|
— |
|
| |
|
|
|
|
|
|
| |
|
Total stockholders’ equity (deficit)
|
|
|
65,408 |
|
|
|
(24,851 |
) |
| |
|
|
|
|
|
|
|
TOTAL
|
|
$ |
83,114 |
|
|
$ |
45,054 |
|
| |
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
65
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
In thousands, except share and | |
| |
|
per share data | |
|
REVENUE UNDER COLLABORATION AGREEMENT
|
|
$ |
4,436 |
|
|
$ |
1,021 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Research and development
|
|
|
25,578 |
|
|
|
17,458 |
|
|
|
3,284 |
|
| |
General and administrative
|
|
|
10,878 |
|
|
|
3,771 |
|
|
|
1,792 |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
Total operating expenses
|
|
|
36,456 |
|
|
|
21,229 |
|
|
|
5,076 |
|
| |
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(32,020 |
) |
|
|
(20,208 |
) |
|
|
(5,076 |
) |
|
INTEREST INCOME
|
|
|
1,098 |
|
|
|
191 |
|
|
|
149 |
|
|
INTEREST EXPENSE
|
|
|
(172 |
) |
|
|
(93 |
) |
|
|
(8 |
) |
| |
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(31,094 |
) |
|
|
(20,110 |
) |
|
|
(4,935 |
) |
|
ACCRETION OF DIVIDENDS AND OFFERING COSTS ON PREFERRED STOCK
|
|
|
(2,209 |
) |
|
|
(2,264 |
) |
|
|
(1,032 |
) |
| |
|
|
|
|
|
|
|
|
|
|
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS
|
|
$ |
(33,303 |
) |
|
$ |
(22,374 |
) |
|
$ |
(5,967 |
) |
| |
|
|
|
|
|
|
|
|
|
|
NET LOSS AVAILABLE TO COMMON STOCKHOLDERS PER SHARE —
Basic and diluted
|
|
$ |
(2.28 |
) |
|
$ |
(33.99 |
) |
|
$ |
(23.74 |
) |
| |
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Basic and diluted
|
|
|
14,631,371 |
|
|
|
658,204 |
|
|
|
251,346 |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
66
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE
PREFERRED STOCK, STOCKHOLDERS’ EQUITY (DEFICIT) AND
COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Redeemable | |
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
| |
|
Convertible | |
|
|
|
Additional | |
|
Deferred | |
|
|
|
|
|
Other |
|
Total | |
|
|
| |
|
Preferred | |
|
Common | |
|
Paid-In | |
|
Stock-Based | |
|
Due from | |
|
Accumulated | |
|
Comprehensive |
|
Stockholders’ | |
|
Comprehensive | |
| |
|
Stock | |
|
Stock | |
|
Capital | |
|
Compensation | |
|
Stockholders | |
|
Deficit | |
|
Loss |
|
Equity | |
|
Loss | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
| |
|
| |
| |
|
|
|
|
|
|
|
In thousands, except share data | |
|
|
|
|
|
|
|
BALANCE — January 1, 2002
|
|
$ |
10,270 |
|
|
$ |
1 |
|
|
$ |
84 |
|
|
$ |
(317 |
) |
|
$ |
(1 |
) |
|
$ |
(1,517 |
) |
|
$ |
— |
|
|
$ |
(1,750 |
) |
|
|
|
|
|
Issuance of 10,150,000 shares of Series A preferred
stock for cash and note receivable
|
|
|
9,778 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of 43,998 shares of common stock to non- employees
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16 |
|
|
|
|
|
|
Issuance of 172,344 shares of common stock to employees
|
|
|
— |
|
|
|
— |
|
|
|
65 |
|
|
|
— |
|
|
|
(40 |
) |
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
|
|
|
|
Accretion of preferred stock dividends and issuance costs
|
|
|
1,032 |
|
|
|
— |
|
|
|
(161 |
) |
|
|
— |
|
|
|
— |
|
|
|
(871 |
) |
|
|
— |
|
|
|
(1,032 |
) |
|
|
|
|
|
Amortization of deferred stock-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
120 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
120 |
|
|
|
|
|
|
Payment from stockholder
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
|
|
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,935 |
) |
|
|
— |
|
|
|
(4,935 |
) |
|
$ |
(4,935 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — December 31, 2002
|
|
|
21,080 |
|
|
|
1 |
|
|
|
4 |
|
|
|
(197 |
) |
|
|
(40 |
) |
|
|
(7,323 |
) |
|
|
— |
|
|
|
(7,555 |
) |
|
|
|
|
|
Issuance of 20,055,167 shares of Series B preferred
stock for cash
|
|
|
27,906 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of 16,980 shares of common stock, upon exercise of
options under stock purchase plan
|
|
|
— |
|
|
|
1 |
|
|
|
6 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
|
|
|
|
|
Repurchase of 3,221 shares of common stock
|
|
|
— |
|
|
|
— |
|
|
|
(8 |
) |
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
|
|
|
Deferred stock- based compensation to employees
|
|
|
— |
|
|
|
— |
|
|
|
6,673 |
|
|
|
(6,672 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
|
|
|
Deferred stock- based compensation to non-employees
|
|
|
— |
|
|
|
— |
|
|
|
6,745 |
|
|
|
(6,745 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Accretion of preferred stock dividends and issuance costs
|
|
|
2,264 |
|
|
|
— |
|
|
|
(2,264 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,264 |
) |
|
|
|
|
|
Amortization of deferred stock-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,071 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,071 |
|
|
|
|
|
|
Payment from stockholder
|
|
|
145 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20,110 |
) |
|
|
— |
|
|
|
(20,110 |
) |
|
$ |
(20,110 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
67
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE
PREFERRED STOCK, STOCKHOLDERS’ EQUITY (DEFICIT) AND
COMPREHENSIVE LOSS — (Continued)
YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Redeemable | |
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
| |
|
Convertible | |
|
|
|
Additional | |
|
Deferred | |
|
|
|
|
|
Other | |
|
Total | |
|
|
| |
|
Preferred | |
|
Common | |
|
Paid-In | |
|
Stock-Based | |
|
Due from | |
|
Accumulated | |
|
Comprehensive | |
|
Stockholders’ | |
|
Comprehensive | |
| |
|
Stock | |
|
Stock | |
|
Capital | |
|
Compensation | |
|
Stockholders | |
|
Deficit | |
|
Loss | |
|
Equity | |
|
Loss | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
| |
|
|
|
|
|
|
|
In thousands except share data | |
|
|
|
|
|
|
|
BALANCE — December 31, 2003
|
|
$ |
51,395 |
|
|
$ |
2 |
|
|
$ |
11,156 |
|
|
$ |
(8,536 |
) |
|
$ |
(40 |
) |
|
$ |
(27,433 |
) |
|
$ |
— |
|
|
$ |
(24,851 |
) |
|
|
|
|
|
Issuance of 20,055,160 shares of Series B preferred
stock for cash
|
|
|
28,050 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Issuance of 221,902 shares of common stock, upon exercise
of options under stock purchase plan
|
|
|
— |
|
|
|
— |
|
|
|
175 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
175 |
|
|
|
|
|
|
Issuance of 66,666 shares of common stock in connection
with license agreement
|
|
|
— |
|
|
|
— |
|
|
|
485 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
485 |
|
|
|
|
|
|
Deferred stock- based compensation to employees
|
|
|
— |
|
|
|
— |
|
|
|
523 |
|
|
|
(523 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Deferred stock- based compensation to non-employees
|
|
|
— |
|
|
|
— |
|
|
|
348 |
|
|
|
(348 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Accretion of preferred stock dividends and issuance costs
|
|
|
2,209 |
|
|
|
— |
|
|
|
(2,209 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
(2,209 |
) |
|
|
|
|
|
Amortization of deferred stock-based compensation
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,562 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,562 |
|
|
|
|
|
|
Reversal of deferred stock based compensation
|
|
|
— |
|
|
|
— |
|
|
|
(21 |
) |
|
|
21 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Forgiveness of officer notes
|
|
|
145 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
40 |
|
|
|
— |
|
|
|
— |
|
|
|
40 |
|
|
|
|
|
|
Issuance of 6,000,000 shares of common stock in initial
public offering, net of $2.0 million in offering costs
|
|
|
— |
|
|
|
6 |
|
|
|
37,095 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
37,101 |
|
|
|
|
|
|
Conversion of 60,410,327 shares of preferred stock into
16,109,403 shares of common stock
|
|
|
(81,799 |
) |
|
|
16 |
|
|
|
81,783 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
81,799 |
|
|
|
|
|
|
Issuance of 110,000 shares of common stock for
underwriters’ over- allotment
|
|
|
— |
|
|
|
— |
|
|
|
716 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
716 |
|
|
|
|
|
|
Issuance of 12,157 shares of common stock related to
exercise of warrant
|
|
|
— |
|
|
|
— |
|
|
|
46 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
46 |
|
|
|
|
|
|
Grant of stock options to non- employees
|
|
|
— |
|
|
|
— |
|
|
|
277 |
|
|
|
(277 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
| |
Net loss
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(31,094 |
) |
|
|
— |
|
|
|
(31,094 |
) |
|
$ |
(31,094 |
) |
| |
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(362 |
) |
|
|
(362 |
) |
|
|
(362 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(31,456 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — December 31, 2004
|
|
$ |
— |
|
|
$ |
24 |
|
|
$ |
130,374 |
|
|
$ |
(6,101 |
) |
|
$ |
— |
|
|
$ |
(58,527 |
) |
|
$ |
(362 |
) |
|
$ |
65,408 |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
68
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
| |
|
In thousands | |
|
CASH FLOWS USED FOR OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net loss
|
|
$ |
(31,094 |
) |
|
$ |
(20,110 |
) |
|
$ |
(4,935 |
) |
| |
Adjustments to reconcile net loss to net cash used for operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Depreciation and amortization
|
|
|
1,847 |
|
|
|
482 |
|
|
|
54 |
|
| |
|
Stock-based compensation expense
|
|
|
3,562 |
|
|
|
5,072 |
|
|
|
120 |
|
| |
|
Loss on disposal of fixed assets
|
|
|
278 |
|
|
|
— |
|
|
|
— |
|
| |
|
Loss on conversion of warrants
|
|
|
46 |
|
|
|
— |
|
|
|
— |
|
| |
|
Forgiveness of notes receivable
|
|
|
185 |
|
|
|
— |
|
|
|
— |
|
| |
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Amount due under collaboration agreement
|
|
|
2,484 |
|
|
|
(2,500 |
) |
|
|
— |
|
| |
|
|
Prepaid expenses and other
|
|
|
(1,421 |
) |
|
|
(622 |
) |
|
|
(259 |
) |
| |
|
|
Other assets
|
|
|
277 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
Accounts payable
|
|
|
3,895 |
|
|
|
(94 |
) |
|
|
367 |
|
| |
|
|
Accrued license fees and other expenses
|
|
|
(2,211 |
) |
|
|
5,267 |
|
|
|
103 |
|
| |
|
|
Revenue deferred under collaboration agreement
|
|
|
(2,935 |
) |
|
|
11,479 |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used for operating activities
|
|
|
(25,087 |
) |
|
|
(1,026 |
) |
|
|
(4,550 |
) |
| |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS USED FOR INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Proceeds from sales and maturities of short-term investments
|
|
|
52,900 |
|
|
|
— |
|
|
|
— |
|
| |
Purchases of fixed assets
|
|
|
(2,019 |
) |
|
|
(1,492 |
) |
|
|
(581 |
) |
| |
Purchases of short-term investments
|
|
|
(120,866 |
) |
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash used for investing activities
|
|
|
(69,985 |
) |
|
|
(1,492 |
) |
|
|
(581 |
) |
| |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net proceeds from issuance of convertible preferred stock
|
|
|
28,050 |
|
|
|
27,906 |
|
|
|
9,778 |
|
| |
Net proceeds from the initial public offering of common stock
|
|
|
37,817 |
|
|
|
— |
|
|
|
— |
|
| |
Proceeds from issuance of common stock
|
|
|
175 |
|
|
|
6 |
|
|
|
42 |
|
| |
Proceeds from notes receivable
|
|
|
— |
|
|
|
145 |
|
|
|
1 |
|
| |
Repurchase of restricted common stock
|
|
|
— |
|
|
|
(1 |
) |
|
|
— |
|
| |
Proceeds from long-term debt
|
|
|
1,623 |
|
|
|
1,388 |
|
|
|
293 |
|
| |
Repayments of long-term debt
|
|
|
(691 |
) |
|
|
(387 |
) |
|
|
(24 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Net cash provided by financing activities
|
|
|
66,974 |
|
|
|
29,057 |
|
|
|
10,090 |
|
| |
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(28,098 |
) |
|
|
26,539 |
|
|
|
4,959 |
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
40,078 |
|
|
|
13,539 |
|
|
|
8,580 |
|
| |
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$ |
11,980 |
|
|
$ |
40,078 |
|
|
$ |
13,539 |
|
| |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Interest
|
|
$ |
126 |
|
|
$ |
94 |
|
|
$ |
7 |
|
| |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Conversion of redeemable convertible preferred stock into comon
stock
|
|
$ |
81,799 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Accretion of dividends and offering costs on preferred stock
|
|
$ |
2,209 |
|
|
$ |
2,264 |
|
|
$ |
1,032 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Stock issued for stockholder receivables
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
330 |
|
| |
|
|
|
|
|
|
|
|
|
| |
Dividends forfeited on preferred stock conversion into common
stock
|
|
$ |
5,713 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Adjustment to deferred stock-based compensation for services to
be performed
|
|
$ |
1,127 |
|
|
$ |
13,417 |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Settlement of accrued licensing fee with common stock
|
|
$ |
485 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
| |
Unrealized loss on investments
|
|
$ |
362 |
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
69
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Critical Therapeutics, Inc. (the “Company”) is a
biopharmaceutical company focused on the discovery, development
and commercialization of products for respiratory, inflammatory
and critical care diseases.
The Company was incorporated in the state of Delaware on
July 14, 2000 under the name Medicept, Inc. On
March 12, 2001, the Company changed its name from Medicept,
Inc. to Critical Therapeutics, Inc. The Company formed a
wholly-owned subsidiary, CTI Securities Corporation, a
Massachusetts corporation, in 2003.
The Company is subject to a number of risks similar to those of
other companies in an early stage of development. Principal
among these risks are dependence on key individuals, competition
from substitute products and larger companies, the successful
development and marketing of its products, and the need to
obtain adequate additional financing necessary to fund future
operations.
|
|
| (2) |
Summary of Significant Accounting Policies |
The consolidated financial statements reflect the operations of
the Company and its wholly-owned subsidiary, CTI Securities
Corporation. All intercompany balances and transactions have
been eliminated.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenue and
expenses during the reporting period. Actual results could
differ from those estimates.
Research and development expenses consist of expenses incurred
in identifying, developing and testing product candidates. These
expenses consist primarily of salaries and related expenses for
personnel, fees paid to professional service providers for
independently monitoring and analyzing clinical trials, costs of
contract research and manufacturing and the cost of facilities.
After regulatory approval of a product candidate, manufacturing
expenses associated with a product will be recorded as cost of
sales rather than research and development expenses. Research
and development costs and patent related costs are expensed as
incurred.
|
|
|
Cash Equivalents and Short-Term Investments |
The Company considers all highly-liquid investments with
original maturities of three months or less when purchased to be
cash equivalents.
Short-term investments consist primarily of U.S. government
treasury and agency notes, corporate debt obligations, municipal
debt obligations, auction rate securities and money market
funds, each of investment-grade quality, which have an original
maturity date greater than 90 days that can be sold within
one year. These securities are held until such time as the
Company intends to use them to meet the ongoing liquidity needs
to support its operations. These investments are recorded at
fair value and accounted for as available-for-sale securities.
The unrealized gain (loss) during the period is recorded as an
adjustment to stockholders’ equity. During the year ended
December 31, 2004, the Company recorded an unrealized loss
on investments of $362,000. The original cost of debt securities
is adjusted for
70
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
amortization of premiums and accretion of discounts to maturity.
The amortization or accretion is included in interest income
(expense) in the corresponding period.
On July 1, 2004, the Company adopted EITF Issue
No. 03-1, “The Meaning of Other-Than-Temporary
Impairment and its Application to Certain Investments”
(EITF 03-1) as applicable to debt and equity securities
that are within the scope of SFAS 115, “Accounting for
Certain Investments in Debt and Equity Securities” and
equity securities that are accounted for using the cost method
specified in APB Opinion No. 18, “The Equity Method of
Accounting for Investments in Common Stock,” except for
paragraphs 10 — 20 of this Issue regarding how to
evaluate and recognize an impairment loss that is
other-than-temporary, insofar as application of these paragraphs
has been deferred. The Company has determined the unrealized
gain (loss) on investments is temporary; therefore no impairment
losses were recorded for the year ended December 31, 2004.
The unrealized losses as of December 31, 2004 were
primarily caused by interest rate increases. The following table
shows the gross unrealized losses and fair value of the
Company’s investments with unrealized losses that are not
deemed to be other-than-temporarily impaired, aggregated by
investment category:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, 2004 | |
| |
|
| |
| |
|
Amortized | |
|
Unrealized |
|
Unrealized | |
|
Fair | |
| |
|
Cost | |
|
Gains |
|
Losses | |
|
Value | |
| |
|
| |
|
|
|
| |
|
| |
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash
|
|
$ |
4,319 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,319 |
|
| |
Commercial Paper
|
|
|
2,019 |
|
|
|
— |
|
|
|
— |
|
|
|
2,019 |
|
| |
Money market mutual funds
|
|
|
5,642 |
|
|
|
— |
|
|
|
— |
|
|
|
5,642 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Cash and cash equivalents
|
|
|
11,980 |
|
|
|
— |
|
|
|
— |
|
|
|
11,980 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
U.S. government and agency securities
|
|
|
17,056 |
|
|
|
— |
|
|
|
(42 |
) |
|
|
17,014 |
|
| |
Corporate bonds
|
|
|
32,349 |
|
|
|
— |
|
|
|
(316 |
) |
|
|
32,033 |
|
| |
Municipal bonds
|
|
|
1,006 |
|
|
|
— |
|
|
|
(4 |
) |
|
|
1,002 |
|
| |
Auction rate securities
|
|
|
16,800 |
|
|
|
— |
|
|
|
— |
|
|
|
16,800 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Short-term investments
|
|
|
67,211 |
|
|
|
— |
|
|
|
(362 |
) |
|
|
66,849 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents and short-term investments
|
|
$ |
79,191 |
|
|
$ |
— |
|
|
$ |
(362 |
) |
|
$ |
78,829 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed assets are stated at cost, net of accumulated depreciation
and amortization. Depreciation is computed on a straight-line
basis over estimated useful lives of three to seven years
commencing upon the date the assets are placed in service. Upon
retirement or sale, the cost of the assets disposed of and the
related accumulated depreciation are removed from the accounts
and any resulting gain or loss is included in operating income.
Repairs and maintenance costs are expensed as incurred.
|
|
|
Impairment of Long-Lived Assets |
Long-lived assets and, if and when applicable, certain
identifiable intangibles held and used are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In
performing the review for recoverability, the Company will
estimate the future cash flows expected to result from the use
of the asset and its eventual disposition. If the sum
71
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset,
an impairment loss is recognized. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that the
Company expects to hold and use is based on the fair value of
the asset. No adjustments have been required to date.
The Company recognizes revenue in accordance with the Securities
and Exchange Commission’s (“SEC”) Staff
Accounting Bulletin No. 101, “Revenue Recognition
in Financial Statements” (“SAB 101”), as
amended by SEC Staff Accounting Bulletin No. 104
“Revenue Recognition” (“SAB 104”).
Specifically, revenue is recognized when persuasive evidence of
an arrangement exists, delivery has occurred or services have
been rendered, the price is fixed and determinable and
collectibility is reasonably assured.
Revenue under the Company’s collaboration agreement with
MedImmune, Inc. as discussed in Note 3 is recognized over
the estimated performance period based on a proportional
performance model. Under the proportional performance model,
performance is measured as the percentage of cost incurred to
date compared to the total costs estimated for the performance
period. The amount of revenue recognized during each period
represents the cumulative performance percentage of amounts
received and due to the Company under the agreement less amounts
previously recognized. The Company periodically reviews the
estimated performance period and total costs and, to the extent
such estimates change, the impact of such change is recorded in
operations at that time. Because the Company’s collaborator
has the right to cancel the agreement at any time, the Company
does not recognize revenues in excess of cumulative cash
collections. Deferred revenue consists of payments received in
advance of revenue recognized under the agreement.
|
|
|
Fair Value of Financial Instruments |
The carrying amounts of the Company’s financial
instruments, which include cash equivalents, short-term
investments, accounts payable, accrued expenses, and long term
obligations, approximate their fair values.
|
|
|
Concentrations of Credit Risk and Limited Suppliers |
The financial instruments that potentially subject the Company
to concentrations of credit risk are cash, cash equivalents and
short-term investments. The Company’s cash, cash
equivalents and short-term investments are maintained with
highly-rated commercial banks and are monitored against the
Company’s investment policy, which limits concentrations of
investments in individual securities and issuers.
The Company relies on certain materials used in its development
and manufacturing processes, some of which are procured from a
single source. The failure of a supplier, including a
subcontractor, to deliver on schedule could delay or interrupt
the development or commercialization process and thereby
adversely affect the Company’s operating results.
The Company recognizes deferred tax assets and liabilities for
the expected future tax consequences of events that have
previously been included in either the Company’s
consolidated financial statements or
72
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
tax returns. Deferred tax assets and liabilities are determined
based on the differences between the financial accounting and
tax bases of assets and liabilities using tax rates expected to
be in effect for the year in which the differences are expected
to reverse. A valuation allowance is provided against net
deferred tax assets where management believes it is more likely
than not that the asset will not be realized.
The Company accounts for stock-based awards to employees using
the intrinsic-value method as prescribed by Accounting
Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and
related interpretations. Accordingly, no compensation expense is
recorded for options issued to employees in fixed amounts and
with fixed exercise prices at least equal to the fair market
value of the Company’s common stock at the date of grant.
Conversely, when the exercise price for accounting purposes is
below fair value of the Company’s common stock on the date
of grant, a non-cash charge to compensation expense is recorded
ratably over the term of the option vesting period in an amount
equal to the difference between the value calculated using the
exercise price and the fair value. All stock-based awards to
non-employees are accounted for at their fair market value in
accordance with Statement of Financial Accounts Standards
(“SFAS”) No. 123 “Accounting for Stock-Based
Compensation,” and Emerging Issues Task Force
(“EITF”) No. 96-18, “Accounting for Equity
Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services.”
The Company has adopted the provisions of
SFAS No. 123, “Accounting for Stock-Based
Compensation,” through disclosure only for options awarded
to employees. SFAS No. 123 requires the disclosure of
pro forma net loss as if the Company adopted the fair-value
method of valuing its options. Under SFAS No. 123, the
fair value of stock-based awards to employees is calculated
through the use of option-pricing models.
Had employee compensation cost for the Company’s stock
plans been determined consistent with SFAS No. 123,
the Company’s proforma net loss and proforma net loss per
share would have been as follows (in thousands, except loss per
share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Net loss available to common stockholders — as reported
|
|
$ |
(33,303 |
) |
|
$ |
(22,374 |
) |
|
$ |
(5,967 |
) |
|
Add: Stock-based compensation expense included in reported net
loss
|
|
|
1,784 |
|
|
|
165 |
|
|
|
— |
|
|
Deduct: Stock-based compensation expense determined under fair
value method
|
|
|
(1,162 |
) |
|
|
(201 |
) |
|
|
(5 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders — pro forma
|
|
$ |
(32,681 |
) |
|
$ |
(22,410 |
) |
|
$ |
(5,972 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Net loss per share (basic and diluted):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
As reported
|
|
$ |
(2.28 |
) |
|
$ |
(33.99 |
) |
|
$ |
(23.74 |
) |
| |
|
|
|
|
|
|
|
|
|
| |
Pro forma
|
|
$ |
(2.23 |
) |
|
$ |
(34.05 |
) |
|
$ |
(23.76 |
) |
| |
|
|
|
|
|
|
|
|
|
Option valuation models require the input of highly subjective
assumptions. Because changes in subjective input assumptions can
materially affect the fair value estimate, in management’s
opinion, the calculated fair value may not necessarily be
indicative of the actual fair value of the stock options. The
Company has computed the pro forma disclosures required under
SFAS No. 123 for options granted using
73
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the Black-Scholes option-pricing model prescribed by
SFAS No. 123. The assumptions used and
weighted-average information are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Risk free interest rate
|
|
|
3.3 |
% |
|
|
2.4 |
% |
|
|
2.3 |
% |
|
Expected dividend yield
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
|
Expected lives
|
|
|
4 years |
|
|
|
4 years |
|
|
|
4 years |
|
|
Expected volatility
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
Weighted-average fair value of options granted equal to fair
value
|
|
$ |
4.38 |
|
|
$ |
0.26 |
|
|
$ |
0.26 |
|
|
Weighted-average fair value of options granted below fair value
|
|
$ |
3.73 |
|
|
$ |
6.26 |
|
|
$ |
— |
|
In December 2004, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards
No. 123R, Share-Based Payment, or SFAS
No. 123R. This Statement is a revision of SFAS
No. 123, Accounting for Stock-Based Compensation,
and supersedes Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and its related
implementation guidance. SFAS No. 123R focuses primarily on
accounting for transactions in which an entity obtains employee
services in share-based payment transactions. The Statement
requires entities to recognize stock compensation expense for
awards (with limited exceptions). SFAS No. 123R is
effective for the first interim or annual reporting period that
begins after June 15, 2005.
The Company is evaluating the two methods of adoption allowed by
SFAS No. 123R: the modified-prospective transition method
and the modified-retrospective transition method.
Adoption of SFAS No. 123R will significantly increase
compensation expense. In addition, SFAS No. 123R requires
that excess tax benefits related to stock compensation expense
be reported as a financing cash inflow rather than as a
reduction of taxes paid in cash flow from operating activities
in the consolidated statement of cash flows.
|
|
|
Basic and Diluted Loss per Share |
Basic and diluted net loss per common share is calculated by
dividing the net loss applicable to common stockholders by the
weighted-average number of unrestricted common shares
outstanding during the period. Diluted net loss per common share
is the same as basic net loss per common share, since the
effects of potentially dilutive securities are anti-dilutive for
all periods presented. Anti-dilutive securities that are not
included in the diluted net loss per share calculation
aggregated 4,776,922, 42,928,818 and 21,910,577 as of
December 31, 2004, 2003 and 2002, respectively. These
anti-dilutive securities consist of outstanding stock options
and unvested restricted common stock as of December 31,
2004, and outstanding redeemable convertible preferred stock,
stock options, warrants and unvested restricted common stock as
of December 31, 2003 and 2002.
The following table reconciles the weighted-average common
shares outstanding to the shares used in the computation of
basic and diluted weighted-average common shares outstanding:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, | |
| |
|
| |
| |
|
2004 | |
|
2003 | |
|
2002 | |
| |
|
| |
|
| |
|
| |
|
Weighted-average common shares outstanding
|
|
|
15,077,169 |
|
|
|
1,553,309 |
|
|
|
1,430,910 |
|
|
Less: weighted-average restricted common shares outstanding
|
|
|
445,798 |
|
|
|
895,105 |
|
|
|
1,179,564 |
|
| |
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted-average common shares outstanding
|
|
|
14,631,371 |
|
|
|
658,204 |
|
|
|
251,346 |
|
| |
|
|
|
|
|
|
|
|
|
74
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Accretion of Dividends and Offering Costs on Preferred
Stock. |
Prior to the Company’s initial public offering, holders of
preferred stock had a right to receive dividends at a stated
rate per share. The Company recorded accretion of these
dividends as well as offering costs in order to arrive at the
net loss available to common stockholders in the periods prior
to the initial public offering. Upon conversion of the preferred
stock into common stock, the holders of preferred stock,
pursuant to the terms of the preferred stock, forfeited all
cumulative accrued dividends. As of June 2, 2004,
cumulative accrued dividends on the Company’s preferred
stock totaled $5.7 million.
Comprehensive loss is the total of net loss and all other
non-owner changes in equity. The difference between net loss, as
reported in the accompanying condensed consolidated statements
of operations for the year ended December 31, 2004, and
comprehensive loss is the unrealized gain (loss) on short-term
investments for the period. There were no items affecting
comprehensive loss for the years ended December 31, 2003
and 2002. Total comprehensive loss was $31.5 million for
the year ended December 31, 2004. The unrealized loss on
investments is the only component of accumulated other
comprehensive loss in the accompanying condensed consolidated
balance sheet as of December 31, 2004.
|
|
|
Disclosure About Segments of an Enterprise |
Operating segments are identified as components of an enterprise
about which separate discrete financial information is available
for evaluation by the chief operating decision-maker, or
decision-making group, in making decisions regarding resource
allocation and assessing performance. To date, the Company has
viewed its operations and manages its business as principally
one operating segment.
|
|
| (3) |
Collaboration Agreement |
On July 30, 2003, the Company entered into an exclusive
license and collaboration agreement with MedImmune to jointly
develop therapeutic products. Under the agreement, the Company
has granted MedImmune an exclusive, worldwide royalty bearing
license in exchange for a license fee, research funding,
research and development milestone payments and royalties on
product sales. The Company is required to perform certain
research activities under an agreed upon research plan covering
a period of 41 months which began on July 30, 2003.
During the 41-month research plan, the Company may receive
additional research funding from MedImmune based on the number
of full time equivalents employed by the Company for the
purposes of executing the research plan. No performance is
required of the Company subsequent to the research period.
MedImmune will be responsible for subsequent product development
and commercialization. All payments made to the Company under
the agreement are non-refundable.
During 2003, the Company was scheduled to receive
$12.5 million in up front license fees and research
funding. As of December 31, 2003, the Company had received
a total of $10.0 million, with the balance of
$2.5 million received in January 2004. In addition, the
Company received approximately $1.5 million in research
funding from MedImmune in 2004. As described in Note 1,
revenue under this arrangement is being recognized under a
proportional performance model. During 2004 and 2003, the
Company recognized revenue of approximately $4.4 million
and $1.0 million, respectively, under this agreement. As of
December 31, 2004, deferred revenue of approximately
$8.5 million consists of up-front payments and research
funding received in advance of revenue recognized under the
agreement. As of December 31, 2003, deferred revenue of
approximately $11.5 million consists of up-front payments
received in advance of revenue recognized.
In the event that specified research and development and
commercialization milestones are achieved, MedImmune will be
obligated to make further payments to the Company. MedImmune has
agreed to
75
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
make royalty payments to the Company upon sale by MedImmune of
any products resulting from the collaboration.
MedImmune Ventures, an affiliate of MedImmune, participated in
the Company’s private placement of Series B Preferred
Stock and purchased 5,357,143 shares for $7.5 million
on October 3, 2003 and an additional 5,357,143 shares
for $7.5 million on March 5, 2004 (see Note 6).
The purchase price paid by MedImmune for these shares was the
same as that paid by the other participants.
Fixed assets consisted of the following at December 31:
| |
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Laboratory equipment
|
|
$ |
1,591 |
|
|
$ |
967 |
|
|
Computer and office equipment
|
|
|
580 |
|
|
|
207 |
|
|
Furniture and fixtures
|
|
|
471 |
|
|
|
43 |
|
|
Leasehold improvements
|
|
|
203 |
|
|
|
870 |
|
| |
|
|
|
|
|
|
|
Total
|
|
|
2,845 |
|
|
|
2,087 |
|
|
Less accumulated depreciation and amortization
|
|
|
(640 |
) |
|
|
(531 |
) |
| |
|
|
|
|
|
|
|
Fixed assets — net
|
|
$ |
2,205 |
|
|
$ |
1,556 |
|
| |
|
|
|
|
|
|
Depreciation and amortization expense on fixed assets for the
years ended December 31, 2004, 2003 and 2002 was
$1.1 million, $482,000 and $54,000, respectively.
On June 28, 2002, the Company entered into a loan and
security agreement (the “Agreement”) with a lender
that allows the Company to borrow up to $2,250,000 to finance
the purchase of equipment and $750,000 to finance leasehold
improvements through June 30, 2003. In connection with the
Agreement, the Company issued 90,000 warrants to purchase
Series A Redeemable Convertible Preferred Stock. The
warrants are exercisable at the option of the holder at $1.00
per share and expire 10 years from the date of issuance.
Using the Black-Scholes option-pricing model, the value assigned
to the warrants was deemed to be de minimus. The warrants were
valued using the following assumptions: no volatility, 4.93%
risk-free interest rate, 8% dividend yield, and a 10-year
contractual life. During 2004, the holder exercised the warrants
issued under the Agreement.
Effective June 30, 2004, the Company entered into a
modification to its existing loan and security agreement. The
modification gave the Company the ability to borrow up to an
additional $3.0 million under a credit agreement from
July 1, 2004 to December 31, 2004. From
January 1, 2005 to December 31, 2005, the Company has
additional borrowing capacity up to an amount equal to the
lesser of (i) $3.0 million minus the principal amount
of advances made in 2004 or (ii) $1.3 million.
Advances made under this modification accrue interest at a rate
equal to the prime rate plus 2% per year and are required
to be repaid in equal monthly installments of principal plus
interest accrued through the date of repayment. The repayment
term for advances made under this modification are 42 and
36 months, respectively. In connection with the original
loan and security agreement, the Company granted the lender a
first priority security interest in substantially all of the
Company’s assets, excluding intellectual property, to
secure the Company’s obligations under the credit
agreement. During the year ended December 31, 2004, the
Company borrowed $1.6 million under the modified credit
agreement.
As of December 31, 2004, amounts outstanding under the
equipment loans total approximately $2.0 million and bear
interest at per annum effective interest rates between 8.6% and
9.1%. Principal and
76
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
interest are payable in 48 equal monthly installments from the
loan date. In addition to any interest and principal paid on
each borrowing, the Company is required to pay an additional
8.5% of the original advance amount on the final payment as
additional interest. The Company is accreting the interest
expense related to the final payment using the effective
interest rate method.
As of December 31, 2004, amounts outstanding under loans
for leasehold improvements total $155,000 and bear interest at
per annum effective interest rates between 10.5% and 11.0%.
Principal and interest are payable in 24 equal monthly
installments beginning the month following loan date. In
addition to any interest and principal paid on each borrowing,
the Company is required to pay an additional 7.0% of the
original advance amount on the final payment as additional
interest. The Company is accreting the interest expense related
to the final payment using the effective interest rate method.
In connection with the Agreement, the Company granted the lender
a security interest in certain assets of the Company.
The loans mature through 2008 as follows:
| |
|
|
|
|
|
2005
|
|
$ |
837 |
|
|
2006
|
|
|
698 |
|
|
2007
|
|
|
577 |
|
|
2008
|
|
|
92 |
|
| |
|
|
|
| |
|
$ |
2,204 |
|
| |
|
|
|
|
|
| (6) |
Redeemable Convertible Preferred Stock and Stockholders’
Equity (Deficit) |
|
|
|
Initial Public Offering of Common Stock |
On June 2, 2004, the Company sold 6,000,000 shares of
its common stock in its initial public offering at a price to
the public of $7.00 per share. On June 30, 2004, the
Company sold an additional 110,000 shares at a price to the
public of $7.00 per share pursuant to the partial exercise
of the underwriters’ over-allotment option. The Company
received gross proceeds of $42.8 million, of which
$3.0 million was paid as an underwriting discount. Expenses
related to the offering totaled approximately $2.0 million.
The Company has invested the net proceeds in highly liquid,
interest-bearing, investment grade securities.
The Company effected a 1-for-3.75 reverse stock split of all
outstanding common stock and stock options effective as of
May 20, 2004. All references to the number of common shares
and per share amounts have been retroactively restated for all
periods presented to reflect this reverse stock split including
reclassifying an amount equal to the reduction in par value to
additional paid-in capital.
As of December 31, 2004, the authorized capital stock of
the Company consists of 90,000,000 shares of voting common
stock (“common stock”) with a par value of $0.001 per
share, and 5,000,000 shares of undesignated preferred stock
(“preferred stock”) with a par value of
$0.001 per share. The common stock holders are entitled to
one vote per share. The rights and preferences of the preferred
stock may be established from time to time by the Company’s
Board of Directors.
77
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Restricted Common Stock Issuances to Non-Employees |
On July 14, 2000, the Company issued 1,226,664 shares
of $0.001 par value common stock to its founders, who are
non-employees, for $900, which was paid in September 2001. On
July 6, 2001, and in connection with the sale of
Series A Preferred Stock to investors, the Company entered
into a restricted stock agreement with each of its founders
imposing certain restrictions on these shares. The restricted
stock provides for a repurchase feature at the original purchase
price whereby the restriction lapses as follows:
109,332 shares immediately (July 6, 2001),
164,000 shares on July 6, 2002, 820,000 shares
ratably on the last day of each month over the 36 months
subsequent to July 6, 2002, and the remaining
133,332 shares upon the completion of certain performance
milestones.
During 2002, the Company amended the restricted stock agreements
to provide for the vesting of 39,999 shares in December
2002, which were previously included in the 133,332 shares
subject to vesting upon completion of certain performance
milestones. During 2003, the Company amended the restricted
stock agreements to provide for the vesting of the remaining
93,333 shares in December 2003.
During 2002, the Company issued an additional 43,998 shares
of common stock subject to restriction to its founders for
proceeds of $16,500. The shares vest as follows: 10,999 of the
shares vested in October 2003, with the remaining
32,999 shares vesting monthly from November 2003 through
October 2006.
On July 1, 2001, the Company issued 27,259 shares of
common stock subject to restrictions and vesting, as partial
consideration for a sponsored research and licensing agreement
with North Shore (see Note 11). 25% of the shares vested
immediately, 25% vested in 2001, 25% will vest on July 1,
2006, and 25% will vest on July 1, 2007.
During 2001, the Company issued 46,663 shares of its common
stock, subject to restricted stock agreements, to consultants to
the Company for proceeds of $17,500. Approximately 25% of these
shares vested in 2002 and the remaining shares vest monthly
through September 2005.
Compensation to date associated with the restricted stock issued
to non-employees has been measured as the difference between the
fair value of the shares and the amount paid by the holder.
Final measurement occurs when performance is complete which is
assumed to be when the restrictions lapse. The Company recorded
deferred compensation of $0, $4,921,991 and $0 in 2004, 2003 and
2002, respectively, and stock-based compensation expense of
$862,000, $4.3 million and $120,000 for the years ended
December 31, 2004, 2003 and 2002, respectively, related to
these shares. These amounts are included in research and
development expenses in the accompanying condensed consolidated
statement of operations.
At December 31, 2004, the Company’s right to
repurchase restricted stock from non-employees had not lapsed as
to 201,116 shares.
|
|
|
Restricted Common Stock Issuances to Employees |
During 2002, the Company issued 172,344 shares of
restricted common stock to employees for proceeds of $25,130 and
a promissory note of $39,500 (see Note 8). During 2001, the
Company issued 22,666 shares of restricted common stock to
employees for proceeds of $8,500. The restricted stock
agreements provide for a repurchase feature, which generally
lapses ratably over four years and were deemed to have been
purchased by the employees at the then-fair value of the
underlying common stock and, accordingly, are not considered to
be compensatory.
At December 31, 2004, the Company’s right to
repurchase had not lapsed as to 75,536 shares.
78
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
Conversion of Preferred Stock into Common Stock |
In connection with the Company’s initial public offering of
common stock, all of the issued and outstanding redeemable
convertible preferred stock converted to common stock at a ratio
of one share of common stock for each 3.75 shares of
preferred stock then outstanding. Accordingly, on June 2,
2004, 60,410,237 shares of preferred stock converted into
16,109,403 shares of common stock. The par value and
additional paid-in capital related to the redeemable convertible
preferred stock totaling $81.8 million was reclassified to
common stock in the Company’s balance sheet. Under the
terms of the preferred stock agreement, accrued dividends
totaling $5.7 million were forfeited in connection with
this conversion to common stock.
|
|
|
Redeemable Convertible Preferred Stock |
On July 6, 2001, the Company issued 10,150,000 shares
of Series A Preferred Stock, $0.001 par value per
share, and received proceeds of $10,150,000. On October 24,
2002, the Company issued 10,150,000 additional shares of
Series A Preferred Stock and received proceeds of
$9,860,000 and two promissory notes for $145,000 each from the
chief executive officer in connection with the officer’s
purchase of Series A Preferred Stock (see Note 8). On
October 3, 2003, the Company executed a contractual
agreement to sell 40,110,327 shares of Series B
Preferred Stock, $0.001 par value per share. The initial
closing was completed on October 31, 2003 for
20,055,167 shares and the Company received proceeds of
$28,077,234. The final closing occurred on March 5, 2004,
with the issuance of 20,055,160 shares resulting in gross
proceeds of $28,077,232 to the Company.
|
|
| (7) |
Equity Incentive Plans |
|
|
|
2004 Stock Incentive Plan |
On April 7, 2004, the Company’s Board of Directors
adopted and on May 6, 2004 the Company’s stockholders
approved the 2004 Stock Incentive Plan (the “2004 Stock
Plan”) for the issuance of incentive stock options,
nonqualified stock options, and restricted common stock to key
employees, directors, consultants, and vendors of the Company
and its affiliates.
The 2004 Stock Plan authorizes the issuance of up to
3,680,000 shares of common stock. The exercise price of the
stock options will be determined by the compensation committee
of the Board of Directors, and may be equal to or greater than
the fair market value of the Company’s common stock on the
date the option is granted. Options generally become exercisable
over a period of four years from the date of grant, and expire
ten years after the grant date.
|
|
|
2003 Stock Incentive Plan |
On September 29, 2003, the Company’s Board of
Directors and Company stockholders adopted the 2003 Stock
Incentive Plan (the “2003 Stock Plan”) for the
issuance of incentive stock options, nonqualified stock options,
and restricted common stock to key employees, directors,
consultants, and vendors of the Company and its affiliates. On
December 9, 2003, the Company’s Board of Directors
amended the 2003 Stock Plan to increase the total number of
shares available to 1,590,666 from 524,000, plus the
284,739 shares available from the 2000 Equity Plan. On
June 2, 2004, in connection with the adoption of the 2004
Stock Plan, the Company transferred the 132,561 remaining shares
of common stock available for award in the 2003 Stock Plan to
the 2004 Stock Plan. Accordingly, there are no shares of common
stock available for award under the 2003 Stock Plan at
December 31, 2004.
Under the terms of the 2003 Stock Plan, the exercise price of
incentive stock options granted shall be established by the
Board of Directors. The vesting provisions for stock options and
restricted stock are established by the Board of Directors.
79
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
2000 Equity Incentive Plan |
On July 14, 2000, the Company’s Board of Directors and
Company stockholders adopted the 2000 Equity Incentive Plan (the
“2000 Equity Plan”) for the issuance of incentive
stock options, nonqualified stock options, and restricted common
stock to key employees, directors, consultants, and vendors of
the Company and its affiliates. On October 24, 2002, the
Company’s Board of Directors amended the 2000 Equity Plan
to increase the total number of shares available to 4,000,000
from 2,000,000. On September 29, 2003, in connection with
the adoption of the 2003 Stock Plan, the Company transferred the
284,739 remaining shares of common stock available for award in
the 2000 Equity Plan to the 2003 Stock Plan. Accordingly, there
are no shares of common stock available for award at
December 31, 2004.
Under the terms of the 2000 Equity Plan, the exercise price of
incentive stock options granted must not be less than the fair
market value of the common stock on the date of grant, as
determined by the Board of Directors. The exercise price of
nonqualified stock options and the purchase price of restricted
common stock may be less than the fair market value of the
common stock on the date of grant, as determined by the Board of
Directors, but in no case may the exercise price or purchase
price be less than the statutory minimum. The vesting provisions
for stock options and restricted stock are established by the
Board of Directors.
The following table summarizes stock option activity under all
of the plans:
| |
|
|
|
|
|
|
|
|
|
| |
|
|
|
Weighted- | |
| |
|
Number of | |
|
Average Exercise | |
| |
|
Shares | |
|
Price | |
| |
|
| |
|
| |
|
Outstanding — December 31, 2001
|
|
|
5,418 |
|
|
$ |
0.10 |
|
| |
Granted
|
|
|
441,755 |
|
|
|
0.38 |
|
| |
|
|
|
|
|
|
|
Outstanding — December 31, 2002
|
|
|
447,173 |
|
|
|
0.37 |
|
| |
Granted
|
|
|
1,433,436 |
|
|
|
1.02 |
|
| |
Exercised
|
|
|
(16,980 |
) |
|
|
0.38 |
|
| |
Cancelled
|
|
|
(1,400 |
) |
|
|
0.38 |
|
| |
|
|
|
|
|
|
|
Outstanding — December 31, 2003
|
|
|
1,862,229 |
|
|
|
0.87 |
|
| |
Granted
|
|
|
2,906,621 |
|
|
|
6.12 |
|
| |
Exercised
|
|
|
(221,902 |
) |
|
|
0.80 |
|
| |
Cancelled
|
|
|
(46,678 |
) |
|
|
4.39 |
|
| |
|
|
|
|
|
|
|
Outstanding — December 31, 2004
|
|
|
4,500,270 |
|
|
$ |
4.23 |
|
| |
|
|
|
|
|
|
|
Exercisable — December 31, 2002
|
|
|
24,506 |
|
|
$ |
0.30 |
|
| |
|
|
|
|
|
|
|
Exercisable — December 31, 2003
|
|
|
496,744 |
|
|
$ |
0.79 |
|
| |
|
|
|
|
|
|
|
Exercisable — December 31, 2004
|
|
|
717,176 |
|
|
$ |
1.10 |
|
| |
|
|
|
|
|
|
80
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The options outstanding and exercisable at December 31,
2004 under the plans are as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Outstanding | |
|
Exercisable | |
| |
|
| |
|
| |
| |
|
|
|
Weighted- | |
|
|
|
|
| |
|
|
|
Average | |
|
Weighted- | |
|
|
|
Weighted- | |
| |
|
|
|
Contractual Life | |
|
Average | |
|
|
|
Average | |
| |
|
Number of Options | |
|
Outstanding | |
|
Exercise | |
|
Options | |
|
Exercise | |
| Exercise Price |
|
Outstanding | |
|
(in Years) | |
|
Price | |
|
Exercisable | |
|
Price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
$0.10
|
|
|
2,724 |
|
|
|
6.0 |
|
|
$ |
0.10 |
|
|
|
2,724 |
|
|
$ |
0.10 |
|
|
$0.38
|
|
|
318,198 |
|
|
|
7.6 |
|
|
$ |
0.38 |
|
|
|
165,899 |
|
|
$ |
0.38 |
|
|
$1.05
|
|
|
1,319,259 |
|
|
|
9.0 |
|
|
$ |
1.05 |
|
|
|
519,024 |
|
|
$ |
1.05 |
|
|
$1.88-$5.63
|
|
|
565,089 |
|
|
|
9.5 |
|
|
$ |
5.24 |
|
|
|
22,001 |
|
|
$ |
5.63 |
|
|
$5.99
|
|
|
1,434,500 |
|
|
|
9.7 |
|
|
$ |
5.99 |
|
|
|
— |
|
|
|
— |
|
|
$6.00-$7.75
|
|
|
793,000 |
|
|
|
9.7 |
|
|
$ |
6.86 |
|
|
|
8,056 |
|
|
$ |
6.88 |
|
|
$7.78-$7.89
|
|
|
55,000 |
|
|
|
9.9 |
|
|
$ |
7.88 |
|
|
|
— |
|
|
|
— |
|
|
$8.10
|
|
|
12,500 |
|
|
|
9.9 |
|
|
$ |
8.10 |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
4,500,270 |
|
|
|
9.2 |
|
|
$ |
4.23 |
|
|
|
717,704 |
|
|
$ |
1.10 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average fair value of stock option grants were
$4.30, $6.19 and $0.26, per share in 2004, 2003 and 2002,
respectively.
During 2002 and 2001, the Company granted stock options and
other equity awards to employees at exercise and purchase prices
deemed by the Board of Directors to be equal to the fair value
of the common stock at the time of grant except as discussed
above. The fair value of the common stock was determined by the
Board of Directors of the Company at each stock option
measurement date based on a variety of different factors
including the Company’s financial position and historical
financial performance, the status of technological developments
within the Company, the composition and ability of the current
engineering and management team, an evaluation and benchmark of
the Company’s competition, the current climate in the
marketplace, the illiquid nature of the common stock,
arms’-length sales of the Company’s capital stock
(including redeemable convertible preferred stock), the effect
of the rights and preferences of the preferred shareholders, and
the prospects of a liquidity event, among others.
During 2004 and 2003, the Company issued options to employees to
purchase 363,788 and 1,165,027 shares of common stock,
respectively, at exercise prices deemed for accounting purposes
to be below market value. The Company has recorded the
difference between the exercise price and the fair value of
$524,000 in 2004 and $6.7 million in 2003 as deferred
stock-based compensation and is amortizing this deferred
compensation as a charge to operations over the vesting periods
of the options. The Company recorded compensation expense of
$1.8 million and $165,000 related to these options for the
years ended December 31, 2004 and 2003, respectively.
Compensation expense for 2004 related to these options is
included in the accompanying consolidated statement of
operations as research and development and general and
administrative in the amounts of $198,000 and $1.6 million,
respectively. Compensation expense for 2003 related to these
options is included in the accompanying consolidated statement
of operations as research and development and general and
administrative in the amounts of $29,000 and $136,000,
respectively. The Company expects to record approximately
$1.8 million, $1.8 million, $1.6 million and
$18,000 of stock-based compensation expense related to the
amortization of deferred compensation for the years ending
December 31, 2005, 2006, 2007 and 2008, respectively.
During 2004, 2003 and 2002, the Company granted 51,333, 268,409
and 8,666 options, respectively, to nonemployees that are
accounted for in accordance with SFAS No. 123 and EITF
No. 96-18. The fair value of these awards was estimated
using the Black-Scholes option-pricing methodology and was
deemed to be de minimus in 2002, $1.8 million for 2003
and $278,000 for 2004. The Company recorded
81
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
compensation expense of approximately $916,000 and $572,000
related to these options for the years ended December 31,
2004 and 2003, respectively. Compensation expense in 2004
related to these options is included in the accompanying
consolidated statement of operations as research and development
and general and administrative in the amounts of $923,000 and
($7,000), respectively. Compensation expense in 2003 related to
these options is included in the accompanying consolidated
statement of operations as research and development and general
and administrative in the amounts of $544,000 and $28,000,
respectively.
In December 2004, the Company entered into employment agreements
with its officers. These agreements provide for, among other
things, certain severance benefits and acceleration of vesting
for stock options and restricted stock contingent upon future
events such as a change-of-control of the Company. Because the
terms in the employment agreements modified certain provisions
of each officer’s existing stock awards, a new measurement
date was created for the awards. If a change-of-control occurs,
the Company would be required to record the intrinsic value of
any options or restricted stock that vest on the date of a
change-of-control. The intrinsic value is calculated as the
difference between the fair value of common stock on the date of
remeasurement and the exercise price of the underlying stock
option or the purchase price of restricted stock. As of
December 31, 2004, there were 1,389,161 unvested stock
options and restricted stock remaining. If a change-of-control
were to occur and all of these securities were to vest, the
intrinsic value of these securities totaling $5.9 million
would be recorded as stock-based compensation expense.
In May 2002, the Company issued restricted common stock to an
officer of the Company in exchange for a $39,500 full recourse
promissory note. Principal and interest, which accrues at a per
year rate of 6%, is due on the first anniversary of the closing
of the Company’s initial public offering of shares of
common stock. The entire unpaid principal and accrued interest
are payable upon insolvency of the borrower or other events as
defined. The promissory note is recorded as a subscription
receivable in the accompanying balance sheet and is reflected as
a reduction of stockholders’ deficit.
In October 2002, the Company issued 290,000 shares of
Series A Preferred Stock to its chief executive officer in
exchange for two full recourse promissory notes of $145,000
each. Each note accrues interest at 6% per annum. In
January 2003, one of the notes was repaid. The second note is
payable on the earlier of October 24, 2007 or the first
anniversary of the closing of the Company’s initial public
offering of shares of common stock. Both notes to this officer
are recorded as subscription receivables in the accompanying
balance sheet and are reflected as a reduction of redeemable
convertible preferred stock.
In October 2002, the Company provided a $60,000 interest free
loan to an officer of the Company in exchange for a full
recourse promissory note. Under the terms of the note, $10,000
of principal shall be forgiven by the Company on October 7,
2003, October 7, 2004, and October 7, 2005 as long as
an event of default has not occurred and the officer continues
to be employed by the Company. The remaining balance is payable
in annual installments of $10,000 beginning in 2004 with such
payment first to be deducted from any bonus amount payable to
the officer by the Company. The entire unpaid principal is
payable upon termination of employment, insolvency of the
borrower, or other events as defined. The promissory note is
recorded in the accompanying balance sheet as a note receivable
from officer.
In December 2003, the Board of Directors approved the
forgiveness of all outstanding principal and any accrued
interest in connection with the loans upon the filing of a
registration statement of Form S-1 by the Company with the
Securities and Exchange Commission, which occurred in March
2004. In connection with the loan forgiveness, the Board of
Directors approved the payment of approximately $175,000 for
state and federal taxes on behalf of the officers. Accordingly,
there are no outstanding loans to officers as of
December 31, 2004.
82
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| (9) |
Employee Benefit Plan |
During 2003, the Company adopted a 401(k) profit sharing plan
(the “Plan”) covering all employees of the Company who
meet certain defined requirements. Under the terms of the Plan,
the employees may elect to make tax-deferred contributions
through payroll deductions within statutory and plan limits and
the Company may elect to make matching or voluntary
contributions. During 2004, the Company matched 100% of employee
contributions up to a maximum of $1,000 per employee
resulting in expense of $50,000. The Company did not make
matching contributions to the Plan during the year ended
December 31, 2003.
The Company’s deferred tax accounts consisted of the
following at December 31 (in thousands):
| |
|
|
|
|
|
|
|
|
|
| |
|
2004 | |
|
2003 | |
| |
|
| |
|
| |
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| |
Start-up expenses
|
|
$ |
113 |
|
|
$ |
176 |
|
| |
Net operating loss carryforward
|
|
|
13,581 |
|
|
|
4,620 |
|
| |
Deferred revenue
|
|
|
2,990 |
|
|
|
3,501 |
|
| |
Research and experimentation credits
|
|
|
619 |
|
|
|
566 |
|
| |
Depreciation and amortization
|
|
|
151 |
|
|
|
— |
|
| |
Other
|
|
|
122 |
|
|
|
43 |
|
| |
|
|
|
|
|
|
|
Total
|
|
|
17,576 |
|
|
|
8,906 |
|
|
Deferred tax liability — depreciation and amortization
|
|
|
— |
|
|
|
(96 |
) |
| |
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
17,576 |
|
|
|
8,810 |
|
|
Less valuation allowance
|
|
|
(17,576 |
) |
|
|
(8,810 |
) |
| |
|
|
|
|
|
|
|
Total
|
|
$ |
— |
|
|
$ |
— |
|
| |
|
|
|
|
|
|
Because of the Company’s limited operating history,
management has provided a 100% reserve against the
Company’s net deferred tax assets.
The Company has available federal and state net operating loss
carryforwards of approximately $38.8 million which expire
beginning in 2021 and 2006 for federal and state tax purposes,
respectively. The Company also has research and experimentation
tax credits which expire beginning in 2021. The Company did not
pay any income taxes in any of the years presented.
|
|
| (11) |
Research and License Agreements |
The following is a summary of the Company’s significant
research and license agreements:
On December 18, 2003, the Company entered into an agreement
to in-license the controlled-release formulation and the
intravenous formulation of zileuton from Abbott Laboratories
(“Abbott”). The Company has the right to commercialize
this product for all clinical indications except for research,
diagnostics, therapeutics and services to humans under age seven
and for cardiovascular and vascular devices. The Company is
obligated to make milestone payments to Abbott for successful
completion of the technology transfer, filing and approval of
the product in the United States and commercialization of the
product. In addition, the Company will make royalty payments to
Abbott based upon sales of the product. The agreement may be
terminated by either party for cause. The Company may also
terminate the
83
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
agreement at any time upon 60 days notice to Abbott and
payment of a termination fee. As of December 31, 2004 and
2003, $0 and $1.5 million, respectively, was due under the
agreement, and was included in accrued expenses.
On March 17, 2004, the Company entered into an agreement to
in-license an immediate-release formulation of zileuton from
Abbott. The Company agreed to pay a license fee of $500,000, a
milestone payment and royalties to Abbott based upon sales of
the product. The agreement may be terminated by either party for
cause. The Company may also terminate the agreement at any time
upon 60 days notice to Abbott. During 2004, the Company
paid the $500,000 license fee, and did not pay any milestones
under this agreement.
On December 3, 2003, the Company entered into an agreement
with a subsidiary of SkyePharma PLC (“SkyePharma”), to
in-license the controlled-release technology relating to
zileuton from SkyePharma. The Company is required to make
milestone payments to SkyePharma for successful completion of
the technology transfer, filing and approval of the product in
the U.S. and commercialization of the product. In addition, the
Company will make royalty payments to SkyePharma based upon
sales of the product. The agreement may be terminated by either
party for cause. As of December 31, 2004 and 2003, $0 and
$750,000, respectively, is due under the agreement and is
included in accrued liabilities.
On December 15, 2000, the Company entered into a license
agreement with Xanthus Life Sciences (formerly Phenome Sciences)
(“Xanthus”) whereby the Company will utilize certain
of Xanthus’ technology in its research effort in connection
with one of its drug candidates, CTI-01. Under the terms of the
agreement, the Company, on February 1, 2001, paid and
expensed $103,000 for the license and may be required to pay up
to an additional $2.0 million if certain research
milestones are achieved. As of December 31, 2004, none of
these milestones had been achieved. In addition, the Company is
obligated to pay royalties to Xanthus based on product sales
with an annual minimum of $10,000 beginning in 2006. As of
December 31, 2004, no royalties had been paid or accrued by
the Company. The Company also agreed to pay all patent
maintenance costs as of December 15, 2000 and reimburse
Xanthus for all patent costs incurred after December 15,
2000.
On July 1, 2001, the Company entered into a license
agreement with the North Shore Long Island Jewish Research
Institute (“North Shore”) whereby the Company will
utilize certain of North Shore’s technology in its research
effort in connection with one of its research targets, HMGB1.
The Company paid and expensed $100,000 to North Shore for the
license and may be required to pay an additional $412,500 if
certain research milestones are achieved. As of
December 31, 2004 none of these milestones had been
achieved. In addition, the Company is obligated to pay royalties
to North Shore based on product sales. In the event of no
product sales, the Company will be required to pay minimum
annual royalties of $15,000 in years 2007 through 2011 and
$75,000 in years 2012 through the expiration of the patent in
2023. The Company also agreed to pay all patent maintenance cost
incurred after July 1, 2001 and to reimburse North Shore up
to $50,000 in patent costs incurred prior to July 1, 2001.
In December 2003, this agreement was amended to redefine the
sublicense fees payable to North Shore. In connection with the
amendment, the Company agreed to issue 66,666 shares of
common stock having a value of $485,000 to North Shore (see
Note 7). As a result of the collaboration agreement with
MedImmune (see Note 3), the Company incurred an obligation
to pay a sublicense fee to North Shore in the amount of
$2,025,000. As of December 31, 2003, $300,000 of the
sublicense fee was paid to North Shore and
84
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
$1,725,000 was included in accrued liabilities and paid in 2004.
The sublicense fee and the value of the common stock issued to
North Shore are included in research and development expense in
the accompanying consolidated statements of operations for the
year ended December 31, 2003. There are no amounts due to
North Shore as of December 31, 2004.
Also on July 1, 2001, the Company entered into a sponsored
research and license agreement with North Shore whereby the
Company committed to $400,000 of research funding over a period
of two years in connection with efforts to identify HMGB1
inhibitors. In July 2003, the Company amended the Agreement to
provide for an additional $600,000 of research funding. During
2004 and 2003, the Company contributed a total of $200,000 and
$150,000, respectively, in research funding. In connection with
obtaining certain licenses from North Shore, the Company issued
102,222 shares of its common stock (see Note 7),
subject to repurchase restrictions, and may pay up to an
additional $300,000 if certain research milestones are achieved.
As of December 31, 2004, none of these milestones had been
achieved. In addition, the Company is obligated to pay royalties
to North Shore based on product sales.
On January 1, 2003, the Company entered into a second
sponsored research and license agreement with North Shore
whereby the Company committed to $600,000 of research funding in
the field of cholinergic anti-inflammatory technology over a
period of three years and paid a $175,000 license fee during
2003. Research funding under this agreement in 2006 and 2007
will be mutually agreed upon by the parties. During 2004 and
2003, the Company contributed a total of $150,000 and $200,000,
respectively, in research funding. The Company may be required
to pay an additional $1.5 million in cash and common stock
if certain milestones are achieved as well as royalty payments
based on product sales. In the event of no product sales, the
Company will be required to pay minimum annual royalties of
$100,000 in 2008, which will increase by $50,000 annually to a
maximum of $400,000 in 2014 through the expiration of the patent
in 2023.
During 2004, 2003 and 2002, the Company entered into additional
non-exclusive license and sponsored research agreements, none of
which are individually material. The Company has paid $371,000,
$229,000 and $50,000, during 2004, 2003 and 2002, respectively,
under these agreements. The Company has committed to additional
payments of approximately $253,000 and $47,000 for the years
ended December 31, 2005 and 2006, respectively, and the
Company is obligated to pay royalties based on product sales
with an annual minimum of $40,000.
|
|
| (12) |
Commitments and Contingencies |
From time to time, the Company may have certain contingent
liabilities that arise in the ordinary course of business. The
Company accrues for liabilities when it is probable that future
expenditures will be made and such expenditures can be
reasonably estimated. For all periods presented, the Company is
not a party to any pending material litigation or other material
legal proceedings.
The Company leases its facilities, vehicles and certain
equipment under operating leases. Rent expense for the years
ended December 31, 2004, 2003 and 2002 was
$1.9 million, $559,000 and $250,000, respectively. The
facility lease contains a rent escalation clause that requires
the Company to pay additional rental amounts in the later years
of the lease term. Rent expense for this lease is recognized on
a straight-line basis over the minimum lease term. Leases expire
from April 2007 to March 2009. The
85
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
minimum aggregate future obligations under noncancelable lease
obligations as of December 31, 2004 are as follows (in
thousands):
| |
|
|
|
|
| |
|
Operating | |
| Year Ending |
|
Leases | |
| |
|
| |
|
2005
|
|
$ |
1,503 |
|
|
2006
|
|
|
1,310 |
|
|
2007
|
|
|
1,303 |
|
|
2008
|
|
|
1,291 |
|
|
2009
|
|
|
216 |
|
|
Thereafter
|
|
|
— |
|
| |
|
|
|
|
Total
|
|
$ |
5,623 |
|
| |
|
|
|
|
|
|
Founders’ Consulting Agreements |
On January 31, 2001, as amended on January 16, 2003,
each of the Company’s founders entered into a separate
consulting agreement with the Company in which they contracted
to provide consulting services to the Company. For the years
ended December 31, 2004, 2003 and 2002, amounts paid under
these agreements totaled $305,000, $299,000 and $292,000,
respectively. Future payments to be made under the agreements
are scheduled to be as follows (in thousands):
| |
|
|
|
|
| Year Ending |
|
Payments | |
| |
|
| |
|
2005
|
|
$ |
313 |
|
|
2006
|
|
|
321 |
|
|
2007
|
|
|
26 |
|
| |
|
|
|
|
Total
|
|
$ |
660 |
|
| |
|
|
|
|
|
| (13) |
Relocation of Headquarters |
During 2004, the Company relocated its headquarters to
Lexington, Massachusetts and consolidated its research
facilities from two to one. Under SFAS No. 146,
“Costs Associated with an Exit or Disposal Activity,”
the Company recorded a liability of $441,000 in the three-month
period ended June 30, 2004 related to the remaining
obligations under an operating lease that expires in October
2005 at its previous headquarters. During the year ended
December 31, 2004, the Company reduced the liability by
$48,000 to adjust for the known effect of rental income expected
to be realized under a sublease agreement signed by the Company
in September 2004, partially offset by certain other estimated
costs associated with the lease termination. The liability is
included in accrued expenses in the accompanying consolidated
balance sheet as of December 31, 2004.
The following table summarizes the activity related to the
remaining lease obligation recorded under SFAS No. 146
(in thousands):
| |
|
|
|
|
|
|
Remaining lease obligation from former headquarter facility
|
|
$ |
441 |
|
| |
Payments
|
|
|
(208 |
) |
| |
Adjustment
|
|
|
(48 |
) |
| |
Rental income under sublease agreement
|
|
|
28 |
|
| |
|
|
|
|
Balance — December 31, 2004
|
|
$ |
213 |
|
| |
|
|
|
86
CRITICAL THERAPEUTICS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
| (14) |
Unaudited Quarterly Financial Data |
The following table summarizes selected unaudited quarterly
financial information for 2004 and 2003. The Company believes
that all adjustments, consisting of normal recurring adjustments
considered necessary for a fair presentation, have been included
in the selected quarterly information (in thousands, except per
share data).
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Basic and | |
| |
|
Revenue | |
|
|
|
Net Loss | |
|
Diluted Net | |
| |
|
Under | |
|
|
|
Available to | |
|
Loss Per | |
| |
|
Collaboration | |
|
|
|
Common | |
|
Common | |
| |
|
Agreement | |
|
Net Loss | |
|
Stockholders | |
|
Share | |
| |
|
| |
|
| |
|
| |
|
| |
|
Year Ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
— |
|
|
$ |
(2,858 |
) |
|
$ |
(3,279 |
) |
|
$ |
(6.37 |
) |
| |
Second Quarter
|
|
|
— |
|
|
|
(3,572 |
) |
|
|
(3,998 |
) |
|
|
(6.61 |
) |
| |
Third Quarter
|
|
|
401 |
|
|
|
(3,549 |
) |
|
|
(3,980 |
) |
|
|
(5.72 |
) |
| |
Fourth Quarter
|
|
|
620 |
|
|
|
(10,130 |
) |
|
|
(11,117 |
) |
|
|
(13.63 |
) |
|
Year Ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
First Quarter
|
|
$ |
805 |
|
|
$ |
(6,385 |
) |
|
$ |
(7,546 |
) |
|
$ |
(6.85 |
) |
| |
Second Quarter
|
|
|
781 |
|
|
|
(6,946 |
) |
|
|
(7,994 |
) |
|
|
(0.81 |
) |
| |
Third Quarter
|
|
|
1,886 |
|
|
|
(6,584 |
) |
|
|
(6,584 |
) |
|
|
(0.28 |
) |
| |
Fourth Quarter
|
|
|
964 |
|
|
|
(11,179 |
) |
|
|
(11,179 |
) |
|
|
(0.47 |
) |
Because of the method used in calculating per share data, the
quarterly per share data will not necessarily add to the per
share data as computed for the year.
(15) Subsequent Event
In January 2005, the Company entered into a license agreement
with Beckman Coulter, Inc. relating to the development of
diagnostic products for measuring HMGB1. Under the terms of the
agreement, the Company granted to Beckman Coulter and its
affiliates an exclusive worldwide license to evaluate, develop,
make, use and sell a kit or assemblage of reagents for measuring
HMGB1. In consideration for the license, Beckman Coulter paid
the Company $250,000 and agreed to pay potential additional
aggregate license fees of up to $850,000. Beckman Coulter also
agreed to pay the Company royalties based on net sales of
licensed products.
In February 2005, the Company entered into a commercial supply
agreement with Rhodia Pharma Solutions Ltd. for the commercial
production of the active pharmaceutical ingredient of zileuton.
Under the commercial supply agreement, Rhodia has agreed to
manufacture the Company’s commercial supplies, subject to
specified limitations, through December 31, 2009.
87
|
|
| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE |
There have been no disagreements with our independent auditors
on accounting and financial disclosure matters.
|
|
| ITEM 9A. |
CONTROLS AND PROCEDURES |
Our management, with the participation of our chief executive
officer and chief financial officer, evaluated the effectiveness
of our disclosure controls and procedures as of
December 31, 2004. The term “disclosure controls and
procedures,” as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, means controls and other
procedures of a company that are designed to ensure that
information required to be disclosed by the company in the
reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by
a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the
company’s management, including its principal executive and
principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. Management recognizes
that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving
their objectives and management necessarily applies its judgment
in evaluating the cost-benefit relationship of possible controls
and procedures. Based on the evaluation of our disclosure
controls and procedures as of December 31, 2004, our chief
executive officer and chief financial officer concluded that, as
of such date, our disclosure controls and procedures were
effective at the reasonable assurance level.
No change in our internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) occurred during the fiscal quarter ended December 31,
2004 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
|
|
| ITEM 9B. |
OTHER INFORMATION |
2004 Executive Compensation
On November 30, 2004, our independent directors approved
discretionary cash bonuses for our executive officers in respect
of our 2004 fiscal year in the following amounts, which were to
be pro rated for any executive officer employed for less than
the full year:
|
|
|
| |
• |
27% of annual 2004 salary for Paul D. Rubin, M.D., our
President and Chief Executive Officer; and |
| |
| |
• |
18% of annual 2004 salary for each of our other executive
officers. |
Accordingly, on January 10, 2005, we paid cash bonuses to
our executive officers in the following amounts, which were
included in accrued expenses as of December 31, 2004:
| |
|
|
|
|
| Executive Officer |
|
Cash Bonus | |
| |
|
| |
|
Paul D. Rubin, M.D.
|
|
$ |
90,000 |
|
|
Trevor Phillips, Ph.D.
|
|
$ |
41,400 |
|
|
Walter Newman, Ph.D.
|
|
$ |
44,400 |
|
|
Frederick Finnegan
|
|
$ |
40,200 |
|
|
Frank E. Thomas
|
|
$ |
29,000 |
|
|
Scott B. Townsend
|
|
$ |
15,000 |
|
In addition, on November 30, 2004, our independent
directors approved a one-time payment to the following executive
officers in the amounts listed below to gross-up, for federal
income taxes, state income taxes and Medicare withholding, the
amount of outstanding principal and accrued interest that was
88
forgiven by us prior to the completion of our initial public
offering in respect of loans we previously made to the executive
officers:
| |
|
|
|
|
| Executive Officer |
|
Payment | |
| |
|
| |
|
Paul D. Rubin, M.D.
|
|
$ |
110,205 |
|
|
Trevor Phillips, Ph.D.
|
|
$ |
35,211 |
|
|
Walter Newman, Ph.D.
|
|
$ |
29,110 |
|
2005 Company Goals
Under the employment agreements that we have entered into with
our executive officers, each of our executive officers is
eligible for an annual cash bonus and an annual equity award in
amounts determined by the Compensation Committee of our board of
directors. On March 15, 2005, our board of directors
approved, based on the recommendation of the Compensation
Committee, company goals for 2005 for the purpose of bonus
calculations at the end of the year. The company goals for 2005
include:
|
|
|
| |
• |
enhancing the commercial value of zileuton by making specified
regulatory filings, launching ZYFLO and achieving specified
business development goals; |
| |
| |
• |
advancing our research and development pipeline by achieving
specified pre-clinical and clinical development milestones and
business development goals for our other product candidates; |
| |
| |
• |
maintaining our financial position by managing our cash
balance; and |
| |
| |
• |
recruiting and retaining key employees to create an effective
organization. |
PART III
|
|
| ITEM 10. |
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
Directors and Executive Officers
Information regarding our directors may be found under the
caption “Election of Directors” in the Proxy Statement
for our 2005 Annual Meeting of Stockholders. Information
regarding our executive officers may be found under the caption
“Executive Officers of the Registrant” in Part I
of this annual report. Such information is incorporated herein
by reference.
Audit Committee
We have a separately designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the
Exchange Act. Additional information regarding the Audit
Committee may be found under the captions “Corporate
Governance — Board Committees — Audit
Committee” and “Corporate Governance —
Report of the Audit Committee” in the Proxy Statement for
our 2005 Annual Meeting of Stockholders. Such information is
incorporated herein by reference.
Audit Committee Financial Expert
The Board of Directors has designated Richard W. Dugan as the
“Audit Committee Financial Expert” as defined by
Item 401(h) of Regulation S-K of the Exchange Act and
determined that he is independent within the meaning of
Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act.
Director Nominees
Information regarding procedures for recommending nominees to
the Board of Directors may be found under the caption
“Corporate Governance — Director Candidates”
in the Proxy Statement for our 2005 Annual Meeting of
Stockholders. Such information is incorporated herein by
reference.
89
Section 16(a) Beneficial Ownership Reporting
Compliance
Information regarding Section 16(a) Beneficial Ownership
Reporting Compliance may be found under the caption “Stock
Ownership Information — Section 16(a) Beneficial
Ownership Reporting Compliance” in the Proxy Statement for
our 2005 Annual Meeting of Stockholders. Such information is
incorporated herein by reference.
Code of Ethics
We have adopted a code of business conduct and ethics that
applies to our directors, officers (including our principal
executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions) as well as our employees. A copy of our code of
business conduct and ethics is available on our website at
www.crtx.com under “Investors — Corporate
Governance”. We intend to post on our website all
disclosures that are required by applicable law, the rules of
the Securities and Exchange Commission or Nasdaq listing
standards concerning any amendment to, or waiver from, our code
of business conduct and ethics.
|
|
| ITEM 11. |
EXECUTIVE COMPENSATION |
Information with respect to this item may be found under the
captions “Corporate Governance — Compensation of
Directors” and “Information About Executive
Compensation” in the Proxy Statement for our 2005 Annual
Meeting of Stockholders. Such information is incorporated herein
by reference.
|
|
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information with respect to this item may be found under the
captions “Stock Ownership Information” and
“Securities Authorized for Issuance Under Equity
Compensation Plans” in the Proxy Statement for our 2005
Annual Meeting of Stockholders. Such information is incorporated
herein by reference.
|
|
| ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
Information with respect to this item may be found under the
caption “Corporate Governance — Certain
Relationships and Related Transactions” in the Proxy
Statement for our 2005 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.
|
|
| ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Information with respect to this item may be found under the
caption “Corporate Governance — Independent
Auditors Fees” in the Proxy Statement for our 2005 Annual
Meeting of Stockholders. Such information is incorporated herein
by reference.
90
PART IV
|
|
| ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a)(1) Financial Statements.
|
|
| |
For a list of the financial information included herein, see
“Index to Financial Statements” on page 63. |
(a)(2) Financial Statement Schedules.
|
|
| |
All schedules are omitted because they are not applicable or the
required information is shown in the Financial Statements or
Notes thereto. |
(a)(3) List of Exhibits.
|
|
| |
The list of Exhibits filed as a part of this annual report on
Form 10-K are set forth on the Exhibit Index
immediately preceding such Exhibits, and is incorporated herein
by this reference. |
| |
| |
Critical Therapeutics®, Critical Therapeutics logo and
ZYFLO® are trademarks or service marks of Critical
Therapeutics, Inc. Other trademarks or service marks appearing
in this report are the property of their respective holders. |
91
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.
|
|
| |
CRITICAL THERAPEUTICS, INC. |
|
|
| |
President and Chief Executive Officer |
| |
| |
Date: March 16, 2005 |
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
| |
|
|
|
|
|
|
| Signature |
|
Title |
|
Date |
| |
|
|
|
|
| |
/s/ Paul D. Rubin
Paul
D. Rubin, M.D. |
|
President and Chief Executive Officer (Principal Executive
Officer) |
|
March 16, 2005 |
| |
/s/ Frank E. Thomas
Frank
E. Thomas |
|
Senior Vice President of Finance, Chief Financial Officer and
Treasurer (Principal Financial and
Accounting Officer) |
|
March 16, 2005 |
| |
/s/ Richard W. Dugan
Richard
W. Dugan |
|
Director |
|
March 16, 2005 |
| |
/s/ Nicholas Galakatos
Nicholas
Galakatos, Ph.D. |
|
Director |
|
March 16, 2005 |
| |
/s/ Jean George
Jean
George |
|
Director |
|
March 16, 2005 |
| |
/s/ Christopher Mirabelli
Christopher
Mirabelli, Ph.D. |
|
Director |
|
March 16, 2005 |
| |
/s/ Christopher Walsh
Christopher
Walsh, Ph.D. |
|
Director |
|
March 16, 2005 |
| |
/s/ H. Shaw Warren
H.
Shaw Warren, M.D. |
|
Director |
|
March 16, 2005 |
| |
/s/ Robert H. Zeiger
Robert
H. Zeiger |
|
Director |
|
March 16, 2005 |
92
EXHIBIT INDEX
| |
|
|
|
|
| Exhibit No. |
|
Description |
| |
|
|
| |
3 |
.1 |
|
Amended and Restated Certificate of Incorporation of the
Registrant (Incorporated by reference to Exhibit 3.1 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2004 (SEC File No. 000-50767)) |
| |
| |
3 |
.2 |
|
Amended and Restated Bylaws of the Registrant (Incorporated by
reference to Exhibit 3.2 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2004
(SEC File No. 000-50767)) |
| |
| |
10 |
.1* |
|
2000 Equity Incentive Plan, as amended (Incorporated by
reference to Exhibit 10.1 to the Registrant’s
Registration Statement on Form S-1 (SEC File
No. 333-113727)) |
| |
| |
10 |
.2* |
|
2003 Stock Incentive Plan, as amended (Incorporated by reference
to Exhibit 10.2 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
| |
10 |
.3* |
|
2004 Stock Incentive Plan (Incorporated by reference to
Exhibit 10.3 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
| |
10 |
.4 |
|
Amended and Restated Investor Rights Agreement by and between
the Registrant and the investors named therein dated as of
October 3, 2003 (Incorporated by reference to
Exhibit 10.4 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
| |
10 |
.5+ |
|
License Agreement between the Registrant and North Shore-Long
Island Jewish Research Institute dated July 1, 2001, as
amended by the First Amendment Agreement dated May 15, 2003
(Incorporated by reference to Exhibit 10.5 to the
Registrant’s Registration Statement on Form S-1 (SEC
File No. 333-113727)) |
| |
| |
10 |
.6+ |
|
Sponsored Research and License Agreement between the Registrant
and North Shore-Long Island Jewish Research Institute dated
July 1, 2001, as amended by the First Amendment Agreement
dated July 1, 2003 (Incorporated by reference to
Exhibit 10.6 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
| |
10 |
.7+ |
|
Sponsored Research and License Agreement between the Registrant
and North Shore-Long Island Jewish Research Institute dated
January 1, 2003 (Incorporated by reference to
Exhibit 10.7 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
| |
10 |
.8+ |
|
Exclusive License and Collaboration Agreement between the
Registrant and MedImmune, Inc. dated July 30, 2003
(Incorporated by reference to Exhibit 10.8 to the
Registrant’s Registration Statement on Form S-1 (SEC
File No. 333-113727)) |
| |
10 |
.9+ |
|
Exclusive License Agreement between the Registrant and Xanthus
Life Sciences, Inc. (formerly Phenome Sciences, Inc.) dated
December 15, 2000 (Incorporated by reference to
Exhibit 10.9 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
10 |
.10+ |
|
License Agreement between the Registrant and Abbott Laboratories
dated December 18, 2003 (Incorporated by reference to
Exhibit 10.10 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
10 |
.11+ |
|
License Agreement between the Registrant and Abbott Laboratories
dated March 17, 2004 (Incorporated by reference to
Exhibit 10.11 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
10 |
.12+ |
|
License Agreement between the Registrant and the University of
Pittsburgh of the Commonwealth System of Higher Education dated
November 15, 2002 (Incorporated by reference to
Exhibit 10.12 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
| |
10 |
.13+ |
|
Agreement between the Registrant and Jagotec AG dated
December 3, 2003 (Incorporated by reference to
Exhibit 10.13 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
|
|
|
|
| Exhibit No. | |
|
Description |
| | |
|
|
| |
| |
10 |
.14+ |
|
Proposal by and between the Registrant and Rhodia Pharma
Solutions for qualification of Zileuton dated August 14,
2003 (Incorporated by reference to Exhibit 10.14 to the
Registrant’s Registration Statement on Form S-1 (SEC
File No. 333-113727)) |
| |
| |
10 |
.15 |
|
Consulting Agreement by and between the Registrant and H. Shaw
Warren, Jr., M.D. dated January 31, 2001, as
amended on February 6, 2003 (Incorporated by reference to
Exhibit 10.15 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
| |
10 |
.16 |
|
Consulting Agreement by and between the Registrant and Mitchell
Fink, M.D. dated January 31, 2001, as amended on
January 22, 2003 (Incorporated by reference to
Exhibit 10.16 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
| |
10 |
.17 |
|
Consulting Agreement by and between the Registrant and Kevin J.
Tracey, M.D. dated January 31, 2001, as amended on
January 16, 2003 (Incorporated by reference to
Exhibit 10.17 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
| |
10 |
.18 |
|
Assignment, Assumption and Amendment of Lease made as of
April 10, 2002 among Central Plaza/ Wells Avenue LLC,
TolerRx, Inc. and the Registrant for Lease dated
October 25, 2000 (Incorporated by reference to
Exhibit 10.19 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
| |
10 |
.19 |
|
Lease Agreement between ARE — 60 Westview Street, LLC
and the Registrant dated as of November 18, 2003
(Incorporated by reference to Exhibit 10.21 to the
Registrant’s Registration Statement on Form S-1 (SEC
File No. 333-113727)) |
| |
| |
10 |
.20+ |
|
Development and Scale-Up Agreement between the Registrant and
Jagotec AG dated May 6, 2004 (Incorporated by reference to
Exhibit 10.25 to the Registrant’s Registration
Statement on Form S-1 (SEC File No. 333-113727)) |
| |
| |
10 |
.21 |
|
Loan and Security Agreement by and between the Registrant and
Silicon Valley Bank dated June 28, 2002, as modified by the
Loan Modification Agreement dated as of December 11, 2002,
the Second Loan Modification Agreement dated as of
April 10, 2003 and the Third Loan Modification Agreement
dated as of June 30, 2004 (Incorporated by reference to
Exhibit 10.1 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004 (SEC File No.
000-50767)) |
| |
| |
10 |
.22 |
|
Sublease Termination Agreement dated as of May 21, 2004, by
and between the Registrant and Elixir Pharmaceuticals, Inc.
(successor-in-interest to Centagenetix, Inc. by merger), and
related Warranty Bill of Sale (Incorporated by reference to
Exhibit 10.3 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004 (SEC File No.
000-50767)) |
| |
| |
10 |
.23++ |
|
Standard Exclusive License Agreement with Sublicense Terms
between Registrant and the University of Florida Research
Foundation, Inc. effective September 2, 2004 (Incorporated
by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 (SEC File No. 000-50767)) |
| |
| |
10 |
.24++ |
|
Proposal Between Registrant and Patheon Pharmaceuticals, Inc.
dated August 12, 2004 (Incorporated by reference to
Exhibit 10.2 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004 (SEC
File No. 000-50767)) |
| |
| |
10 |
.25++ |
|
Feasibility Study Agreement between Baxter Healthcare
Corporation and the Registrant effective June 9, 2004 |
| |
| |
10 |
.26 |
|
Form of Incentive Stock Option Agreement granted under 2004
Stock Incentive Plan |
| |
| |
10 |
.27 |
|
Form of Nonstatutory Stock Option Agreement granted under 2004
Stock Incentive Plan |
| |
| |
10 |
.28 |
|
Form of Restricted Stock Agreement granted under 2004 Stock
Incentive Plan |
| |
| |
10 |
.29 |
|
Form of Nonstatutory Stock Option Agreement for a Non-Employee
Director granted under the 2004 Stock Incentive Plan |
| |
|
|
|
|
| Exhibit No. | |
|
Description |
| | |
|
|
| |
| |
10 |
.30* |
|
Incentive Stock Option Agreement between Registrant and Paul
Rubin dated September 8, 2004 (Incorporated by reference to
Exhibit 10.4 to the Registrant’s Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004
(SEC File No. 000-50767)) |
| |
| |
10 |
.31* |
|
Incentive Stock Option Agreement between Registrant and Trevor
Phillips dated September 8, 2004 (Incorporated by reference
to Exhibit 10.5 to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004
(SEC File No. 000-50767)) |
| |
| |
10 |
.32* |
|
Incentive Stock Option Agreement between Registrant and Walter
Newman dated September 8, 2004 (Incorporated by reference
to Exhibit 10.6 to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004 (SEC
File No. 000-50767)) |
| |
| |
10 |
.33* |
|
Incentive Stock Option Agreement between Registrant and
Frederick Finnegan dated September 8, 2004 (Incorporated by
reference to Exhibit 10.7 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 (SEC File No. 000-50767)) |
| |
| |
10 |
.34* |
|
Incentive Stock Option Agreement between Registrant and Frank
Thomas dated September 8, 2004 (Incorporated by reference
to Exhibit 10.8 to the Registrant’s Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004
(SEC File No. 000-50767)) |
| |
| |
10 |
.35* |
|
Employment Agreement dated December 21, 2004 by and between
the Registrant and Paul D. Rubin, M.D. (Incorporated by
reference to Exhibit 99.1 to the Registrant’s Current
Report on Form 8-K dated December 21, 2004 (SEC File No.
000-50767)) |
| |
| |
10 |
.36* |
|
Employment Agreement dated December 21, 2004 by and between
the Registrant and Walter Newman, Ph.D. (Incorporated by
reference to Exhibit 99.2 to the Registrant’s Current
Report on Form 8-K dated December 21, 2004 (SEC File No.
000-50767)) |
| |
| |
10 |
.37* |
|
Employment Agreement dated December 21, 2004 by and between
the Registrant and Trevor Phillips, Ph.D. (Incorporated by
reference to Exhibit 99.3 to the Registrant’s Current
Report on Form 8-K dated December 21, 2004 (SEC File No.
000-50767)) |
| |
| |
10 |
.38* |
|
Employment Agreement dated December 21, 2004 by and between
the Registrant and Frederick Finnegan (Incorporated by reference
to Exhibit 99.4 to the Registrant’s Current Report on
Form 8-K dated December 21, 2004 (SEC File No. 000-50767)) |
| |
| |
10 |
.39* |
|
Employment Agreement dated December 21, 2004 by and between
the Registrant and Frank E. Thomas (Incorporated by reference to
Exhibit 99.5 to the Registrant’s Current Report on
Form 8-K dated December 21, 2004 (SEC File No. 000-50767)) |
| |
| |
10 |
.40* |
|
Employment Agreement dated December 21, 2004 by and between
the Registrant and Scott B. Townsend (Incorporated by reference
to Exhibit 99.6 to the Registrant’s Current Report on
Form 8-K dated December 21, 2004 (SEC File No. 000-50767)) |
| |
| |
10 |
.41++ |
|
Agreement for Manufacturing and Supply of ZILEUTON by and
between Rhodia Pharma Solutions Ltd. and the Registrant dated
February 8, 2005 |
| |
| |
10 |
.42* |
|
Critical Therapeutics, Inc. 2005 Company Goals |
| |
| |
21 |
.1 |
|
Subsidiaries of the Registrant |
| |
| |
23 |
.1 |
|
Consent of Deloitte & Touche LLP |
| |
| |
31 |
.1 |
|
Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
| |
| |
31 |
.2 |
|
Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
| |
|
|
|
|
| Exhibit No. | |
|
Description |
| | |
|
|
| |
| |
32 |
.1 |
|
Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
| |
| |
32 |
.2 |
|
Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
| * |
Management contract or compensation plan or arrangement required
to be filed as an exhibit pursuant to Item 15(c) of
Form 10-K. |
| |
| + |
Confidential treatment granted as to certain portions, which
portions have been omitted and separately filed with the
Securities and Exchange Commission |
|
|
| ++ |
Confidential treatment requested as to certain portions, which
portions have been omitted and filed separately with the
Securities and Exchange Commission. |
