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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to _________
Commission file number 0-19267
ALKERMES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2472830
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
64 Sidney Street, Cambridge, MA 02139-4234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 494-0171
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share ("Common Stock")
1994 Class A Warrants to purchase shares of Common Stock
--------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
Based upon the last sale price of the Registrant's Common Stock on June
6, 1997, the aggregate market value of the 19,366,270 outstanding shares of
voting and non-voting common equity held by non-affiliates of the Registrant was
$331,647,374.
As of June 6, 1997, 20,765,518 shares of the Registrant's Common Stock
were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in
this Report on Form 10-K:
1) Proxy Statement dated June 27, 1997 for the Registrant's
Annual Shareholders' Meeting to be held on July 25, 1997 (Part
III).
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PART I
ITEM 1. BUSINESS
GENERAL
Alkermes, Inc. (together with its subsidiaries, "Alkermes" or the
"Registrant"), a Pennsylvania corporation organized in 1987, is applying the
tools of biotechnology to the development of sophisticated proprietary drug
delivery systems. The Registrant is developing product candidates based on three
independent drug delivery technologies: ProLease(R), which is designed to enable
single injections lasting a few days to several months to be made of proteins or
peptides otherwise given by more frequent injection; RMP-7(TM), which is
designed to enable increased drug delivery to the brain by transiently opening
the blood-brain barrier; and Medisorb(R), which extends Alkermes' technology for
injectable sustained release and is designed for more traditional small molecule
pharmaceutical compounds. Utilizing these drug delivery systems, the Registrant
is currently in various stages of preclinical and clinical development of
several product candidates.
OVERVIEW OF DRUG DELIVERY
Drug delivery companies apply proprietary technologies to create new
pharmaceutical products based on drugs developed by others. These products are
generally novel, cost-effective dosage forms that provide any of several
benefits including control of drug concentration in the blood, improved safety
and efficacy, improved patient compliance and ease of use and expanded
indications. Drug delivery technologies can provide pharmaceutical companies
with a means of developing new products as well as expanding existing drug
franchises.
The drug delivery industry emerged to address the opportunities for
advanced delivery of traditional pharmaceutical compounds. These compounds are
generally stable, small molecules manufactured by conventional synthetic
methods, for which oral or transdermal (through the skin) delivery could be
enabled or enhanced by drug delivery technologies. Technologies such as passive
transdermal systems (patches) and advanced tablets and capsules have been
developed and successfully applied to a range of pharmaceutical products. In
addition, certain traditional small molecule pharmaceuticals are delivered by
means of encapsulation in polymeric microspheres.
With the advent of biotechnology, new opportunities in drug delivery
have arisen. Advances in biotechnology have facilitated the development of a new
generation of biopharmaceutical products based on proteins, peptides and nucleic
acids. At the same time, the scientific tools of biotechnology have enabled new
approaches to drug delivery based on exploiting particular biological phenomena,
for example utilizing natural properties of the blood-brain barrier to
facilitate drug delivery to the central nervous system.
Proteins and peptides present drug delivery challenges because they are
often large molecules which degrade rapidly in the bloodstream, have limited
ability to cross cell membranes and generally cannot be delivered orally. As a
result, many biopharmaceuticals must be administered by injection, often
multiple times per day or per week. Consequently, the methods of administration
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biopharmaceuticals can limit their clinical applications to certain disease
states that warrant the expense and inconvenience of frequent injection.
Drug delivery to the central nervous system is complicated by the
existence of the blood-brain barrier, the layer of tightly joined endothelial
cells which comprise the walls of the capillaries of the brain and limit the
free flow of many blood constituents into the brain. Many drugs cannot easily
cross the blood-brain barrier, and therefore must be administered in relatively
high doses that may result in systemic toxicity or high cost. Drugs with limited
ability to cross the blood-brain barrier include many water soluble
chemotherapeutic and anti-infective agents that are frequently used in the
treatment of diseases outside of the central nervous system.
BUSINESS STRATEGY
Alkermes' business strategy is to develop and acquire drug delivery
systems to address significant new drug delivery opportunities arising in the
pharmaceutical industry. There are four key elements to Alkermes' strategy:
Develop and Acquire Broadly Applicable Drug Delivery Systems and Apply
Them to Multiple Pharmaceutical Products. The Registrant develops or acquires
drug delivery systems that have the potential to be applied to multiple
proteins, peptides and small molecule pharmaceutical compounds to create new
product opportunities. For example, the Registrant has developed RMP-7
technology independently and acquired the ProLease and Medisorb technologies.
The Registrant currently has several product candidates utilizing those
technologies in development.
Collaborate to Develop and Finance Product Candidates. In addition to
conducting product development activities on its own, the Registrant has entered
into collaborations with pharmaceutical and biotechnology companies and others
to develop product candidates incorporating the Registrant's technologies,
provide capital for product development independent of capital markets and share
development risk. Currently, the Registrant is collaborating with major
pharmaceutical companies, including Genentech, Inc. ("Genentech"),
Schering-Plough Corporation ("Schering-Plough"), Johnson & Johnson and Janssen
Pharmaceutica International ("Janssen").
Apply Drug Delivery Systems to Both Approved Drugs and Drugs in
Development. The Registrant is applying its drug delivery technologies to novel
applications and formulations of pharmaceutical products that have already been
approved by the FDA or other regulatory authorities. In such cases, the
Registrant and its partners can develop a novel dosage form or application with
the knowledge of a drug's safety and efficacy profile and a body of clinical
experience from which to draw information for the design of clinical trials and
for regulatory submissions. The Registrant is also applying its technologies to
new pharmaceuticals that require a sustained release delivery system for
successful development.
Establish Independent Product Development Capabilities. Alkermes has
assembled its own product development organization to enable it to develop
product candidates for itself and its collaborators based on its drug delivery
technologies. This capability gives the Registrant flexibility in structuring
development programs and the ability to conduct both feasibility studies and
clinical development programs for its collaborators. For example, the Registrant
has developed RMP-7
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independently and is currently conducting clinical trials of ProLease human
growth hormone ("hGH") for Genentech.
DRUG DELIVERY TECHNOLOGY
The Registrant's current focus is on the development of broadly
applicable drug delivery technologies addressing two important drug delivery
opportunities: injectable sustained release of proteins, peptides and small
molecule pharmaceutical compounds, and drug delivery to the brain across the
blood-brain barrier. The Registrant is developing product candidates based on
three independent drug delivery technologies.
ProLease: injectable sustained release of fragile proteins and peptides
ProLease is Alkermes' proprietary technology for the stabilization and
encapsulation of fragile proteins and peptides in microspheres made of common
medical polymers. The Registrant's proprietary expertise in this field lies in
its ability to preserve the biological activity of fragile drugs over an
extended period of time and to manufacture these formulations using components
and processes believed to be suitable for human pharmaceutical use. ProLease is
designed to enable novel formulations of proteins and peptides by replacing
frequent injections with controlled, sustained release over time. The Registrant
believes ProLease formulations have the potential to improve patient compliance
and ease of use by reducing the need for frequent self-injection, to lower costs
by reducing the need for frequent office visits and to improve safety and
efficacy by reducing both the variability in drug levels inherent in frequent
injections and the aggregate amount of drug given over the course of therapy. In
addition, ProLease may provide access to important new markets currently
inaccessible to drugs that require frequent injections or are administered
orally.
The ProLease formulation process has been designed to assure stability
of fragile compounds during the manufacturing process, during storage and
throughout the release phase in the body. The formulation and manufacturing
process consists of two basic steps. First, the drug is formulated with
stabilizing agents and dried to create a fine powder. Second, the powder is
microencapsulated at very low temperatures. Incorporation of the drug substance
as a stabilized solid under very low temperatures is critical to protecting
fragile molecules from degradation during the manufacturing process and is a key
element of the ProLease technology. The microspheres are suspended in a small
volume of liquid prior to administration to a patient by injection under the
skin or into a muscle. The Registrant believes drug release from the ProLease
drug delivery system can be controlled to last from a few days to several
months.
Drug release from the microsphere is controlled by diffusion of the
drug through the microsphere and by biodegradation of the polymer. These
processes can be modulated through a number of formulation and fabrication
variables including drug substance and microsphere particle sizing and choice of
polymers and excipients.
The Registrant's experience with the application of ProLease to a wide
range of proteins and peptides has shown that high incorporation efficiencies
and high drug loads can be achieved. Proteins and peptides incorporated into
ProLease microspheres have maintained their integrity, stability and
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biological activity for up to 30 days in in vitro experiments conducted on
formulations manufactured at the preclinical and clinical trials scale.
The results of animal studies with several different ProLease
formulations have shown that ProLease can release targeted levels of drugs over
extended periods of time and that the pharmacodynamic response with ProLease
formulations can match that of continuous drug infusion. Suitable in vivo
delivery patterns in rodents and primates have been achieved with different
therapeutic proteins. In July 1996, Alkermes' scientists and their collaborators
published results of primate studies of ProLease hGH in Nature Medicine, a
peer-reviewed scientific journal. These results showed that single injections of
ProLease hGH could provide sustained release and biological effect of hGH in
primates for several weeks.
RMP-7: drug delivery across the blood-brain barrier
RMP-7, a member of a family of Receptor-Mediated Permeabilizers(TM)
("RMPs(TM)"), is a nine amino acid peptide based on bradykinin, a compound
occurring naturally in the body and known to affect vascular permeability. RMP-7
is a proprietary, synthetic analog of bradykinin developed by Alkermes to
increase transiently the permeability of the blood-brain barrier. Following
injection, RMP-7 increases permeability by triggering a brief relaxation of the
tight cellular junctions of the blood-brain barrier. During the time the tight
junctions are relaxed, permeability is increased and drug molecules in the
bloodstream can diffuse into the brain in concentrations greater than can
usually be achieved without RMP-7. Preclinical and clinical data also suggest
that RMP-7 increases the uptake of pharmaceuticals in the region of brain tumor
and other pathology.
RMP-7 exerts a pharmacologic effect on the vasculature of the brain and
does not itself bind to or serve as a carrier for the drug of which it is
facilitating delivery. The Registrant is developing RMP-7 to be manufactured,
packaged and dispensed as a standalone product. In the clinical setting, RMP-7
is administered in conjunction with the therapeutic or diagnostic agent. Timing
of RMP-7 administration relative to that of the therapeutic or diagnostic agent
is determined on a drug by drug basis to optimize barrier permeability during
the time of peak drug plasma concentrations.
RMP-7 is intended to be marketed as an independent agent to increase
the utility of other therapeutic and diagnostic compounds given with it. The
Registrant believes RMP-7 may be administered along with cancer chemotherapeutic
and anti-infective agents not currently used in the treatment of central nervous
system disorders because of their limited ability to penetrate the blood-brain
barrier.
Medisorb: injectable sustained release of traditional small molecule
pharmaceuticals
Medisorb is a proprietary technology for encapsulating traditional
small molecule pharmaceuticals in microspheres made of common medical polymers.
Like ProLease, Medisorb is designed to enable novel formulations of
pharmaceuticals by providing controlled, sustained release over time. The
Registrant believes Medisorb is suitable for encapsulating stable, water
soluble, small molecule pharmaceuticals at a large scale. The Registrant
believes that Medisorb formulations may have superior features of safety,
efficacy, compliance and ease of use for drugs currently administered by
frequent injection or administered orally. Drug release from the microsphere is
controlled by
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diffusion of the pharmaceutical through the microsphere and by biodegradation of
the polymer. These processes can be modulated through a number of formulation
and fabrication variables, including drug substance and microsphere particle
sizing and choice of polymers and excipients.
The Medisorb drug delivery system uses manufacturing processes
different from the ProLease manufacturing process. The formulation and
manufacturing process consists of three basic steps. First, the drug is combined
with a polymer solution. Second, the drug/polymer solution is mixed in water to
form liquid microspheres (an emulsion). Third, the liquid microspheres are dried
to produce finished product. The microspheres are suspended in a small volume of
liquid prior to administration to a patient by injection under the skin or into
a muscle. Drug release from Medisorb can be controlled to last from a few days
to several weeks.
PROLEASE
Product Development Strategy. The Registrant's strategy is to generate
multiple product opportunities by applying ProLease technology to the
development of superior formulations of proteins and peptides that the
Registrant believes address significant market opportunities. The Registrant
believes these formulations have the potential to expand the utilization of
these products and improve the competitive advantage of its collaborators in
major markets.
The product development plan for individual ProLease formulations is
expected to proceed in several stages. First, the Registrant, either on its own
or pursuant to a collaboration, conducts initial feasibility work to test
various ProLease formulations for a particular drug in vitro and in vivo.
Following the successful completion of the feasibility stage, preclinical
development and manufacturing scale-up activities directed toward the initiation
of clinical trials of the ProLease formulation would be conducted in
collaboration with a partner.
ProLease Human Growth Hormone. Alkermes is developing a ProLease
formulation of Genentech's hGH in collaboration with Genentech. Growth hormone
deficiency results in short stature and potentially other developmental defects.
Genentech is the leading supplier of hGH in the United States. hGH is approved
for use in the treatment of children with growth hormone deficiency, Turner's
syndrome, chronic renal insufficiency and other indications and is being tested
in additional indications in adults. hGH is currently administered frequently,
often daily, by subcutaneous injection.
In February 1996, Alkermes commenced a Phase I clinical trial of
ProLease hGH in 13 growth hormone deficient adults. The study was completed in
August 1996. In November 1996, Alkermes commenced a multi-center Phase I/II
clinical trial of ProLease hGH in growth hormone deficient children. The trial
is being conducted in up to 11 medical centers in the United States and is
expected to enroll up to 62 patients.
ProLease Alpha Interferon. Alkermes is developing a ProLease
formulation of Schering-Plough's Intron(R) A (interferon alpha 2b) product in
collaboration with Schering-Plough. Schering-Plough is the leading supplier of
alpha interferon in the world. Intron A is approved for use in several
infectious diseases and certain oncology indications. Intron A is currently
administered by
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frequent injection. Schering-Plough is conducting preclinical studies and will
be responsible for clinical development.
ProLease Product for Hormone Mediated Disorders. Alkermes is developing
a ProLease formulation of a product for the treatment of hormone-mediated
disorders with Johnson & Johnson. The product development program was announced
in November 1996 following the successful completion by Alkermes of a
feasibility study initiated in early 1996. Johnson & Johnson is conducting
preclinical studies and will be responsible for clinical development.
Additional ProLease Formulations. Alkermes continues to develop
Prolease formulations of other unspecified compounds pursuant to feasibility
agreements with several pharmaceutical and biotechnology companies.
RMP-7
Product Development Strategy. The Registrant's strategy to date has
been to advance RMP-7 through clinical trials while establishing its safety,
permeability effects in humans and efficacy when used in combination with other
drugs. To support the clinical development of RMP-7, Alkermes formed, and
transferred substantially all of its rights to the RMP(TM) technology to,
Alkermes Clinical Partners, L.P. (the "Partnership"), which completed a $46
million unit offering in April 1992. Alkermes has the option to purchase all of
the limited partnership interests in the Partnership. See "Collaborative
Arrangements -- Alkermes Clinical Partners, L.P."
RMP-7 has the potential to be used in combination with a variety of
agents in various disease settings. The Registrant's goal is to expand the
applications of RMP-7 through its own development activities, and, when
appropriate, collaborations with pharmaceutical companies. First, Alkermes may
collaborate with companies having drugs whose uses could be expanded to include
central nervous system indications. In such cases, Alkermes and its partner
could collaborate in the clinical development of the combination without any
exchange of product rights. Second, Alkermes may collaborate with development
and marketing partners for RMP-7 in various business areas and geographic
territories. In such cases, Alkermes could license rights to RMP-7 to its
partner, subject to the rights of the Partnership. See "Collaborative
Arrangements -- Alkermes Clinical Partners, L.P."
Brain Tumor. RMP-7 is being tested initially for the treatment of
recurrent malignant glioma, an aggressive form of brain tumor. Alkermes believes
that RMP-7 may have applicability to the treatment and diagnosis of other types
of brain tumors. In that regard, the Registrant initiated, in February 1996, a
Phase I/II clinical trial of RMP-7 in patients with metastatic brain tumor. The
Registrant, in collaboration with the National Cancer Institute ("NCI"), also
initiated a Phase I/II clinical trial in August 1996 in pediatric patients with
brain tumors.
Brain tumors can be classified into two major groups: primary brain
tumors, which originate and recur in the brain, and metastatic brain tumors,
which are tumors that have spread to the brain from other parts of the body.
Each year in the United States and Europe a total of 40,000 patients are
diagnosed with primary brain tumors, of which approximately 60%-70% are
malignant glioma, and 150,000 patients are diagnosed with metastatic brain
tumors.
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Current treatment for brain tumors is limited and inadequate. Standard
treatment typically involves surgery to remove cancerous tissue, followed by
radiation therapy. After initial treatment with surgery and/or radiotherapy,
brain tumors often recur. Upon recurrence, tumors typically progress rapidly,
neurological function and quality of life deteriorate and patients die within
months. Chemotherapy has played only a limited role in treatment, in part due to
the limited access of many chemotherapeutic agents to the brain because of the
normally restrictive blood-brain barrier. Carboplatin is a chemotherapeutic
approved for use by the FDA and other regulatory authorities worldwide for use
in the treatment of various tumor types outside of the brain, but is limited in
its ability to penetrate into the brain. RMP-7 is designed to enable more
effective use of chemotherapeutic agents like carboplatin in the treatment of
brain tumors by transiently increasing the permeability of the blood-brain
barrier.
Alkermes is pursuing two alternative treatment strategies for RMP-7 and
carboplatin in patients with malignant brain tumor: intravenous and
intra-arterial administration. By pursuing both treatment methods, the
Registrant believes it strengthens the scientific foundation of the clinical
trials program and increases the likelihood of observing a treatment effect in
patients.
Recurrent Malignant Glioma Clinical Trials. The Registrant's clinical
strategy for RMP-7 has been to establish a foundation of safety and
pharmacologic effect of increasing blood-brain barrier permeability prior to
entering Phase II efficacy trials of RMP-7 administered in combination with
carboplatin. To date, over 600 human subjects have received RMP-7 in a series of
clinical trials in all indications studied. Through the Phase I and Phase I/II
clinical trials, RMP-7 was shown to have a good safety profile in volunteers and
patients. Transient flushing was the most consistent adverse event noted and
nausea and vomiting were determined to be the dose limiting toxicity. There was
no evidence of increased toxicity associated with the combination of RMP-7 and
carboplatin, and the drug combination was generally well tolerated by patients.
Based on the successful completion of Phase I and Phase I/II clinical
trials, Alkermes initiated multiple Phase II clinical trials both of intravenous
and intra-arterial RMP-7 and carboplatin in patients with recurrent malignant
glioma. Three multi-center Phase II clinical trials of intravenous RMP-7 and
carboplatin and one multi-center Phase II clinical trial of intra-arterial RMP-7
and carboplatin were designed and initiated. The results of the three Phase II
intravenous RMP-7 clinical trials provides a strong rationale for the
Registrant's decision to proceed in the United States and Europe into Phase III
efficacy trials of intravenous RMP-7 and carboplatin in patients with brain
tumors.
European Intravenous Phase II Clinical Trials: ALK01-013 and ALK01-019.
In Europe, two separate non-controlled, open label Phase II clinical trials of
intravenous RMP-7 and carboplatin in patients with recurrent malignant glioma
commenced in the first quarter of 1995. Patient enrollment was completed in May
1996, and preliminary results from the two clinical trials were announced in
December 1996.
The two clinical trials enrolled differing patient populations.
ALK01-013 ("Study-013") enrolled patients whose brain tumors had recurred
following previous treatment with surgery and radiotherapy. Such patients had
not previously been treated with chemotherapy. ALK01-019
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("Study-019") enrolled patients whose brain tumors had recurred following
previous treatment with surgery, radiotherapy and chemotherapy.
In both clinical trials, patients received treatment cycles of RMP-7
and carboplatin approximately once every four weeks. Each cycle consisted of a
15-minute intravenous infusion of carboplatin and a concurrent 10-minute
intravenous infusion of RMP-7. The prospectively defined endpoints of the
clinical trials included response rates over the first four cycles of treatment
as determined by stabilization or improvement for a minimum of two cycles of
treatment as measured by three standardized tests of neurological impairment and
patient performance status and stabilization or reduction in tumor volume for a
minimum of two cycles as measured with contrast-enhanced MRI.
In Study-013, 45 patients were treated at nine medical centers in the
United Kingdom. The combination of RMP-7 and carboplatin was generally well
tolerated. Of the patients treated, 61% to 91% responded to treatment as
measured by three tests of neurological impairment and performance status. In
addition, 79% of patients responded to the treatment as measured by the size of
their tumor as measured with contrast-enhanced MRI.
An independent analysis conducted by a statistician from the Medical
Research Council ("MRC"), Cambridge, England, compared the effect on survival of
treatment with RMP-7 and carboplatin versus a group of historical control
patients matched on important prognostic factors. All comparisons favored the
group treated with RMP-7 and carboplatin versus the control group. This finding
was statistically significant (hazard ratio 1.9-2.2, p< = 0.02), after
accounting for the effects of prognostic factors.
In Study-019, 42 patients were treated at 11 medical centers in the
United Kingdom, France and Sweden. Treatment with the combination of RMP-7 and
carboplatin was generally well tolerated. Of the patients treated, 40% to 59%
responded to treatment as measured by three tests of neurological impairment and
performance status. In addition, 24% of patients responded to the treatment as
measured by the size of their tumor with contrast-enhanced MRI. The MRC did not
perform a comparison of patients in Study-019 to historical controls due to the
lack of a database of comparable patients who had failed surgery, radiotherapy
and chemotherapy.
There can be no assurance that the results of the European clinical
trials will be sufficient for the Registrant to obtain approval to market RMP-7
in Europe, or that the European regulatory bodies will not require additional
clinical trials. In addition, there can be no assurance that the results of a
Phase III trial will support the results of the European trials.
United States Intravenous Phase II Clinical Trial: ALK01-017. In the
United States, a Phase II clinical trial of intravenous RMP-7 and carboplatin
commenced in March 1995 and was conducted at 10 medical centers. Enrollment of
121 patients was completed in May 1996 and preliminary results from the clinical
trial were announced in March 1997.
The clinical trial was designed as a double-blind, placebo-controlled
study comparing treatment with intravenous RMP-7 and carboplatin to treatment
with carboplatin alone in patients with recurrent malignant glioma. Patients
received treatment cycles of RMP-7 and carboplatin once approximately every four
weeks. Each cycle consisted of an approximately 45-minute intravenous
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infusion of carboplatin and a 10-minute intravenous infusion of RMP-7. The
prospectively defined endpoints included time to tumor progression as measured
by an increase of tumor volume measured with contrast-enhanced MRI of greater
than 50%, and three separate measurements of patients' functional capacity,
neurological impairment and quality of life.
The study did not meet its primary endpoint of time to tumor
progression as measured by changes in tumor volume on MRI. The study was
designed to include multiple additional endpoints. Observed trends toward
increased survival time, six months survival rate and slowed progression of
functional impairment for patients receiving the combination of RMP-7 and
carboplatin compared to patients receiving treatment with carboplatin alone are
being analyzed.
The results of the three Phase II clinical trials provide a strong
rationale for the Registrant's decision to proceed in the United States and
Europe into Phase III efficacy trials of intravenous RMP-7 and carboplatin in
patients with brain tumors.
United States Intra-arterial Phase II Clinical Trial: ALK01-031.
Alkermes initiated a multi-center Phase II clinical trial in the United States
of intra-arterial RMP-7 and carboplatin in March 1996. Enrollment of 51 patients
was completed in September 1996 at nine medical centers. Preliminary results
from the study are expected during fiscal 1998.
The clinical trial is designed as a non-controlled open label study of
the treatment with RMP-7 and carboplatin administered intra-arterially in
patients with recurrent malignant glioma. Patients receive treatment cycles of
RMP-7 and carboplatin once approximately every four weeks. Each cycle consists
of an approximately 45-minute intra-arterial infusion of carboplatin and a
10-minute intra-arterial infusion of RMP-7. The prospectively defined endpoints
include time to tumor progression as measured by an increase to tumor volume
measured with contrast-enhanced MRI of greater than 50%, and three separate
measurements of patients' functional capacity, neurological impairment and
quality of life.
Metastatic Brain Tumor Clinical Trials. Alkermes initiated a
multi-center Phase I/II non-controlled, open label clinical trial in Europe of
intravenous RMP-7 and carboplatin in patients with metastatic brain tumor in
April 1996. The study is being conducted at two medical centers and is expected
to enroll approximately 50 patients.
Alkermes also initiated a Phase I/II non-controlled, open label
clinical trial in the United States of intra-arterial RMP-7 and carboplatin in
patients with metastatic brain tumor in October 1995. The study is being
conducted at one medical center and is expected to enroll approximately 18
patients.
Pediatric Brain Tumor Clinical Trial. In August 1996, Alkermes, in
collaboration with the NCI, initiated a non-controlled, open label Phase I/II
clinical trial of intravenous RMP-7 and carboplatin in pediatric brain tumor
patients who had failed other therapies. The study is being sponsored and
conducted by the Pediatric Branch of the NCI and is expected to enroll
approximately 24 patients.
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MEDISORB
Product Development Strategy. The Registrant's strategy is to generate
multiple product opportunities by applying Medisorb technology to the
development of superior formulations of small molecule pharmaceutical products.
The Registrant believes these formulations have the potential to expand the
utilization of these products and improve the competitive advantage of its
collaborators in major markets.
The product development plan for individual Medisorb formulations is
expected to proceed in several stages. First, the Registrant, either on its own
or pursuant to a collaboration, conducts initial feasibility work to test
various Medisorb formulations for a particular drug in vitro and in vivo.
Following the successful completion of the feasibility stage, preclinical
development and manufacturing scale-up activities directed toward the initiation
of clinical trials of the Medisorb formulation would be conducted in
collaboration with a partner.
Undisclosed Medisorb Product Candidate. Alkermes is developing and
manufacturing a Medisorb product candidate in collaboration with Janssen, a
subsidiary of Johnson & Johnson. In 1996, Janssen completed initial Phase I
clinical trials of the Medisorb product candidate. The collaboration is focused
on process scale-up and manufacturing in anticipation of late-stage clinical
trials and, if successful, product commercialization. Janssen is responsible for
conducting all clinical trials.
COLLABORATIVE ARRANGEMENTS
The Registrant's business strategy includes forming collaborations to
provide technological, financial, marketing, manufacturing and other resources.
The Registrant has entered into several corporate collaborations.
Genentech, Inc.
In November 1996, Alkermes announced the completion of a Phase I
clinical trial of a ProLease hGH formulation in adults. Based in part on the
successful completion of the Phase I trial, Genentech exercised its option to
enter into a license agreement, and obtained from Alkermes a license coexclusive
in the United States and exclusive in the rest of the world for a ProLease
formulation of hGH. Under the terms of the agreement, Genentech could provide an
estimated $20.0 million in development funding for scale-up activities, clinical
trials materials, manufacturing and clinical trial expenses over the development
period. In addition, Alkermes could receive milestone payments of approximately
$10.0 million, if the ProLease hGH formulation is successfully developed and is
approved by regulatory authorities. Alkermes will be responsible for conducting
Phase I/II clinical trials and manufacturing the ProLease hGH formulation and is
to receive manufacturing revenues and royalties on sales. Alkermes also granted
Genentech an extension until November 1997 of its option to license ProLease for
another Genentech undisclosed protein.
Genentech has the right to terminate the agreement for any reason upon
30 days' written notice or, if the Registrant has begun manufacturing the
ProLease product for commercial sale, upon six months' written notice. In
addition, either party may terminate the agreement upon the other
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party's material default which is not cured within 90 days of written notice, or
upon the other party's insolvency or bankruptcy.
To fund the Registrant's activities during the initial phase of the
collaboration, Genentech has loaned the Registrant the aggregate amount of $3.5
million pursuant to a Convertible Promissory Note dated January 31, 1995 (the
"Note"). The outstanding principal amount of the Note accrues interest at the
prime rate of interest as reported by the Bank of America NT & SA from time to
time. The outstanding principal amount of the Note and accrued but unpaid
interest thereon becomes due and payable on January 31, 2000.
Under the terms of the Note, Alkermes has the option to convert, at any
time, all outstanding principal and accrued but unpaid interest thereon (as such
amount may exist from time to time, the "Conversion Amount") into shares of
Common Stock at the average closing price of the Common Stock for the 20 trading
days ending the day before the conversion date (the "Conversion Price"). In
addition, Genentech shall have the right to convert the Conversion Amount into
shares of Common Stock at the Conversion Price if at any time the total cash,
cash equivalents and marketable debt instruments of the Registrant shall be less
than the sum of (i) all indebtedness which ranks senior to the indebtedness
evidenced by the Note, and (ii) the Conversion Amount. Genentech also has the
right to demand that the Common Stock be registered under certain circumstances.
Schering-Plough Corporation
Under an amended development and license agreement with
Schering-Plough, the Registrant has agreed to develop an injectable delivery
system which incorporates Intron A as an active ingredient utilizing the
Registrant's ProLease delivery system and has granted to Schering-Plough an
exclusive worldwide royalty bearing license to manufacture, use and sell any
such system that may be developed pursuant to the amended agreement. Under the
amended agreement, Schering-Plough will also be responsible for conducting
clinical trials and securing regulatory approvals. The amended agreement
provides for development funding to the Registrant and provides for certain
payments to be made by Schering-Plough to the Registrant for its achievement of
certain milestones. The Registrant and Schering-Plough entered into a prepaid
royalty agreement pursuant to which Schering-Plough has prepaid certain
royalties. Payments to the Registrant were approximately $7.0 million through
March 31, 1997, and future milestone payments could exceed an additional $5.0
million, not including royalties.
Schering-Plough has the right to terminate the amended agreement upon
60 days' written notice upon the occurrence of certain events, including if the
Registrant fails to meet product specifications or an agreed upon delivery
schedule, the results of a safety and pharmacokinetics study provide
Schering-Plough with reasonable justification not to proceed to a Phase II
clinical trial, the use of the product results in adverse effects that justify
termination of clinical trials, Schering-Plough is unable to manufacture the
product on a commercial scale, or upon completion or permanent discontinuation
of the clinical trials. Either party may terminate the amended agreement upon
the insolvency or bankruptcy of the other party or upon a breach by the other
party which has not been cured after 60 days' notice. Schering-Plough also has
the right to terminate the amended agreement upon 90 days' written notice or
continue the development project on its own in the event Alkermes fails by an
agreed upon date to deliver batches of a ProLease formulation of Intron A that
meet
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agreed upon specifications. In the event Schering-Plough elects to continue the
development project after termination, it will remain obligated to pay Alkermes
milestone payments and royalties upon commercial sale. In the event
Schering-Plough terminates the amended agreement for any reason, Alkermes must
repay the prepaid royalties received from Schering-Plough with interest. Such
repayment obligation would be evidenced by an interest-bearing note and would be
payable in full on the third anniversary of the date of the note. Alkermes will
have the right, subject to the satisfaction of certain conditions, to satisfy
its repayment obligation through the issuance of shares of its Common Stock. The
number of shares that may be issued would be based upon the average closing
price of Alkermes Common Stock on the Nasdaq National Market for the 30 business
days immediately preceding the date on which the shares are delivered. Any
Common Stock issued to Schering-Plough must be freely resalable.
Johnson & Johnson
In November 1996, the Registrant entered into a development and license
agreement with Ortho Pharmaceutical Corporation, an affiliate of Johnson &
Johnson, for the development of a ProLease formulation of a Johnson & Johnson
proprietary compound (the "J&J Product Candidate"). The Registrant is developing
a sustained release formulation of this compound to treat hormone-mediated
disorders.
Pursuant to the development agreement, Johnson & Johnson obtained an
exclusive, worldwide, royalty bearing license to make, use and sell products
resulting from such agreement. In exchange, Johnson & Johnson is to provide the
Registrant with research and development funding, milestone payments and royalty
payments based on sales, if any, of the J&J Product Candidate. Development
funding and milestone payments could aggregate approximately $20 million,
assuming the development of the J&J Product Candidate proceeds in accordance
with its development plan. Johnson & Johnson is to be responsible for conducting
clinical trials and securing regulatory approvals and, together with its
affiliates, is to be responsible for the marketing of any products that result
from the collaboration. The Registrant expects to manufacture any such products
for commercial sales.
Johnson & Johnson may terminate the development agreement for any
reason, upon 90 days' written notice if such termination notice occurs prior to
filing a New Drug Application ("NDA") with the FDA, or upon six months' written
notice if such notice occurs subsequent to such a filing. In addition, either
party may terminate the development agreement and the related manufacturing
agreement upon a material default or breach by the other party of such agreement
which is not cured within 60 days' notice, or upon the other party's insolvency
or bankruptcy.
Janssen Pharmaceutica International
Pursuant to a development agreement, the Registrant is collaborating
with Janssen in the development of sustained release formulations, utilizing the
Medisorb technology, of an undisclosed Janssen product candidate. Under the
development agreement, the Registrant is responsible for production of the
Janssen product candidate for clinical trials. Janssen is responsible for
conducting clinical trials of the Janssen product candidate and securing all
necessary regulatory approvals.
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In October 1996, the Registrant announced the expansion of the
development agreement. Janssen has agreed to provide development funding of
approximately $20 million over a two year period, assuming the product continues
in clinical development. The funding will be used for manufacturing clinical
trials material and scale-up for commercial sale.
Under related license agreements, Janssen and an affiliate have
exclusive world-wide licenses from the Registrant to manufacture, use and sell
the Janssen product candidate. If Janssen decides to employ third-party
suppliers of the commercialized Janssen product developed under the development
agreement, the Registrant has a right of first refusal for the manufacture and
supply of such product, and component bio-absorbable polymers thereof. Under the
license agreements, Janssen is required to pay Alkermes certain royalties with
respect to all Medisorb formulations of the Janssen product sold to customers.
Janssen can terminate the development agreement or the license agreement upon 30
days' prior written notice.
Alkermes Clinical Partners, L.P.
In April 1992, Units consisting of limited partnership interests in the
Partnership and warrants to purchase the Registrant's Common Stock were sold to
investors in a private placement (the "Private Placement"). The proceeds of the
$46 million Private Placement have been used to fund the further development and
clinical testing of RMPs for human pharmaceutical use in the United States,
Canada and Europe. Such funding was not sufficient to complete clinical trials
and seek regulatory approval of RMP-7. Since the completion of funding from the
Partnership, which ended during the quarter ended June 30, 1996, Alkermes has
used, and intends to continue to use, its own resources to develop RMP-7, but
may be forced to seek alternative sources of funding, including additional
collaborators.
Pursuant to a product development agreement, dated March 6, 1992,
Alkermes transferred substantially all of its rights to the RMP technology to
the Partnership. Alkermes has an option to purchase all of the limited
partnership interests in the Partnership (the "Purchase Option") and thereby
reacquire the transferred technology. The Registrant is required to fund the
development of RMP-7 to maintain its Purchase Option.
The Partnership may terminate the research program for any or all
products upon the affirmative vote of 75% of the directors of the general
partner of the Partnership, Alkermes Development Corporation II ("ADC II"), a
wholly owned subsidiary of Alkermes, that such research is not feasible or is
uneconomic. The Partnership may terminate the marketing program for any or all
products upon the affirmative vote of 75% of the directors of ADC II based on
the directors' good faith business judgment. The Partnership may also terminate
the research or marketing program if Alkermes has materially breached the
agreement and not cured such breach within 30 days' written notice. Both parties
may terminate the research or marketing program upon mutual consent to terminate
or upon the insolvency or bankruptcy of the other party.
The Partnership has granted Alkermes an exclusive interim license to
manufacture and market RMPs for human pharmaceutical use in the United States
and Canada. Upon the first marketing approval of an RMP product by the FDA,
Alkermes is obligated to make a payment to the Partnership equal to 20% of the
aggregate capital contributions of all limited partners. Additionally,
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Alkermes will pay royalty payments equal to 12% of United States and Canadian
revenues and, in certain circumstances, 10% of European revenues from any sales
of RMPs by Alkermes. The interim license will terminate if Alkermes does not
exercise the Purchase Option. Alkermes can exercise the Purchase Option by
making a payment to the partnership equal to 80% of the aggregate capital
contributions of all limited partners in addition to royalty payments in the
same percentages as provided for under the interim license agreement.
The general partner of the Partnership is ADC II. Fifty percent of the
members of the board of directors of ADC II are persons not affiliated with
Alkermes. Such non-affiliated persons were nominated by the sales agent for the
Private Placement. The sales agent will continue to have the right to nominate
at least half of the members of ADC II's board of directors until ADC II or some
other affiliate of Alkermes ceases to be the general partner of the Partnership,
the Partnership terminates in accordance with the terms of the Limited
Partnership Agreement or the sales agent's venture capital investment
partnership ceases to be a limited partner of the Partnership.
ALZA Corporation
In February 1997, the Registrant agreed to collaborate with ALZA
Corporation on the development of a to-be-determined product candidate, based on
either the Medisorb or ProLease drug delivery system. The economic terms of such
a collaboration are to be negotiated.
MANUFACTURING
Each of the Registrant's three drug delivery systems utilizes a
distinct manufacturing process.
ProLease
ProLease manufacturing involves microencapsulation of drug substances
provided to Alkermes by its collaborators in small polymeric microspheres using
extremely cold processing conditions suitable for fragile molecules. The
ProLease manufacturing process consists of two basic steps. First, the drug is
formulated with stabilizing agents and dried to create a fine powder. Second,
the powder is microencapsulated at very low temperatures.
Alkermes has completed construction of an in-house pilot production
facility that has been validated by the Registrant for manufacturing in
accordance with Good Manufacturing Practices ("GMP"). The facility is being used
to manufacture product candidates incorporating its ProLease sustained-release
delivery system for use in clinical trials. This facility is not capable of
manufacturing products on a commercial scale. Pursuant to agreements with
certain of its collaborators, Alkermes has the right to manufacture ProLease
products for commercial sale. Alkermes expects to begin construction of a new
commercial scale ProLease manufacturing facility of approximately 30,000 square
feet during fiscal 1998.
RMP-7
RMP-7 is a small peptide manufactured using standard synthetic
techniques. Alkermes relies on an independent European pharmaceutical company
for the manufacture and supply of RMP-7.
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Scale-up of RMP-7 manufacturing process to support international clinical trials
and commercial launch has been completed. Alkermes believes that, if necessary,
there are other companies which could manufacture and supply its requirements
for RMP-7.
Medisorb
The Medisorb manufacturing process is significantly different from the
ProLease process and is based on a method of encapsulating small molecule drugs,
provided by the Registrant's collaborator, in polymers using a large-scale
emulsification. The Medisorb manufacturing process consists of three basic
steps. First, the drug is combined with a polymer solution. Second, the
drug/polymer solution is mixed in water to form liquid microspheres (an
emulsion). Third, the liquid microspheres are dried to produce finished product.
Alkermes owns a 14,000 square foot GMP sterile manufacturing facility
in Wilmington, Ohio. Alkermes is manufacturing a product candidate incorporating
its Medisorb sustained-release delivery system for use by Janssen in clinical
trials at this facility. It does not manufacture such product candidates on a
commercial scale. During fiscal 1998, Alkermes intends to expand its current
manufacturing facility by an additional 20,000 square feet, so that it can
manufacture Medisorb product candidates on a commercial scale.
The manufacture of the Registrant's products for clinical trials and
commercial purposes is subject to current GMP and other federal regulations. The
Registrant has never operated an FDA-approved manufacturing facility, and there
can be no assurance that it will obtain necessary approvals for commercial
manufacturing.
If Alkermes is not able to develop manufacturing capacity and
experience or to continue to contract for manufacturing capabilities on
acceptable terms, its ability to conduct preclinical testing and clinical trials
will be compromised, and delays in obtaining regulatory approvals might result,
as well as commercial sales if approvals are obtained. Such delays could
materially adversely affect the Registrant's competitive position and its
business, financial condition and results of operations.
MARKETING
Alkermes plans to market and sell RMP-7, if successfully developed and
approved, either directly or through co-promotion or other licensing
arrangements with third parties. Such arrangements may be exclusive or
nonexclusive and may provide for marketing rights worldwide or in a specific
market.
Alkermes intends to market any ProLease and Medisorb products through
its corporate partners. Alkermes has entered into development agreements,
including sales and marketing, for ProLease product candidates with Genentech,
Schering-Plough and Johnson & Johnson, and for a Medisorb product candidate with
Janssen. See "Collaborative Arrangements."
Alkermes currently has no experience in marketing or selling
pharmaceutical products. In order to achieve commercial success for any product
candidate approved by the FDA, Alkermes must
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either develop a marketing and sales force or enter into arrangements with third
parties to market and sell its products. There can be no assurance that Alkermes
will successfully develop such experience or that it will be able to enter into
marketing and sales agreements with others on acceptable terms, if at all. If
the Registrant develops its own marketing and sales capability, it will compete
with other companies that currently have experienced and well funded marketing
and sales operations. To the extent the Registrant enters into co-promotion or
other sales and marketing arrangements with other companies, any revenues
received by the Registrant will be dependent on the efforts of others, and there
can be no assurance that such efforts will be successful.
COMPETITION
The biotechnology and pharmaceutical industries are subject to rapid
and substantial technological change. Alkermes faces, and will continue to face,
intense competition in the development, manufacturing, marketing and
commercialization of its product candidates from academic institutions,
government agencies, research institutions, biotechnology and pharmaceutical
companies, including its collaborators, and drug delivery companies. There can
be no assurance that developments by others will not render the Registrant's
product candidates or technologies obsolete or noncompetitive, or that the
Registrant's collaborators will not choose to use competing drug delivery
methods. At the present time, Alkermes has no sales force or marketing or
commercial manufacturing experience. In addition, many of the Registrant's
competitors and potential competitors have substantially greater capital
resources, manufacturing and marketing experience, research and development
resources and production facilities than does Alkermes. Many of these
competitors also have significantly greater experience than Alkermes in
undertaking preclinical testing and clinical trials of new pharmaceutical
products and obtaining FDA and other regulatory approvals.
With respect to RMP-7, the Registrant believes that there are currently
no products approved by the FDA for increasing the permeability of the
blood-brain barrier. There are, however, many novel experimental therapies for
the treatment of brain tumor and central nervous system infections being tested
in the United States and Europe.
With respect to ProLease and Medisorb, the Registrant is aware that
there are other companies developing sustained-release delivery systems for
pharmaceutical products. In addition, other companies are developing new
chemical entities which, if developed successfully, could compete against
sustained-release formulations of products of the Registrant's collaborators.
These chemical entities are being designed to have different mechanisms of
action or improved safety and efficacy. In addition, the Registrant's
collaborators may develop, either alone or with others, products that compete
with the development and marketing of the Registrant's product candidates.
There can be no assurance that the Registrant will be able to compete
successfully with such companies. The existence of products developed by the
Registrant's competitors, or other products or treatments of which the
Registrant is not aware, or products or treatments that may be developed in the
future, may adversely affect the marketability of products developed by the
Registrant.
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PATENTS AND PROPRIETARY RIGHTS
The Registrant's success will be dependent, in part, on its ability to
obtain patent protection for its product candidates and those of its
collaborators, maintaining trade secret protection and operating without
infringing upon the proprietary rights of others.
The Registrant has a proprietary portfolio of patent rights and
exclusive licenses to patents and patent applications. The Registrant has filed
numerous United States and international patent applications directed to
composition of matter as well as processes of preparation and methods of use,
including applications relating to: permeabilizers, certain rights to which have
been licensed to the Partnership, of which one United States patent was issued
in each of May 1992, December 1993, April 1996 and December 1996; carriers for
enabling passage into the brain of therapeutic compounds, of which one United
States patent was issued in each of October 1992, January 1993 and June 1996; a
ProLease microencapsulation process, of which one United States patent was
issued in May 1991; the formulation of ProLease composition of which one United
States patent was issued in May 1995; a Medisorb microencapsulation process of
which one United States patent was issued in June 1983; and 11 additional United
States patents related to Medisorb methods and compositions that were issued
between July 1985 and June 1995. In the future, the Registrant plans to file
further United States and foreign patent applications directed to new or
improved products and processes. The United States patents issued to the
Registrant will expire between 2000 and 2014. Alkermes intends to file
additional patent applications when appropriate and intends to defend its patent
position aggressively.
Alkermes has exclusive rights through licensing agreements with several
institutions to nine issued United States patents, a number of United States
patent applications and to corresponding foreign patents and patent applications
in many countries, subject in certain instances to the rights of the United
States government to use the technology covered by such patents and patent
applications. The United States patents that have been licensed to the
Registrant will expire between the years 2003 and 2013. Under certain licensing
agreements, the Registrant currently pays annual license fees and/or minimum
annual royalties. During the fiscal year ended March 31, 1997, such fees were
approximately $92,000. In addition, under all licensing agreements, Alkermes is
obligated to pay royalties on future sales of products, if any, covered by the
licensed patents.
The Registrant is aware of several United States patents issued to
third parties containing claims which could be construed to cover some of the
Registrant's product candidates utilizing its ProLease, RMP-7, and Medisorb
delivery systems. In one case, the Registrant has received a letter from the
owner of a patent asking the Registrant to compare the Registrant's Medisorb
technology disclosed in a published international patent application with such
owner's patented technology. There can be no assurance that the claims of the
issued United States patents are not infringed by the proposed manufacture, use,
offer for sale, or sale of these products by the Registrant or its
collaborators. There can be no assurance that a third party will not file an
infringement action, or that the Registrant would prevail in any such action.
There can be no assurance that the cost of defending an infringement action
would not be substantial, and would not have a material adverse effect on the
Registrant's business, financial condition and results of operations. The
Registrant is also aware of patent applications filed by third parties in the
United States and in various foreign countries which may cover some of the
Registrant's product candidates utilizing its ProLease, RMP-7
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or Medisorb delivery systems. Patents may issue from these applications which
could preclude the Registrant from manufacturing, using, offering for sale, or
selling some of its ProLease, RMP-7 or Medisorb product candidates. Furthermore,
there can be no assurance that any licenses under such patents would be made
available on commercially viable terms, if at all. Failure to obtain any
required license could prevent the Registrant from commercializing one or more
of its products.
The patent positions of pharmaceutical, biopharmaceutical and
biotechnology firms, including Alkermes, are generally uncertain and involve
complex legal and factual questions. In addition, there can be no assurance that
the Registrant's or its licensors' current patent applications will be allowed
or that the claims of any patents issued to Alkermes or its licensors (in
connection with either or both the Registrant's product candidates or the
Partnership's product candidate) will be sufficiently broad to protect the
Registrant's or the Partnership's technology or to provide Alkermes or the
Partnership with any competitive advantages. Moreover, no assurance can be given
that patents issued to Alkermes (in connection with either or both the
Registrant's product candidates or the Partnership's product candidate), or its
respective licensors, if any, will not be contested, invalidated or
circumvented. In addition, if Alkermes or the Partnership is required to bring
or defend against a narrowed charge of patent infringement or to protect its own
proprietary rights against third parties, substantial costs could be incurred.
In the future, Alkermes may be required to obtain additional licenses
to patents or other proprietary rights of third parties. There can be no
assurance that any such licenses will be available on acceptable terms, if at
all, and failure to obtain such licenses could result in delays in marketing the
Registrant's products or the inability to proceed with the development,
manufacture or sale of product candidates requiring such licenses.
The Registrant also relies upon unpatented trade secrets and
improvements, unpatented know-how and continuing technological innovation to
develop and maintain its competitive position which it seeks to protect, in
part, by confidentiality agreements with its corporate partners, collaborators,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Registrant would have adequate remedies for any
breach, or that the Registrant's trade secrets will not otherwise become known
or be independently discovered by competitors.
The Registrant's practice is to require its employees, consultants and
advisors to execute a confidentiality agreement upon the commencement of an
employment or consulting relationship with the Registrant. The agreements
provide that all confidential information developed or made known to an
individual during the course of the employment or consulting relationship shall
be kept confidential and not disclosed to third parties except in specified
circumstances. In the case of employees, the agreements provide that all
inventions conceived by the individual while employed by the Registrant shall be
the exclusive property of the Registrant. There can be no assurance, however,
that these agreements will provide meaningful protection for the Registrant's
trade secrets in the event of unauthorized use or disclosure of such
information.
GOVERNMENT REGULATION
The manufacture and marketing of pharmaceutical products in the United
States require the approval of the FDA under the Federal Food, Drug and Cosmetic
Act. Similar approvals by
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comparable agencies are required in most foreign countries. The FDA has
established mandatory procedures and safety standards which apply to the
preclinical testing and clinical trials, manufacture and marketing of
pharmaceutical products. Pharmaceutical manufacturing facilities are also
regulated by state, local and other authorities.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animal models to assess the drug's efficacy
and to identify potential safety problems. The results of these studies must be
submitted to the FDA as part of an Investigational New Drug application ("IND"),
which must be reviewed by the FDA before proposed clinical testing can begin.
Typically, clinical testing involves a three-phase process. Phase I trials are
conducted with a small number of subjects and are designed to provide
information about both product safety and the expected dose of the drug. Phase
II trials are designed to provide additional information on dosing and
preliminary evidence of product efficacy. Phase III trials are large scale
studies designed to provide statistical evidence of efficacy and safety in
humans. The results of the preclinical testing and clinical trials of a
pharmaceutical product are then submitted to the FDA in the form of a New Drug
Application ("NDA"), or for a biological product in the form of a Product
License Application ("PLA"), for approval to commence commercial sales.
Preparing such applications involves considerable data collection, verification,
analysis and expense. In responding to an NDA or PLA, the FDA may grant
marketing approval, request additional information or deny the application if it
determines that the application does not satisfy its regulatory approval
criteria.
Prior to marketing, any product developed by Alkermes or its
collaborators must undergo an extensive regulatory approval process, which
includes preclinical testing and clinical trials of such product candidate to
demonstrate safety and efficacy. This regulatory process can require many years
and the expenditure of substantial resources. Data obtained from preclinical
testing and clinical trials are subject to varying interpretations, which can
delay, limit or prevent FDA approval. In addition, changes in FDA approval
policies or requirements may occur or new regulations may be promulgated which
may result in delay or failure to receive FDA approval. Similar delays or
failures may be encountered in foreign countries. Delays and costs in obtaining
regulatory approvals would have a material adverse effect on the Registrant's
business, financial condition and results of operations.
Among the conditions for NDA or PLA approval is the requirement that
the prospective manufacturer's quality control and manufacturing procedures
conform on an ongoing basis with GMP. Before approval of an NDA or PLA, the FDA
will perform a prelicensing inspection of the facility to determine its
compliance with GMP and other rules and regulations. In complying with GMP,
manufacturers must continue to expend time, money and effort in the area of
production and quality control to ensure full technical compliance. After the
establishment is licensed, it is subject to periodic inspections by the FDA.
The requirements which the Registrant must satisfy to obtain regulatory
approval by governmental agencies in other countries prior to commercialization
of its products in such countries can be as rigorous and costly as those
described above.
The Registrant is also subject to various laws and regulations relating
to safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and
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infectious disease agents, used in connection with the Registrant's research.
Compliance with laws and regulations relating to the protection of the
environment has not had a material effect on capital expenditures, earnings or
the competitive position of the Registrant. However, the extent of government
regulation which might result from any legislative or administrative action
cannot be accurately predicted.
EMPLOYEES
As of June 6, 1997, the Registrant had 177 full-time employees. A
significant number of the Registrant's management and professional employees
have had prior experience with pharmaceutical, biotechnology or medical product
companies. Alkermes believes that it has been highly successful in attracting
skilled and experienced scientific personnel; however, competition for such
personnel is intense. None of the Registrant's employees is covered by a
collective bargaining agreement.
ITEM 2. PROPERTIES
The Registrant leases and occupies approximately 97,000 square feet of
laboratory and office space in Cambridge, Massachusetts under five leases
expiring in the years 1998 to 2008. The leases contain provisions permitting the
Registrant to extend the term of such leases for up to ten years. The Registrant
has completed construction of a GMP pilot suite at its Massachusetts facility.
Such suite is for the manufacture of product candidates incorporating the
ProLease delivery system for preclinical and clinical trials. The Registrant
also expects to begin construction of a new commercial scale ProLease
manufacturing facility in Cambridge, Massachusetts during fiscal 1998. The
Registrant believes that its Massachusetts facilities are adequate for its
preclinical and clinical operations. The Registrant does not manufacture and
does not expect to manufacture RMPs for clinical trials. The Registrant has
engaged a third party to manufacture preclinical, clinical and commercial
supplies of RMPs.
Alkermes Europe, Ltd., a wholly owned subsidiary of the Registrant,
leases and occupies approximately 4,600 square feet of office space in
Cambridge, England under a lease expiring in the year 2002. The Registrant
believes that such office space is adequate for the operations of Alkermes
Europe, Ltd.
The Registrant owns and occupies approximately 14,000 square feet of
manufacturing, office and laboratory space in Wilmington, Ohio. The facility
contains a state-of-the-art GMP sterile production facility specifically
designed for the production of Medisorb microspheres. The Registrant also
expects to begin an expansion of its Medisorb manufacturing facility during
fiscal 1998. The Registrant believes that its Wilmington facility is adequate
for its preclinical and clinical operations.
The Registrant also leases and occupies approximately 25,000 square
feet of laboratory and office space in Blue Ash, Ohio under a lease expiring in
1998. The Registrant believes that the Blue Ash facility is adequate for its
operations.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant, who are elected to serve at
the pleasure of the Board of Directors, are as follows:
Name Age Position
---- --- --------
Richard F. Pops 35 Chief Executive Officer and Director
Robert A. Breyer 53 President, Chief Operating Officer and Director
Raymond Bartus 50 Senior Vice President, Preclinical Research and
Development
Michael J. Landine 43 Senior Vice President, Chief Financial Officer and
Treasurer
Don G. Burstyn 42 Vice President, Regulatory Affairs
J. Duncan Higgons 42 Vice President, Business Development
Dennis M. Meka 44 Vice President, Operations
Scott D. Putney 43 Vice President, Protein and Molecular Biology
Cornelis H. Wortel 41 Vice President, Medical Affairs
James L. Wright 49 Vice President, Pharmaceutical Development
Mr. Pops has been Chief Executive Officer and a Director of
the Registrant since February 1991. From February 1991 to June 1994, Mr. Pops
was also President of the Registrant. Mr. Pops currently serves on the Board of
Directors of Immulogic Pharmaceutical Corporation, the Biotechnology Industry
Organization (BIO) and The Brain Tumor Society (a non-profit organization).
Mr. Breyer has been President and Chief Operating Officer and
a Director of the Registrant since July 1994. From August 1991 to December 1993,
Mr. Breyer was President and General Manager of Eli Lilly Italy, a subsidiary of
Eli Lilly & Co. From September 1987 to August 1991, he was Senior Vice
President, Marketing and Sales of IVAC Corporation, a medical device company and
a subsidiary of Eli Lilly & Co.
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Dr. Bartus has been Senior Vice President, Preclinical
Research and Development since November 1996. From November 1992 to November
1996, Dr. Bartus served as Senior Vice President, Neurobiology of the
Registrant. From June 1988 to November 1992, Dr. Bartus held various positions
with Cortex Pharmaceutical, Inc., most recently as Executive Vice President and
Chief Operating Officer. He holds an M.S. in Experimental Psychology and a Ph.D.
in Physiological Psychology from North Carolina State University.
Mr. Landine has been the Chief Financial Officer of the
Registrant since March 1988. From March 1988 to December 1994, he also served as
a Vice President, and since December 1994 as a Senior Vice President. He has
also been Treasurer of the Registrant since April 1991. He is currently an
advisor to Walker Magnetics Group, an international manufacturer of industrial
equipment. Mr. Landine is a certified public accountant.
Dr. Burstyn became Vice President, Regulatory Affairs in
December 1993. From 1987 to 1993, Dr. Burstyn was employed in various capacities
at Biogen, Inc., most recently as Director, Development Operations. Dr. Burstyn
received his B.S., M.S. and Ph.D. from the University of Maryland.
Mr. Higgons became Vice President, Business Development in
December 1994. From 1986 to 1994, he was employed in various capacities at IVAC
Corporation, most recently as Senior Director of Sales, Western Area.
Mr. Meka became Vice President, Operations of the Registrant
in January 1997. From 1994 to December 1996 he was employed by Dupont Merck
Pharmaceuticals as Vice President, Manufacturing and Corporate Services. From
1991 to 1994 he was employed by Dupont Merck Pharma (Puerto Rico) as President
and General Manager.
Dr. Putney has been Vice President, Protein and Molecular
Biology since November 1996 after having served as Vice President, Molecular
Biology since October 1991. From 1985 to October 1991, Dr. Putney served as
Director of Molecular Biology at Repligen Corporation, a biotechnology company,
and from 1988 to October 1991, Dr. Putney was also a Vice President at Repligen
Corporation. Dr. Putney received a B.S. in Biology and a B.A. in Chemistry from
the University of California, Irvine and a Ph.D. in Chemistry from the
Massachusetts Institute of Technology.
Dr. Wortel became Vice President, Medical Affairs in July
1996. From 1995 to 1996, he was employed by Procept, Inc., from 1993 to 1995, he
was employed by Repligen, Inc. and from 1991 to 1993, he was employed by
Centocor, Inc.
Dr. Wright became Vice President, Pharmaceutical Development
in December 1994. From 1989 to 1994, he was employed at Boehringer Ingelheim
Pharmaceutical, Inc., most recently as a Director. Dr. Wright received a B.A. in
Chemistry and Biology from the University of California, Santa Barbara, and an
M.S. in Pharmacy and a Ph.D. in Pharmacy from the University of Wisconsin.
23
24
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Registrant's common stock is traded on the Nasdaq National
Market under the symbol ALKS. Set forth below for the indicated periods are the
high and low sale prices for Alkermes' common stock.
Fiscal 1997 Fiscal 1996
----------- -----------
High Low High Low
---- --- ---- ---
1st Quarter $17 $ 8 1/2 $ 4 1/2 $2 5/8
2nd Quarter 16 1/8 8 1/2 9 1/4 3 5/8
3rd Quarter 25 1/2 11 7/8 8 5/8 5 3/4
4th Quarter 29 5/8 13 1/4 11 1/4 7 1/8
The number of shareholders of record on June 6, 1997 was 591. No
dividends have been paid on the common stock to date, and the Registrant does
not expect to pay cash dividends in the foreseeable future.
24
25
ITEM 6. SELECTED FINANCIAL DATA
Alkermes, Inc. and Subsidiaries
(In thousands, except per share data)
Year Ended March 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues $ 19,827 $ 15,919 $ 13,903 $ 9,460 $ 11,806
----------------------------------------------------------------------
Research and development expenses 29,554 21,586 18,955 20,480 16,709
----------------------------------------------------------------------
Total expenses 38,625 29,666 25,807 26,736 51,953 (1)
----------------------------------------------------------------------
Net loss $(18,798) $(13,747) $(11,904) $(17,275) $(40,147)(1)
----------------------------------------------------------------------
Net loss per weighted average number of common shares $ (1.03) $ (0.93) $ (0.88) $ (1.29) $ (3.77)(1)
----------------------------------------------------------------------
Weighted average number of common shares outstanding 18,288 14,775 13,535 13,362 10,653
----------------------------------------------------------------------
March 31,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments $ 85,297 $ 32,374 $ 21,351 $ 27,948 $ 32,859
--------------------------------------------------------------------
Total assets 104,697 45,752 36,708 46,322 54,025
--------------------------------------------------------------------
Long-term obligations 10,914 9,876 8,376 6,598 2,149
--------------------------------------------------------------------
Shareholders' equity 79,151 23,513 21,163 31,874 47,731
--------------------------------------------------------------------
(1) Includes a one time non-cash charge of $31.3 million for the purchase
of in-process research and development as a result of the Company's
acquisition of Enzytech, Inc.
25
26
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Alkermes, Inc. and Subsidiaries
INTRODUCTION
Alkermes develops innovative pharmaceutical products based on three
proprietary drug delivery systems: ProLease(R), RMP-7(TM) and Medisorb(R). Since
its inception in 1987, the Company has devoted substantially all of its
resources to its research and development programs. Alkermes has not received
any revenue from the sales of products. The Company has been unprofitable since
inception and expects to incur substantial additional operating losses over the
next several years. At March 31, 1997, the Company had an accumulated deficit of
$119.8 million.
The Company has funded its operations primarily through public
offerings and private placements of equity securities, bank loans and payments
under research and development agreements with collaborators, including Alkermes
Clinical Partners, L.P. ("Clinical Partners"), a research and development
limited partnership whose operations commenced in April 1992. The Company
intends to develop its product candidates in collaboration with others on whom
the Company will rely for funding, development, manufacturing and/or marketing.
FORWARD-LOOKING STATEMENTS
Any statements set forth below or otherwise made in writing or orally
by the Company with regard to its expectations as to financial results and other
aspects of its business may constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Although the
Company makes such statements based on assumptions which it believes to be
reasonable, the Company's business is subject to significant risks and there can
be no assurance that actual results will not differ materially from the
Company's expectations. Accordingly, the Company hereby identifies the following
important factors, among others, which could cause its results to differ from
any results which might be projected, forecasted or estimated by the Company in
any such forward-looking statements: (i) the Company and its collaborators could
not be permitted by regulatory authorities to undertake additional clinical
trials for ProLease, RMP-7, or Medisorb product candidates; (ii) product
candidates could be ineffective or unsafe during clinical trials; (iii) the
Company could incur difficulties or set-backs in obtaining the substantial
additional funding required to continue research and development programs and
clinical trials; (iv) even if product candidates appear promising at an early
stage of development, product candidates could fail to receive necessary
regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance, be precluded from
commercialization by proprietary rights of third parties or experience
substantial competition in the marketplace; (v) technological change in the
biotechnology or pharmaceutical industries could render the Company's product
candidates obsolete or noncompetitive; (vi) disputes with collaborators,
termination of collaborations or failure to negotiate acceptable new
collaborative arrangements for ProLease and Medisorb technologies, which are not
independently commercializable, could occur; (vii) disputes with Clinical
Partners over rights to the RMP-7 and related technology could occur, or the
Company could fail to purchase this technology from Clinical Partners pursuant
to the purchase option (the "Purchase Option"), or, if the Company did purchase
RMP(TM) technology from Clinical Partners (a) in shares of the Company's common
stock, the Company's shareholders would be substantially diluted or (b) in cash,
the Company's capital resources would be significantly depleted; and (viii)
difficulties or set-backs in obtaining and enforcing Alkermes' patents and
difficulties with the patent rights of others could occur.
26
27
RESULTS OF OPERATIONS
The Company's research and development revenue under collaborative
arrangement with related party was $1,415,313, $11,182,741 and $9,277,371 for
the fiscal years ended in 1997, 1996 and 1995, respectively. This revenue was
received from Clinical Partners under a product development agreement entered
into in March 1992. The decrease in such revenue for fiscal 1997 as compared to
fiscal 1996 was a result of the completion of funding from Clinical Partners
pursuant to the product development agreement during the quarter ended June 30,
1996. The increase in such revenue for fiscal 1996 as compared to fiscal 1995
was a result of increased reimbursable costs incurred by the Company pursuant to
such product development agreement. The Company's research and development
revenue under collaborative arrangements was $15,968,317, $2,848,510 and
$3,049,106 for the fiscal years ended in 1997, 1996 and 1995, respectively. The
increase in such revenue for fiscal 1997 as compared to fiscal 1996 was mainly
the result of the funding earned and milestones achieved under new or expanded
collaborative agreements related to the Company's ProLease and Medisorb
technologies. The decrease in such revenue for fiscal 1996 as compared to fiscal
1995 was primarily a result of the completion of the feasibility phase of a
collaborative agreement with Boehringer Mannheim GmbH, partially offset by an
expanded collaboration with Schering-Plough Corporation.
Interest income was $2,443,317, $1,887,275 and $1,576,794 for the
fiscal years ended in 1997, 1996 and 1995, respectively. The increase in such
revenue for fiscal 1997 as compared to fiscal 1996 was primarily a result of the
investment of the net proceeds of approximately $22.9 million received upon the
consummation of a public offering of the Company's common stock in May 1996 as
well as the investment of the net proceeds of approximately $49.7 million from
the sale to ALZA Corporation of 2,000,000 shares of the Company's common stock
in March 1997. The increase in fiscal 1996 as compared to fiscal 1995 was
primarily a result of the investment of the net proceeds of approximately $14.8
million received upon the consummation of a public offering of the Company's
common stock in September and October 1995.
The Company's total operating expenses were $38,624,765 for the fiscal
year ended in 1997 as compared to $29,665,610 and $25,807,424 for the fiscal
years ended in 1996 and 1995, respectively. The Company separately recorded a
$750,000 nonrecurring charge in March 1996 for Medisorb technology purchased but
not yet commercially viable. The Company's research and development expenses
were $29,553,988 for the fiscal year ended in 1997 compared to $21,586,316 and
$18,955,347 for the fiscal years ended in 1996 and 1995, respectively. The
increase for fiscal 1997 as compared to fiscal 1996 was mainly as a result of
salary and related benefits and other operating costs associated with the
acquisition of the Medisorb technology and certain related assets in March 1996.
There was also an increase in the purchase of lab supplies and clinical expenses
related primarily to the Company's ProLease and RMP-7 programs, partially offset
by a reduction in the costs of preclinical work in the Company's RMP-7 program
which was completed during the prior year. The increase for fiscal 1996 as
compared to fiscal 1995 was mainly the result of an increase in the purchase of
lab supplies and preclinical and clinical expenses related primarily to the
Company's RMP-7 and ProLease programs.
General and administrative expenses were $7,689,625, $6,285,700 and
$5,104,062 for the fiscal years ended in 1997, 1996 and 1995, respectively. The
increase for fiscal 1997 as compared to fiscal 1996 was primarily as a result of
salary and related benefits and other operating costs associated with the
acquisition of the Medisorb technology and certain related assets in March 1996
as well as an increase in patent legal costs. The increase for fiscal 1996 as
compared to fiscal 1995 was primarily the result of non-cash charges related to
the write-down of the Company's investments in Clinical Partners and an increase
in patent legal costs and other legal costs associated with financing and other
transactions. In February and April 1996, the Company purchased, for
approximately $2.1 million, 74 Class A units that were owned by investors who
defaulted on their obligations to make installment payments for such units. The
Company wrote down its investment in these Class A units ratably over the period
February through June 1996 as Clinical Partners used these and other funds to
complete its obligation to Alkermes to fund research and development of RMP-7.
The Company does not believe that inflation and changing prices has had
a material impact on its results of operations.
27
28
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had current assets totaling $89,868,040,
primarily consisting of $2,799,012 in cash and cash equivalents and $82,497,939
in U.S. Treasury Notes and other Government obligations having a maturity of
less than one year; and current liabilities of $8,200,623. The Company's
short-term investment objectives are, first, to assure conservation of
principal, and second, to obtain investment income. As a result, the Company
invests primarily in high grade government or government-backed securities.
During fiscal 1997, the Company announced three new or expanded
collaborative agreements. Development funding and milestone payments to Alkermes
under these collaborations could exceed $70 million in the aggregate (of which
$14.5 million was earned during fiscal 1997), assuming the development of the
product candidates proceeds as planned.
In March 1997, the Company completed a private placement of 2,000,000
shares of its common stock at $25 per share. Net proceeds to the Company were
approximately $49.7 million.
In May 1996, the Company completed a direct public offering of
2,300,000 shares of its common stock at $10 per share. Net proceeds to the
Company were approximately $22.9 million.
In September 1996, the Company amended its loan agreement with a bank
to increase the principal amount of the loan by $5 million, securing the
existing and the additional principal amount of the loan with a building and
real property pursuant to a mortgage and certain of the Company's equipment
pursuant to a security agreement.
The Company's research and development costs to date have been financed
primarily by sales of equity securities and research and development
collaborative arrangements. The Company expects to incur significant research
and development and other costs, including costs related to preclinical studies,
clinical trials and facilities expansion. The research and development revenue
from Clinical Partners ended during the quarter ended June 30, 1996. Such
funding was not sufficient to complete clinical trials and seek regulatory
approval of RMP-7. Since the completion of funding from Clinical Partners,
Alkermes has used and intends to continue to use its own resources to develop
RMP-7, but may be forced to seek alternative sources of funding, including
additional collaborators. The Company is required to fund the development of
RMP-7 to maintain its purchase option relating to Clinical Partners. Therefore,
the Company expects that such costs will exceed revenues significantly for the
next several years, which will result in continuing losses from operations.
The Company expects to begin construction of a new commercial scale
ProLease manufacturing facility in Cambridge, Massachusetts during fiscal 1998.
The Company also expects to begin an expansion of its Medisorb manufacturing
facility in Wilmington, Ohio during fiscal 1998. The total cost for both
facilities is expected to be approximately $15 to $20 million. The Company's
capital expenditures for equipment, facilities and building improvements have
been financed to date primarily with proceeds from bank loans and the sales of
equity securities. The Company will continue to pursue opportunities to obtain
additional financing in the future. Such financing may be sought through various
sources, including equity offerings, bank borrowings, lease arrangements
relating to fixed assets or other financing methods. The source, timing and
availability of any financings will depend on market conditions, interest rates
and other factors.
The Company believes its current cash, cash equivalents and short-term
investments, combined with anticipated interest income and research and
development revenues under collaborative arrangements, will be sufficient to
meet its anticipated capital requirements through at least March 31, 1999. The
Company's future capital requirements will depend on many factors, including
continued scientific progress in its research and development programs, the
magnitude of these programs, progress with preclinical and clinical trials, the
time and costs involved in obtaining regulatory approvals, the costs involved in
filing, prosecuting and enforcing patent claims, competing technological and
market developments, the establishment of additional collaborative arrangements,
the cost of manufacturing facilities and of commercialization activities and
arrangements and the cost of product in-licensing and any possible acquisitions.
28
29
The Company will need to raise substantial additional funds for
longer-term product development, regulatory approvals and manufacturing or
marketing activities that it might undertake in the future. There can be no
assurance that additional funds will be available on favorable terms, if at all.
If adequate funds are not available, the Company may be required to curtail
significantly one or more of its research and development programs and/or obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates or future products.
As disclosed in Note 2 to the Consolidated Financial Statements, the
adoption of Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share" in the quarter ended December 31, 1997 is not expected to
have any impact on the Company's consolidated financial statements because the
Company continues to be in a net loss position and, consequently, common
equivalent shares from stock options and warrants are excluded as their effect
is antidilutive.
29
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1997 AND 1996
AND FOR THE THREE YEARS IN THE PERIOD
ENDED MARCH 31, 1997 AND INDEPENDENT AUDITORS' REPORT
30
31
INDEPENDENT AUDITORS' REPORT
Board of Directors
Alkermes, Inc.
Cambridge, Massachusetts
We have audited the accompanying consolidated balance sheets of Alkermes, Inc.
and subsidiaries as of March 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended March 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Alkermes, Inc. and subsidiaries as
of March 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
May 23, 1997
Boston, Massachusetts
31
32
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND 1996
- --------------------------------------------------------------------------------
ASSETS 1997 1996
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 2,799,012 $ 445,150
Short-term investments 82,497,939 31,929,214
Prepaid expenses and other current assets 4,571,089 1,957,477
------------- ------------
Total current assets 89,868,040 34,331,841
------------- ------------
PROPERTY, PLANT AND EQUIPMENT:
Land 225,000 225,000
Building 1,275,000 1,275,000
Furniture, fixtures and equipment 11,963,945 9,864,501
Leasehold improvements 2,183,280 2,008,193
Construction in progress 90,000 147,326
------------- ------------
15,737,225 13,520,020
Less accumulated depreciation and amortization (7,289,446) (5,097,882)
------------- ------------
8,447,779 8,422,138
INVESTMENTS 5,366,291 1,372,789
------------- ------------
OTHER ASSETS 582,732 747,377
------------- ------------
OTHER INVESTMENTS 432,176 877,928
------------- ------------
$ 104,697,018 $ 45,752,073
============= ============
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------- -------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,653,081 $ 3,522,178
Long-term obligations - current portion 3,547,542 2,925,756
------------- -------------
Total current liabilities 8,200,623 6,447,934
------------- -------------
LONG-TERM OBLIGATIONS 10,914,127 9,876,347
------------- -------------
OTHER LONG-TERM LIABILITIES 1,430,832 915,241
------------- -------------
DEFERRED REVENUE 5,000,000 5,000,000
------------- -------------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Capital stock, par value $.01 per share:
authorized, 5,000,000 shares; none issued
Common stock, par value $.01 per share:
authorized, 40,000,000 shares; issued,
20,718,790 shares in 1997 and 15,966,942 shares
in 1996 207,188 159,669
Additional paid-in capital 198,844,191 124,239,023
Receivable for warrants and deferred compensation (109,901) (317,682)
Cumulative foreign currency translation adjustments (16,869) (24,354)
Unrealized gain on marketable securities 71,250 502,500
Accumulated deficit (119,844,423) (101,046,605)
------------- -------------
Total shareholders' equity 79,151,436 23,512,551
------------- -------------
$ 104,697,018 $ 45,752,073
============= =============
32
See notes to consolidated financial statements.
33
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
1997 1996 1995
------------ ------------ ------------
REVENUES:
Research and development revenue under
collaborative arrangements $ 15,968,317 $ 2,848,510 $ 3,049,106
Research and development revenue under
collaborative arrangement with related party 1,415,313 11,182,741 9,277,371
Interest income 2,443,317 1,887,275 1,576,794
------------ ------------ ------------
Total revenues 19,826,947 15,918,526 13,903,271
------------ ------------ ------------
EXPENSES:
Research and development 29,553,988 21,586,316 18,955,347
General and administrative 7,689,625 6,285,700 5,104,062
Interest expense 1,381,152 1,043,594 608,015
Purchase of in-process research and
development -- 750,000 --
Write-down of other investment -- -- 1,140,000
------------ ------------ ------------
Total expenses 38,624,765 29,665,610 25,807,424
------------ ------------ ------------
NET LOSS $(18,797,818) $(13,747,084) $(11,904,153)
============ ============ ============
NET LOSS PER WEIGHTED AVERAGE
NUMBER OF COMMON SHARES $ (1.03) $ (0.93) $ (0.88)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 18,288,334 14,774,584 13,535,339
============ ============ ============
See notes to consolidated financial statements.
33
34
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
RECEIVABLE CUMULATIVE
FOR FOREIGN UNREALIZED
ADDITIONAL WARRANTS AND CURRENCY GAIN (LOSS) ON
COMMON STOCK PAID-IN DEFERRED TRANSLATION MARKETABLE
SHARES AMOUNT CAPITAL COMPENSATION ADJUSTMENTS SECURITIES
BALANCE, APRIL 1, 1994 13,520,091 $135,201 $ 109,498,650 $(2,019,775) $(14,451) $(330,000)
Issuance of common stock, April 1994
through March 1995 51,747 517 39,228 -- -- --
Warrant exchange and amortization of
receivable for warrants -- -- (354,090) 841,719 -- --
Compensation relating to grant of stock
options and awards made -- -- 103,320 (103,320) -- --
Amortization of compensation relating to
grant of stock options and awards made -- -- (137,937) 469,058 -- --
Carrying value adjustments -- -- -- -- -- 330,000
Cumulative foreign currency translation -- -- -- -- 4,150 --
adjustments
Net loss for year -- -- -- -- -- --
---------- -------- ------------- ----------- -------- ---------
BALANCE, MARCH 31, 1995 13,571,838 135,718 109,149,171 (812,318) (10,301) --
Issuance of common stock, April 1995
through March 1996, net of issuance
costs of $1,281,445 2,395,104 23,951 15,002,862 -- -- --
Amortization of receivable for warrants -- -- -- 402,259 -- --
Amortization of compensation relating to
grant of stock options and awards made -- -- 86,990 92,377 -- --
Unrealized gain on marketable securities -- -- -- -- -- 502,500
Cumulative foreign currency translation -- -- -- -- (14,053) --
adjustments
Net loss for year -- -- -- -- -- --
---------- -------- ------------- ----------- -------- ---------
BALANCE, MARCH 31, 1996 15,966,942 159,669 124,239,023 (317,682) (24,354) 502,500
ACCUMULATED
DEFICIT TOTAL
BALANCE, APRIL 1, 1994 $ (75,395,368) $ 31,874,257
Issuance of common stock, April 1994
through March 1995 -- 39,745
Warrant exchange and amortization of
receivable for warrants -- 487,629
Compensation relating to grant of stock
options and awards made -- --
Amortization of compensation relating to
grant of stock options and awards made -- 331,121
Carrying value adjustments -- 330,000
Cumulative foreign currency translation -- 4,150
adjustments
Net loss for year (11,904,153) (11,904,153)
------------- ------------
BALANCE, MARCH 31, 1995 (87,299,521) 21,162,749
Issuance of common stock, April 1995
through March 1996, net of issuance
costs of $1,281,445 -- 15,026,813
Amortization of receivable for warrants -- 402,259
Amortization of compensation relating to
grant of stock options and awards made -- 179,367
Unrealized gain on marketable securities -- 502,500
Cumulative foreign currency translation -- (14,053)
adjustments
Net loss for year (13,747,084) (13,747,084)
------------- ------------
BALANCE, MARCH 31, 1996 (101,046,605) 23,512,551
(Continued)
34
35
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
RECEIVABLE CUMULATIVE
FOR FOREIGN UNREALIZED
ADDITIONAL WARRANTS AND CURRENCY GAIN (LOSS) ON
COMMON STOCK PAID-IN DEFERRED TRANSLATION MARKETABLE
SHARES AMOUNT CAPITAL COMPENSATION ADJUSTMENTS SECURITIES
BALANCE, MARCH 31, 1996 (CARRIED FORWARD) 15,966,942 159,669 124,239,023 (317,682) (24,354) 502,500
Issuance of common stock, April 1996 through
March 1997, net of issuance costs of $390,705 4,751,848 47,519 74,605,168 -- -- --
Amortization of receivable for warrants -- -- -- 34,687 -- --
Amortization of compensation relating to
grant of stock options and awards made -- -- -- 173,094 -- --
Unrealized loss on marketable securities -- -- -- -- -- (431,250)
Cumulative foreign currency translation -- -- -- -- 7,485 --
adjustments
Net loss for year -- -- -- -- -- --
---------- -------- ------------ --------- -------- ---------
BALANCE, MARCH 31, 1997 20,718,790 $207,188 $198,844,191 $(109,901) $(16,869) $ 71,250
========== ======== ============ ========= ======== =========
ACCUMULATED
DEFICIT TOTAL
BALANCE, MARCH 31, 1996 (CARRIED FORWARD) (101,046,605) 23,512,551
Issuance of common stock, April 1996 through
March 1997, net of issuance costs of $390,705 -- 74,652,687
Amortization of receivable for warrants -- 34,687
Amortization of compensation relating to
grant of stock options and awards made -- 173,094
Unrealized loss on marketable securities -- (431,250)
Cumulative foreign currency translation -- 7,485
adjustments
Net loss for year (18,797,818) (18,797,818)
------------- ------------
BALANCE, MARCH 31, 1997 $(119,844,423) $ 79,151,436
============= ============
See notes to consolidated financial statements.
(Concluded)
35
36
ALKERMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(18,797,818) $(13,747,084) $(11,904,153)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 2,358,843 1,770,242 1,426,068
Amortization of amounts receivable for warrants and
compensation relating to grant of stock options and awards
made 207,781 581,626 818,750
Adjustments to other investments 14,502 101,742 1,474,934
Changes in assets and liabilities:
Prepaid expenses and other current assets (2,617,365) 830,500 26,049
Accounts payable and accrued expenses 1,143,447 960,670 256,067
Deferred revenue from Alkermes Clinical Partners, L.P. -- (1,585,000) (1,215,000)
Other long-term liabilities 515,591 540,406 61,611
Deferred revenue -- 5,000,000 --
------------ ------------ ------------
Net cash used by operating activities (17,175,019) (5,546,898) (9,055,674)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net (2,243,476) (5,606,737) (629,935)
(Purchases) sales of short-term investments, net (50,568,725) (11,665,073) 5,031,130
(Purchases) sales of investments, net (3,993,502) 2,994,437 1,133,969
Other assets 10,500 (209,500) 20,500
Investment in Alkermes Clinical Partners, L.P. -- (2,122,463) (126,959)
Repayment of loan to Alkermes Clinical Partners, L.P. -- 4,735,000 --
------------ ------------ ------------
Net cash (used by) provided by investing activities (56,795,203) (11,874,336) 5,428,705
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net 74,652,687 15,026,813 39,745
Proceeds from issuance of long-term debt 5,000,000 4,500,000 4,500,000
Payment of long-term obligations (3,338,054) (2,733,061) (2,479,359)
------------ ------------ ------------
Net cash provided by financing activities 76,314,633 16,793,752 2,060,386
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 9,451 (13,995) 619
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,353,862 (641,477) (1,565,964)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 445,150 1,086,627 2,652,591
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,799,012 $ 445,150 $ 1,086,627
============ ============ ============
SUPPLEMENTARY INFORMATION - Interest paid $ 788,102 $ 492,731 $ 568,198
============ ============ ============
See notes to consolidated financial statements.
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ALKERMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
1. FORMATION OF THE COMPANY
Alkermes, Inc. (the "Company") was incorporated in July 1987 and is a
leader in the development of products based on sophisticated drug delivery
technologies. Alkermes' focus is on two important drug delivery
opportunities: (i) controlled, sustained release of injectable drugs
lasting several days to several weeks, utilizing its ProLease(R) and
Medisorb(R) technologies; and (ii) the delivery of drugs into the brain
past the blood-brain barrier, utilizing RMP-7(TM) technology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of Alkermes, Inc. and its wholly owned subsidiaries, Alkermes
Controlled Therapeutics, Inc. ("ACTI"), Alkermes Controlled Therapeutics,
Inc. II ("ACT II") (see Note 3), Alkermes Investments, Inc., Alkermes
Development Corporation II ("ADC II") and Alkermes Europe, Ltd. ADC II
serves as the one percent general partner of Alkermes Clinical Partners,
L.P. ("Clinical Partners"), a limited partnership engaged in a research and
development project with the Company (see Note 7). ADC II's investment in
Clinical Partners is accounted for under the equity method of accounting.
All significant intercompany balances and transactions have been
eliminated.
USE OF ESTIMATES - The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the fair value of certain financial
instruments. The carrying amounts of cash, cash equivalents, accounts
payable and accrued expenses approximate fair value because of their
short-term nature. Marketable equity securities are recorded in the
consolidated financial statements at amortized cost which approximates fair
value. The carrying amounts of the Company's debt instruments approximate
fair value.
NET LOSS PER WEIGHTED AVERAGE NUMBER OF COMMON SHARES - Net loss per share
is computed using the weighted average number of common shares outstanding
during the period.
RESEARCH AND DEVELOPMENT REVENUES - Research and development revenues are
recorded as services are performed. Revenue earned upon the attainment of
research and development milestones is recorded when achieved.
RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses are
charged to operations as incurred.
INCOME TAXES - The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the recognition of
deferred tax assets and liabilities relating to the expected future tax
consequences of events that have been recognized in the Company's
consolidated financial statements and tax returns (see Note 6).
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38
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS - Cash equivalents, with purchased maturities of three
months or less, consist of money market accounts.
INVESTMENTS - Securities that the Company has the positive intent and
ability to hold to maturity are reported at amortized cost and are
classified as "held-to-maturity."
Short-term investments and investments consist of U.S. Treasury and other
government securities which are classified as "held-to-maturity" and
reported at amortized cost. Short-term investments and investments have
maturity dates within one year of the balance sheet date. Investments
classified as long-term include securities held as collateral. The carrying
value of all investments approximated market value at March 31, 1997 and
1996.
Included in other investments is an investment in Cortex Pharmaceutical
Inc.'s common stock, which is classified as "available-for-sale" and
reported at fair market value. During the year ended March 31, 1995, the
Company recorded a charge to operations of $1,140,000 due to other than
temporary reductions in the market value of such investment. Other
investments also include ADC II's investment in Clinical Partners.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are recorded
at cost. Depreciation and amortization are provided using the straight-line
method over the following estimated useful lives of the assets: buildings -
25 years; furniture, fixtures and equipment - 3 to 5 years; or, in the case
of leasehold improvements and capital leases, over the lease terms - 3 to
10 years.
DEFERRED REVENUE - LONG-TERM - During fiscal 1996, the Company received a
$5,000,000 prepayment of royalties under a collaborative agreement. This
amount has been recorded as deferred revenue at March 31, 1997 and 1996 and
accrues interest (included in other long-term liabilities) at a rate
(6.15625% at March 31, 1997) equal to .20% above the one-year LIBOR rate.
LICENSE AGREEMENTS AND PURCHASED PATENTS - License agreements and purchased
patents, included in other assets, are amortized on a straight-line basis
over a period of five years.
RECEIVABLE FOR WARRANTS AND DEFERRED COMPENSATION - Receivable for warrants
is comprised of amounts receivable related to warrants issued in connection
with the capitalization of Clinical Partners and was amortized as revenues
were earned from Clinical Partners. Deferred compensation is related to
both the Company's 1991 Restricted Common Stock Award Plan and compensatory
stock options and is amortized over vesting periods ranging from one to
five years.
NEW ACCOUNTING PRONOUNCEMENTS - In March 1995, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires the Company to review for impairment of long-lived
assets, certain identifiable intangibles and goodwill related to those
assets whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In certain situations,
an impairment loss would be recognized. The Company adopted SFAS No. 121
during fiscal 1997. The adoption did not have a material effect on the
Company's consolidated financial position, results of operations or cash
flows.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED) - In fiscal 1997, the Company
also implemented the disclosure requirements of SFAS No. 123, "Accounting
for Stock-Based Compensation." The Company continues to account for its
stock-based transactions with employees in accordance with Accounting
Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock
Issued to Employees," and will provide pro forma disclosures of net loss
and net loss per share as if the fair value basis method prescribed by SFAS
No. 123 had been applied in measuring employee compensation expense (see
Note 10).
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," in
which the Company is required to adopt in the quarter ending December 31,
1997. SFAS No. 128 requires companies to change the method currently used
to compute earnings per share and to restate all prior periods for
comparability. The adoption of SFAS No. 128 is not expected to have any
impact on the Company's consolidated financial statements because the
Company continues to be in a net loss position and, consequently, common
equivalent shares from stock options and warrants are excluded as their
effect is antidilutive.
3. ACQUISITION OF CERTAIN ASSETS AND TECHNOLOGY
On March 8, 1996, ACT II acquired certain assets and technology owned or
used by Medisorb Technologies International L.P., a leader in the
development of injectable controlled release drug delivery technologies for
the pharmaceutical industry. The assets acquired included a large scale
pharmaceutical production facility and equipment. The Company paid
$4,000,000 in cash for the assets and technology. A nonrecurring charge
totaling $750,000 for technology purchased but not yet commercially viable
was recorded by the Company at the acquisition date. This charge represents
that portion of the purchase price of the acquired technology that was
allocated to research and development in-process.
4. SHAREHOLDERS' EQUITY
In September and October 1995, the Company completed an underwritten public
offering of 2,300,000 shares of its common stock at $7.00 per share. Net
proceeds to the Company were approximately $14,800,000.
In May 1996, the Company completed a direct public offering of 2,300,000
shares of its common stock at $10.00 per share. Net proceeds to the Company
were approximately $22,900,000.
In March 1997, the Company completed a private placement of 2,000,000
shares of its common stock at $25.00 per share. Net proceeds to the Company
were approximately $49,700,000.
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5. LONG-TERM OBLIGATIONS
Long-term obligations at March 31 consist of:
1997 1996
Notes payable to a bank bearing interest at fixed rates
(8.00%-8.54%), payable in monthly installments,
maturing 1997 through 2001 $ 6,436,903 $ 3,246,427
Notes payable to a bank bearing interest at fixed rates
(6.35%-7.96%), payable in quarterly installments
of $375,000, maturing in 2000 4,500,000 6,000,000
Note payable to corporate partner bearing interest at the
prime rate (8.50% at March 31, 1997), maturing in 2000 3,500,000 3,500,000
Other 24,766 55,676
----------- -----------
14,461,669 12,802,103
Less current portion 3,547,542 2,925,756
----------- -----------
$10,914,127 $ 9,876,347
=========== ===========
The first bank loan is secured by a building and real property pursuant to
a mortgage and certain of the Company's equipment pursuant to security
agreements. The loan is also secured by cash collateral (included in
long-term investments at March 31, 1997) having a minimum market value of
the lesser of $1,000,000 or the outstanding principal amount of the loan.
Under the terms of the loan agreement, the Company is required to maintain
a minimum unencumbered balance of cash and permitted investments and a
minimum ratio of unencumbered cash and permitted investments to
indebtedness.
The second bank loan agreement requires the Company to maintain a minimum
net worth, a maximum ratio of total liabilities to net worth, a minimum
current ratio and a minimum unencumbered balance of cash and permitted
investments. Upon the breach of any of these financial covenants or the
occurrence of any other event of default under the loan agreement, the
Company would be required to deposit an amount equal to the then
outstanding principal balance of the loan plus three months' interest into
a restricted account at the bank. Under the terms of the loan agreement,
the bank would have the right to liquidate such account and apply the
proceeds to repayment of the loan if the Company's unencumbered cash and
investment balance falls below $5,000,000.
In January 1995, the Company borrowed $3,500,000 from a corporate partner.
The principal amount of the loan, together with interest, is payable in the
Company's common stock or cash, at the Company's option.
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5. LONG-TERM OBLIGATIONS (CONTINUED)
At March 31, 1997, the maturities of the long-term obligations are as
follows:
NOTES PAYABLE
AND OTHER
1998 $3,547,542
1999 2,805,794
2000 6,300,000
2001 1,225,000
2002 583,333
-----------
$14,461,669
===========
6. INCOME TAXES
At March 31, 1997, the Company has approximately $53,522,000 of net
operating loss ("NOL") carryforwards for U.S. federal income tax purposes
and approximately $3,802,000 of research and development tax credits
available to offset future federal income tax, subject to limitations for
alternative minimum tax. The NOL and research and development credit
carryforwards are subject to examination by the tax authorities and expire
in various years from 2002 through 2012.
The components of the net deferred income tax assets at March 31 are as
follows:
1997 1996
Acquired technology $884,000 $884,000
Capitalized research and development
expenses, net of amortization 14,535,000 12,146,000
U.S. NOL carryforwards 21,495,000 15,557,000
Tax credit carryforwards 4,840,000 3,491,000
Alkermes Europe NOL carryforward 2,152,000 1,373,000
Other 1,070,000 709,000
Less valuation allowance (44,976,000) (34,160,000)
----------- -----------
$ - $ -
=========== ===========
The valuation allowance has been provided because of the uncertainty of
realizing the future benefits of the net deferred income tax assets. In
fiscal 1996, the valuation allowance increased by $5,241,000.
The ACTI NOL carryforwards and ACTI research and development credit
carryforwards of approximately $4,780,000 and $790,000, respectively,
acquired from Enzytech, Inc. are only available to offset future taxable
income of ACTI.
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7. RELATED-PARTY TRANSACTIONS
On April 10, 1992, the Company and Clinical Partners, a limited partnership
of which ADC II is the general partner, sold in a private placement (i) 920
Class A units, each unit (a "Class A Unit") consisting of one Class A
limited partnership interest in Clinical Partners, a 1992 warrant (a "1992
Warrant") to purchase 2,800 shares of the Company's common stock and a 1995
warrant (a "1995 Warrant") to purchase 300 shares of the Company's common
stock; and (ii) one Class B unit (the "Class B Unit"), consisting of one
Class B limited partnership interest in Clinical Partners, a 1992 warrant
(the "Class B 1992 Warrant") to purchase 5,600 shares of the Company's
common stock and a 1995 warrant (the "Class B 1995 Warrant") to purchase
600 shares of the Company's common stock. The purchase price was $50,000
for each Class A Unit and $100,000 for the Class B Unit, the unpaid
portions of which were evidenced by investor notes which were payable in
annual installments through April 15, 1995.
In connection with the offering, the Company also issued, to an affiliate
of the sales agent for the Class A Units, warrants (the "Incentive
Warrants") to purchase 77,100 shares of the Company's common stock and
issued, to another affiliate of the sales agent, a warrant (the "Affiliate
Warrant") to purchase 13,300 shares of the Company's common stock.
The net proceeds of the offering were used primarily to fund the further
development and clinical testing of a family of molecules designated by the
Company as Receptor-Mediated Permeabilizers(TM) ("RMPs"(TM)) for human
pharmaceutical use in the United States and Canada. Proprietary RMP(TM)
molecules developed by the Company may enhance the passage of small drug
molecules from the bloodstream into the brain. Pursuant to the Product
Development Agreement entered into in March 1992, the Company licensed to
Clinical Partners certain of its technology relating to RMPs. Research and
development of RMPs is being conducted by the Company for Clinical Partners
pursuant to the Product Development Agreement. The Company was reimbursed
by Clinical Partners for its actual costs incurred in conducting such
research and development and also received a management fee of 10% of such
costs. Such funding ended during the quarter ended June 30, 1996. Such
funding was not sufficient to complete clinical trials and seek regulatory
approval of RMP-7. Since the completion of funding from Clinical Partners,
Alkermes has used its own resources to develop RMP-7, but may be forced to
seek alternative sources of funding, including additional collaborators.
The Company is required to fund the development of RMP-7 to maintain the
Purchase Option as defined below.
Clinical Partners has granted the Company an exclusive interim license to
manufacture and market RMPs for human pharmaceutical use in the United
States and Canada. Upon the first marketing approval of an RMP product by
the United States Food and Drug Administration, the Company is obligated to
make a payment to Clinical Partners equal to 20% of the aggregate capital
contributions (approximately $8,300,000) of all partners (the "milestone
payment"). Additionally, the Company will make royalty payments to Clinical
Partners equal to 12% of United States and Canadian revenues and 10% of
European revenues, in certain circumstances, from any sales of RMPs by the
Company. The interim license will terminate if the Company does not
exercise the Purchase Option.
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7. RELATED-PARTY TRANSACTIONS (CONTINUED)
The 1992 Warrants, the 1995 Warrants (collectively, the "Class A
Warrants"), the Class B 1992 Warrant and the Class B 1995 Warrant
(collectively, the "Class B Warrants") were issued by the Company in
consideration of the grant by each limited partner to the Company of an
option to purchase (the "Purchase Option"), under certain circumstances,
the limited partnership interest in Clinical Partners held by such limited
partner. Upon exercise of such purchase option, each Class A limited
partner will be entitled to receive an initial payment, at the Company's
option, of $40,000 in cash or approximately $42,100 in the Company's common
stock, as well as certain additional payments (which are subject to certain
limitations) based on the Company's net revenues from sales of RMPs in the
United States, Canada and Europe as follows:
- 12% of net revenues to the Company on sales of RMPs in the United
States and Canada and 10% of net revenues to the Company on sales of
RMPs in Europe, until each Class A limited partner has received an
aggregate of $400,000 per interest from the initial payment and the
royalty stream; thereafter,
- 9% of net revenues to the Company on sales of RMPs in the United
States, Canada and Europe, until each Class A limited partner has
received an aggregate of $500,000 per interest from the initial
payment and the royalty stream; and thereafter,
- 4% of net revenues to the Company on sales of RMPs in the United
States, Canada and Europe.
Royalties on sales of RMPs in Europe will be payable only to the extent
necessary to pay projected distributions in any year. If royalties on sales
of RMPs in the United States and Canada in any year equal or exceed the
projected distributions for such year, no royalties on European sales will
be paid in that year.
The 1992 Warrants and the Class B 1992 Warrant may be exercised during the
period beginning on August 1, 1994 and ending on July 31, 1999, and upon
the payment of a warrant exercise price per share of $20.03. The 1995
Warrants and the Class B 1995 Warrant may be exercised during the period
beginning on April 15, 1995 and ending on April 14, 2000, and upon the
payment of a warrant exercise price of $3.54.
The Company completed an exchange offer on January 27, 1995 with respect to
the warrants issued in 1992 in connection with the formation of Clinical
Partners. Pursuant to the exchange offer, Class A limited partners had the
option to exchange both their Class A 1992 Warrants and Class A 1995
Warrants for a new 1994 Class A Warrant to purchase, at $5.00 per share,
and during the period beginning on April 1, 1995 and ending on March 31,
2000, 1,700 shares of the Company's common stock for every 3,100 shares of
common stock issuable upon exercise of the Class A 1992 Warrant and Class A
1995 Warrant exchanged therefor. The Class B limited partner had the option
to exchange both the Class B 1992 and Class B 1995 Warrants for a new 1994
Class B Warrant to purchase 3,400 shares of the Company's common stock at
$5.00 per share. The 1994 Class B Warrant is exercisable during the same
period as the 1994 Class A Warrants.
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7. RELATED-PARTY TRANSACTIONS (CONTINUED)
Of the Class A 1992 Warrants and Class A 1995 Warrants originally issued,
approximately 92% were exchanged in response to the exchange offer. The
Class B 1992 Warrant and the Class B 1995 Warrant, the Affiliate Warrant
and the Incentive Warrants were also exchanged in the exchange offer for
new warrants entitling the holders thereof to purchase an aggregate of
3,400, 7,293 and 42,280 shares of common stock, respectively. The exchange
offer resulted in a decrease of 1,225,927 shares of common stock which are
issuable upon exercise of the Company's outstanding warrants.
In order to fund organizational and offering costs, the Company loaned
Clinical Partners, at the closing of the private placement, $4,735,000. The
loan was secured by a pledge of the investor notes, bore interest at 7.5%
per annum, payable annually in arrears, and was paid in April 1995.
In February and April 1996, the Company purchased from Clinical Partners an
aggregate of 74 Class A Units that were owned by investors who defaulted on
their payment obligations. The total purchase price for such Units was the
aggregate amount of unpaid installments, approximately $2,052,000. The
Company wrote down its investment in these Class A Units ratably over the
period February through June 1996 as Clinical Partners used these and other
funds to complete its obligation to the Company to fund research and
development of RMP-7.
8. RESEARCH AND DEVELOPMENT ARRANGEMENTS
The Company has entered into several collaborative agreements with
corporate partners ("partners") to provide research and development
activities relating to the partners' products. In connection with these
agreements, the Company has granted certain licenses or the right to obtain
certain licenses to technology developed by the Company. In return for such
grants, the Company will receive certain payments upon the achievement of
certain milestones and will receive royalties on sales of products
developed under the terms of the agreements. In addition to research and
development funding, during fiscal 1997 the Company received $900,000
representing three milestone payments under these agreements. Additionally,
the Company may obtain the right to manufacture and supply products
developed under certain of these agreements.
9. COMMITMENTS
LEASE COMMITMENTS - The Company leases certain of its offices and research
laboratories under operating leases with initial terms of one to ten years
expiring between 1998 and 2008. The leases contain provisions for
extensions for up to ten years. Total annual future minimum lease payments
are as follows:
1998 $2,684,000
1999 2,016,000
2000 2,035,000
2001 1,497,000
2002 1,175,000
Thereafter 1,789,000
Rent expense charged to operations was approximately $3,342,000, $2,439,000
and $2,589,000 for the years ended March 31, 1997, 1996 and 1995,
respectively.
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9. COMMITMENTS (CONTINUED)
LEASE COMMITMENTS (CONTINUED) - Additionally, a U.S. Treasury Bill with a
total principal amount of $257,000 is being held by a bank in the Company's
name as a security deposit on the leases and, accordingly, has been
classified as a long-term investment at March 31, 1997.
LICENSE AND ROYALTY COMMITMENTS - The Company has entered into license
agreements with certain corporations and universities which require the
Company to pay annual license fees and royalties based on a percentage of
revenues from sales of certain products and royalties from sublicenses
granted by the Company. Amounts paid under these agreements were
approximately $92,000, $127,000 and $117,000 for the years ended March 31,
1997, 1996 and 1995, respectively.
10. STOCK OPTIONS AND AWARDS
During fiscal 1996, the Company adopted the Stock Option Plan for
Non-Employee Directors (the "Director Plan"), which provides for the
granting of stock options to non-employee directors of the Company. The
Company's Amended and Restated 1989 Non-Qualified Stock Option Plan (the
"1989 Plan"), Amended and Restated 1990 Omnibus Stock Option Plan, as
amended (the "1990 Plan"), and 1992 Non-Qualified Stock Option Plan (the
"1992 Plan") provide for the granting of stock options to employees,
officers and directors of, and consultants to, the Company. Nonqualified
options to purchase up to 225,000 shares of the Company's common stock may
be granted under the 1989 Plan, nonqualified and incentive options to
purchase up to 1,750,000 shares of the Company's common stock may be
granted under the 1990 Plan, nonqualified options to purchase up to
1,000,000 shares of the Company's common stock may be granted under the
1992 Plan and nonqualified options to purchase up to 150,000 shares of the
Company's common stock may be granted under the Director Plan. Unless
sooner terminated, the 1989 Plan will terminate on July 18, 1999, the 1990
Plan will terminate on September 19, 2000, the 1992 Plan will terminate on
November 11, 2002 and the Director Plan will terminate on March 18, 2006.
The Compensation Committee of the Board of Directors administers the 1989
Plan, the 1990 Plan and the 1992 Plan and determines who is to receive
options and the exercise price and terms of such options. The Board of
Directors administers the Director Plan. The option exercise price of stock
options granted under the 1989 Plan, the 1990 Plan and the Director Plan
may not be less than 100% of the fair market value of the common stock on
the date of grant. Under the terms of the 1992 Plan, the option exercise
price may be below the fair market value, but not below par value, of the
underlying stock at the time the option is granted.
The 1989 Plan, the 1990 Plan and the 1992 Plan also provide that the
Compensation Committee may grant Limited Stock Appreciation Rights
("LSARs") with respect to all or any portion of the shares covered by stock
options granted to directors and executive officers. LSARs may be granted
with the grant of a nonqualified stock option or at any time during the
term of such option but may only be granted with the grant of an incentive
stock option. The grant of LSARs will not be effective until six months
after their date of grant. Upon the occurrence of certain triggering
events, the options with respect to which LSARs have been granted shall
become immediately exercisable and the persons who have received LSARs will
automatically receive a cash payment in lieu of shares. Through March 31,
1997, LSARs have been granted under the 1990 Plan with respect to options
to purchase 425,750 shares.
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10. STOCK OPTIONS AND AWARDS (CONTINUED)
The Company has also adopted the 1991 Restricted Common Stock Award Plan
(the "Award Plan"). The Award Plan provides for the award to certain
eligible employees, officers and directors of, and consultants to, the
Company of up to a maximum of 250,000 shares of common stock. The Award
Plan is administered by the Compensation Committee. Awards generally vest
over five years. Through March 31, 1997, 1996 and 1995, an aggregate of
77,000, 77,000 and 77,000 shares of common stock , respectively, have been
awarded under the Award Plan, of which 2,400, 13,200 and 7,900 shares
ceased to be subject to forfeiture and were issued during the years ended
March 31, 1997, 1996 and 1995, respectively. In addition, zero, 5,000 and
6,900 shares were canceled during the years ended March 31, 1997, 1996 and
1995, respectively. The Award Plan will terminate on November 15, 2001,
unless sooner terminated by the Board of Directors.
The Company has reserved a total of 2,376,852 shares of common stock for
issuance under the five plans.
The Company has elected to continue to follow APB No. 25 for accounting for
its employee stock options. Under APB No. 25, no compensation expense is
recognized with respect to the grant of any stock options in which the
exercise price of the Company's employee stock options equals the fair
market price of the underlying stock on the date the option is granted.
Pro forma information regarding net loss and net loss per share in fiscal
1997 and 1996 has been determined as if the Company had accounted for its
employee stock options under the fair value method prescribed by SFAS No.
123. The resulting effect on pro forma net loss and net loss per share
disclosed below for fiscal 1997 and 1996 is not likely to be representative
of the effects on net loss and net loss per share on a pro forma basis in
future years, because fiscal 1996 and 1997 pro forma results include the
impact of only one and two years, respectively, of grants and related
vesting. The fair value of options was estimated at the date of grant using
the Black-Scholes option valuation model with the following weighted
average assumptions: risk-free interest rates ranging from 6.60% - 6.84%
for fiscal 1997 and 5.96% - 6.17% for fiscal 1996; dividend yields of 0% in
fiscal 1997 and 1996; volatility factors of the expected market price of
the Company's common stock of 67% in fiscal 1997 and 65% in fiscal 1996;
and a weighted average expected life of 2.5 years in fiscal 1997 and 1996.
Using the Black-Scholes option valuation model, the weighted average fair
value of options granted in fiscal 1997 and 1996 was $8.00 and $2.96,
respectively.
For purposes of pro forma disclosures, the estimated fair value of options
is amortized to pro forma expense over the vesting period of the option.
Pro forma information for the years ended March 31 is as follows:
1997 1996
Net loss - as reported $(18,797,818) $(13,747,084)
Net loss - pro forma $(19,971,317) $(13,972,561)
Net loss per share - as reported $ (1.03) $ (0.93)
Net loss per share - pro forma $ (1.09) $ (0.95)
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10. STOCK OPTIONS AND AWARDS (CONTINUED)
A summary of option activity under the 1989, 1990, 1992 and Director Plans
is as follows:
EXERCISE WEIGHTED
NUMBER PRICE AVERAGE
OF PER EXERCISE
SHARES SHARE PRICE
Balance, April 1, 1994 1,328,501 $ .56 - $21.00 $ 7.22
Granted 1,210,765 2.01 - 7.00 3.53
Exercised (43,847) .56 - 1.00 .90
Canceled (1,038,126) .60 - 21.00 8.98
---------
Balance, March 31, 1995 1,457,293 .56 - 14.875 3.09
Granted 445,450 2.81 - 10.31 5.73
Exercised (60,199) .56 - 3.69 1.63
Canceled (106,540) 1.00 - 9.13 3.80
---------
Balance, March 31, 1996 1,736,004 .56 - 14.875 3.78
Granted 449,650 9.31 - 28.75 14.53
Exercised (142,575) .56 - 14.875 3.43
Canceled (70,670) 1.00 - 14.88 4.90
---------
Balance, March 31, 1997 1,972,409 $ .56 - $28.75 $ 6.22
========= ============== =======
During fiscal 1995, a significant number of outstanding options were
canceled in exchange for the grant of fewer options with an exercise price
equal to the fair market value of the common stock on the date of grant of
$3.69 per share. These options vest over three years. Other options granted
generally vest over four years, except options granted under the Director
Plan which vest after six months.
The following table summarizes information concerning outstanding and
exercisable options as of March 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
$0.56-$3.50 590,026 6.38 $2.09 363,032 $1.43
3.63-4.00 676,020 7.28 3.78 406,817 3.77
4.06-14.31 587,613 9.12 11.01 104,848 8.25
14.44-28.75 118,750 9.27 16.81 10,000 14.88
------- -------
1,972,409 7.68 6.22 884,697 3.46
========= =======
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48
10. STOCK OPTIONS AND AWARDS (CONTINUED)
For certain stock options granted and awards made, the Company recognizes,
as compensation expense, the excess of the intrinsic value for accounting
purposes of the common stock issuable upon exercise of such stock options
over the aggregate exercise price thereof and, in connection with stock
awards, the fair market value of the Company's common stock on the date of
the award. This compensation expense is amortized ratably over the vesting
period of each stock option and stock award. For the years ended March 31,
1997, 1996 and 1995, compensation expense of $173,094, $179,367 and
$331,121, respectively, was recorded and will aggregate a maximum of
$109,901 over the remaining terms of such stock options granted and stock
awards made.
* * * * * *
48
49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors. The information with respect to directors required by this
item is incorporated herein by reference to pages 2, 3, 12 and 18-20 of the
Registrant's Proxy Statement dated June 27, 1997 for the Registrant's annual
shareholders' meeting to be held on July 25, 1997 (the "1997 Proxy Statement").
(b) Executive Officers. The information with respect to executive officers
required by this item is set forth in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required under this item is incorporated herein by
reference to pages 7 through 17 of the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to pages 18 through 20 of the 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to page 20 of the 1997 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of the Report:
(1) Consolidated Financial Statements of the Registrant and
Independent Auditors' Report thereon:
Consolidated Balance Sheets, March 31, 1997 and 1996.
49
50
Consolidated Statements of Operations for the Years Ended March
31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity for the Years
Ended March 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years Ended March
31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
(2) Financial Statement Schedules:
Schedules have been omitted because of the absence of conditions
under which they are required or because the required information
is included in the financial statements or the notes thereto.
(3) Exhibits
Exhibit No.
- -----------
3.1(a) Second Amended and Restated Articles of Incorporation of
Alkermes, Inc. effective July 23, 1991. (Incorporated by
reference to Exhibit 4.1(a) to the Registrant's Report on Form
10-Q for the quarter ended June 30, 1991.)
3.1(b) Statement of Change of Registered Office of Alkermes, Inc.
effective July 23, 1991. (Incorporated by reference to Exhibit
4.1(b) to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1991.)
3.1(c) Amendment to Second Amended and Restated Articles of
Incorporation, as filed with the Pennsylvania Secretary of State
on November 1, 1991. (Incorporated by reference to Exhibit 4.1(c)
to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1991.)
3.1(d) Amendment to the Second Amended and Restated Articles of
Incorporation, as amended, as filed with the Pennsylvania
Secretary of State on February 12, 1993. (Incorporated by
reference to Exhibit 4.1(d) to the Registrant's Report on Form
10-Q for the quarter ended December 31, 1992.)
3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as of
July 1, 1994. (Incorporated by reference to Exhibit 4.2 to the
Registrant's Report on Form 10-Q for the quarter ended June 30,
1994.)
4.1 Specimen of Common Stock Certificate of Alkermes, Inc.
(Incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-1, as amended (File No.
33-40250).)
50
51
4.2 Form of 1992 Warrant to purchase 2,800 shares of the Registrant's
Common Stock. (Incorporated by reference to Exhibit 4.2 to the
Registrant's Report on Form 10-K for the fiscal year ended March
31, 1992.)
4.3 Form of 1995 Warrant to purchase 300 shares of the Registrant's
Common Stock. (Incorporated by reference to Exhibit 4.3 to the
Registrant's Report on Form 10-K for the fiscal year ended March
31, 1992.)
4.4 Form of Global Warrant Certificate for 1994 Class A Warrants.
(Incorporated by reference to Exhibit 4.6 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.5 Form of Global Warrant Certificate for 1994 Class B Warrants.
(Incorporated by reference to Exhibit 4.7 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.6 Form of Global Warrant Certificate for 1994 Affiliate Warrants.
(Incorporated by referenced to Exhibit 4.8 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.7 Form of Global Warrant Certificate for 1994 Incentive Warrants.
(Incorporated by reference to Exhibit 4.9 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.8 Warrant Agreement, dated as of November 18, 1994, by and between
the Registrant and The First National Bank of Boston.
(Incorporated by reference to Exhibit 4.10 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1994.)
4.9 Stock Purchase Agreement, dated as of February 13, 1997, between
the Registrant and ALZA Corporation. (Incorporated by reference
to Exhibit 4.5 to the Registrant's Registration Statement on Form
S-3, as amended (File No. 333-19955).)
10.1 Amended and Restated 1989 Non-Qualified Stock Option Plan, as
amended. (Incorporated by reference to Exhibit 4.2(c) to the
Registrant's Registration Statement on Form S-8 (File No.
33-44752).)+
10.2 Amended and Restated 1990 Omnibus Stock Option Plan, as amended.+
10.3 1991 Restricted Common Stock Award Plan. (Incorporated by
reference to Exhibit 4.2(a) to the Registrant's Registration
Statement on Form S-8 (File No. 33-44752).)+
10.4 1992 Non-Qualified Stock Option Plan. (Incorporated by reference
to Exhibit 10.26 to the Registrant's Registration Statement on
Form S-4, as amended (File No. 33-54932).)+
51
52
10.5 Stock Option Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit 10.5 to the Registrant's Report on Form 10-K
for the fiscal year ended March 31, 1996.)+
10.6 Lease, dated as of September 18, 1991, between Forest City 64
Sidney Street, Inc. and the Registrant. (Incorporated by
reference to Exhibit 10.19 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1992.)
10.6(a) First Amendment of Lease, dated September 18, 1992, between
Forest City 64 Sidney Street, Inc. and the Registrant.
(Incorporated by reference to Exhibit 10.24 to the Registrant's
Registration Statement on Form S-4, as amended (File No. 33-
54932).)
10.7 Lease, dated as of March 16, 1990, between Forest City 64 Sidney
Street, Inc. and Enzytech, Inc. (Incorporated by reference to
Exhibit 10.25 to the Registrant's Registration Statement on Form
S-4, as amended (File No. 33-54932).)
10.8 Lease, dated July 26, 1993, between the Massachusetts Institute
of Technology and Alkermes, Inc.
10.8(a) First Amendment of Lease, dated June 9, 1997, between the
Massachusetts Institute of Technology and Alkermes, Inc.
10.9 Product Development Agreement, dated as of March 6, 1992, between
the Partnership and the Registrant. (Incorporated by reference to
Exhibit 10.21 to the Registrant's Report on Form 10-K for the
fiscal year ended March 31, 1992.)
10.10 Purchase Agreement, dated as of March 6, 1992, by and among the
Registrant and each of the Limited Partners, from time to time,
of the Partnership. (Incorporated by reference to Exhibit 10.22
to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1992.)
10.11 Alkermes Clinical Partners, L.P. Agreement of Limited
Partnership, dated as of February 7, 1992. (Incorporated by
reference to Exhibit 10.23 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1992.)
10.11(a) Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement of
Limited Partnership, dated as of September 29, 1992.
(Incorporated by reference to Exhibit 10.22(a) to the
Registrant's Registration Statement on Form S-4, as amended (File
No. 33-54932).)
10.11(b) Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement of
Limited Partnership, dated as of March 30, 1993. (Incorporated by
reference to Exhibit 10.22(b) to the Registrant's Registration
Statement on Form S-3, as amended (File No. 33-64964).)
10.12 Class A Note of Alkermes Development Corporation II, dated April
10, 1992, to PaineWebber Development Corporation in the amount of
$100.00. (Incorporated
52
53
by reference to Exhibit 10.24 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1992.)
10.13 License Agreement, dated February 5, 1990, between Enzytech, Inc.
and Massachusetts Institute of Technology. (Incorporated by
reference to Exhibit 10.36 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932).)*
10.14 Development and License Agreement, dated February 4, 1992,
between Enzytech, Inc. and Schering Corporation. (Incorporated by
reference to Exhibit 10.38 to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932).)*
10.14(a) Amendment to Development and License Agreement, dated July 26,
1995, between Alkermes Controlled Therapeutics, Inc. and Schering
Corporation. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Report on Form 10-Q for the quarter ended June 30,
1995.)**
10.15 Prepaid Royalty Agreement, dated July 26, 1995, between Alkermes
Controlled Therapeutics, Inc. and Schering Corporation.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1995.)**
10.16 Development and License Agreement, dated as of August 1, 1996, by
and between The R.W. Johnson Pharmaceutical Research Institute,
Alkermes Controlled Therapeutics, Inc. and the Registrant.
(Incorporated by reference to Exhibit 10.1 to the Registrant's
Report on Form 8-K dated November 14, 1996.)***
10.17 Supply and License Agreement dated as of August 1, 1996, by and
between The R.W. Johnson Pharmaceutical Research Institute,
Alkermes Controlled Therapeutics, Inc. and the Registrant.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Report on Form 8-K dated November 14, 1996.)***
10.18 Collaborative Development Agreement, dated as of January 9, 1995,
by and between Genentech, Inc. and Alkermes Controlled
Therapeutics, Inc. (Incorporated by reference to Exhibit 10.27 to
the Registrant's Report on Form 10-Q for the quarter ended
December 31, 1994.)****
10.19 Note Purchase Agreement, dated as of January 9, 1995, by the
between the Registrant and Genentech, Inc. (Incorporated by
reference to Exhibit 10.28 to the Registrant's Report on Form
10-Q for the quarter ended December 31, 1994.)
10.20 Convertible Promissory Note of the Registrant dated January 31,
1995. (Incorporated by reference to Exhibit 10.28 to the
Registrant's Report on Form 10-Q for the quarter ended December
31, 1994.)
10.21 License Agreement, dated as of November 13, 1996, by and between
Genentech, Inc. and Alkermes Controlled Therapeutics, Inc.
(Incorporated by reference to
53
54
Exhibit 10.3 to the Registrant's Report on Form 8-K dated
November 14, 1996.)***
10.22 Development Agreement, dated as of December 23, 1993, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International. (Incorporated by reference to
Exhibit 10.18 to the Registrant's report on Form 10-K for the
fiscal year ended March 31, 1996.)#
10.22(a) First Amendment to Development Agreement, dated as of December
23, 1993, between Medisorb Technologies International L.P. and
Janssen Pharmaceutica International. (Incorporated by reference
to Exhibit 10.18(a) to the Registrant's report on Form 10-K for
the Fiscal year ended March 31, 1996.)#
10.22(b) Second Amendment to the Development Agreement, dated April 28,
1997, by and between Alkermes Controlled Therapeutics Inc. II,
Janssen Pharmaceutica International and Janssen Pharmaceutica
Inc.
10.23 License Agreement, dated as of February 13, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (United States). (Incorporated by
reference to Exhibit 10.19 to the Registrant's report on Form
10-K for the fiscal year ended March 31, 1996.)#
10.24 License Agreement, dated as of February 21, 1996, between
Medisorb Technologies International L.P. and Janssen
Pharmaceutica International (worldwide except United States).
(Incorporated by reference to Exhibit 10.20 to the Registrant's
report on Form 10-K for the fiscal year ended March 31, 1996.)#
10.25 Loan Agreement, dated December 30, 1993, among the Registrant,
Alkermes Investments, Inc. and The Daiwa Bank, Limited.
(Incorporated by reference to Exhibit 10.33 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1993.)
10.25(a) Amendment No. 1 to Loan Agreement, dated as of December 31, 1994,
among the Registrant, Alkermes Investments, Inc. and The Daiwa
Bank, Limited. (Incorporated by reference to Exhibit 10.21(a) to
the Registrant's report on Form 10-K for the fiscal year ended
March 31, 1996.)
10.25(b) Amendment to Loan Agreement, dated as of December 29, 1995, by
and among Registrant, Alkermes Investments, Inc. and The Daiwa
Bank, Limited (Incorporated by reference to Exhibit 10.3 to the
Registrant's Report on Form 10-Q for the quarter ended December
31, 1995.)
10.25(c) Omnibus Amendment to Loan Documents, dated as of July 26, 1996,
among the Registrant, Alkermes Investments, Inc. and The Sumitomo
Bank, Limited (as assignee of The Daiwa Bank, Limited).
(Incorporated by reference to Exhibit 10.4 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1996.)
54
55
10.26 Second Amended and Restated Note, dated July 26, 1996, by
Registrant and Alkermes Investments, Inc. to The Sumitomo Bank,
Limited. (Incorporated by reference to Exhibit 10.5 to the
Registrant's Report on Form 10-Q for the quarter ended December
31, 1996.)
10.27 Letter Agreement, dated September 27, 1996, by and among Fleet
National Bank, Alkermes Controlled Therapeutics, Inc., Alkermes
Controlled Therapeutic Inc. II and the Registrant. (Incorporated
by reference to Exhibit 10.3 to the Registrant's Report on Form
10-Q for the quarter ended September 30, 1996.)##
10.27(a) Loan Supplement and Modification Agreement, dated as of June 2,
1997, by and among Fleet National Bank, Alkermes Controlled
Therapeutics, Inc., Alkermes Controlled Therapeutics Inc. II and
the Registrant.
10.28 Security Agreement, dated as of September 27, 1996, from the
Registrant, Alkermes Controlled Therapeutics, Inc. and Alkermes
Controlled Therapeutic Inc. II to Fleet National Bank.
(Incorporated by reference to Exhibit 10.4 to the Registrant's
Report on Form 10-Q for the quarter ended September 30, 1996.)
10.29 Pledge Agreement, dated as of September 27, 1996, from the
Registrant to Fleet National Bank. (Incorporated by reference to
Exhibit 10.5 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.30 Mortgage and Security Agreement, dated as of September 27, 1996,
from Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank. (Incorporated by reference to Exhibit 10.6 to the
Registrant's Report on Form 10-Q for the quarter ended September
30, 1996.)
10.31 Environmental Indemnity Agreement, dated as of September 27,
1996, from the Registrant and Alkermes Controlled Therapeutics
Inc. II to Fleet National Bank. (Incorporated by reference to
Exhibit 10.7 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.32 Promissory Note of the Registrant, dated December 23, 1994, to
Fleet Bank of Massachusetts, N.A. (Incorporated by reference to
Exhibit 10.20 to the Registrant's Report on Form 10-Q for the
quarter ended December 31, 1994.)
10.32(a) Allonge to Promissory Note, dated as of September 27, 1996,
executed by Fleet National Bank, Alkermes Controlled
Therapeutics, Inc. and the Registrant. (Incorporated by reference
to Exhibit 10.1 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996.)
10.33 Promissory Note, dated December 19, 1995, by Registrant to Fleet
Bank of Massachusetts, N.A. (Incorporated by reference to Exhibit
10.2 to the Registrant's Report on From 10-Q for the quarter
ended December 31, 1995.)
10.33(a) Allonge to Promissory Note, dated as of September 27, 1996,
executed by Fleet National Bank, Alkermes Controlled
Therapeutics, Inc. and the Registrant.
55
56
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Report on Form 10-Q for the quarter ended September 30, 1996.)
10.34 Promissory Note, dated September 27, 1996, from the Registrant
and Alkermes Controlled Therapeutics Inc. II to Fleet National
Bank. (Incorporated by reference to Exhibit 10.8 to the
Registrant's Report on Form 10-Q for the quarter ended September
30, 1996.)
10.35 Promissory Note, dated June 2, 1997, from the Registrant,
Alkermes Controlled Therapeutics, Inc. and Alkermes Controlled
Therapeutics Inc. II to Fleet National Bank.
10.36 Employment Agreement, entered into as of February 7, 1991,
between Richard F. Pops and the Registrant. (Incorporated by
reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1, as amended (File No. 33-40250).)+
10.37 Employment Agreement, entered into as of June 13, 1994, by and
between Robert A. Breyer and the Registrant. (Incorporated by
reference to Exhibit 10.28 to the Registrant's Report on Form
10-K for the fiscal year ended March 31, 1994.)+
11 Statement re: computation of per share earnings.
21 Subsidiaries of the Registrant.
22 Proxy Statement dated June 27, 1997.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
* Confidential status has been granted for certain provisions thereof
pursuant to a Commission Order granted January 8, 1993. Such provisions
have been filed separately with the Commission.
** Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted September 19, 1995. Such provisions have been
filed separately with the Commission.
*** Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted April 25, 1997. Such provisions have been
filed separately with the Commission.
**** Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted March 24, 1995. Such provisions have been
filed separately with the Commission.
56
57
# Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted September 3, 1996. Such provisions have been
filed separately with the Commission.
## Confidential status has been granted for certain portions thereof pursuant
to a Commission Order granted April 17, 1997. Such provisions have been
filed separately with the Commission.
+ Constitutes a management contract or compensatory plan required to be filed
as an Exhibit to this Report pursuant to Item 14(c) of Form 10-K.
(b) Since the beginning of the quarter ended March 31, 1997, the
Registrant filed on January 3, 1997, a report on Form 8-K, dated
November 14, 1996, and also filed reports on Form 8-K dated
February 13, 1997 and March 31, 1997, each reporting under Item
5.
UNDERTAKING
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the Securities Act of 1933,
the undersigned Registrant hereby undertakes as follows, which undertaking shall
be incorporated by reference into Registrant's Registration Statements on Form
S-8, Nos. 33-44752, 33-58330, 33-97468, and 333-13283.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
57
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALKERMES, INC.
June 27, 1997 By: /s/ Richard F. Pops
------------------------------
Richard F. Pops
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael A. Wall Director and Chairman of the June 27, 1997
- --------------------------- Board
Michael A. Wall
/s/ Richard F. Pops Director and Chief Executive Officer June 27, 1997
- --------------------------- (Principal Executive Officer)
Richard F. Pops
/s/ Michael J. Landine Senior Vice President, Chief June 27, 1997
- --------------------------- Financial Officer and
Michael J. Landine Treasurer (Principal
Financial and Accounting
Officer)
/s/ Floyd Bloom Director June 27, 1997
- ---------------------------
Floyd Bloom
/s/ Robert A. Breyer President and Chief Operating June 27, 1997
- --------------------------- Officer and Director
Robert A. Breyer
/s/ John K. Clarke Director June 27, 1997
- ---------------------------
John K. Clarke
58
59
/s/ Robert S. Langer Director June 27, 1997
- ---------------------------
Robert S. Langer
/s/ Alexander Rich Director June 27, 1997
- ---------------------------
Alexander Rich
/s/ Paul Schimmel Director June 27, 1997
- ---------------------------
Paul Schimmel
59
60
Exhibit Index
3.1(a) Second Amended and Restated Articles of Incorporation of Alkermes, Inc.
effective July 23, 1991. (Incorporated by reference to Exhibit 4.1(a)
to the Registrant's Report on Form 10-Q for the quarter ended June 30,
1991.)
3.1(b) Statement of Change of Registered Office of Alkermes, Inc. effective
July 23, 1991. (Incorporated by reference to Exhibit 4.1(b) to the
Registrant's Report on Form 10-Q for the quarter ended June 30, 1991.)
3.1(c) Amendment to Second Amended and Restated Articles of Incorporation, as
filed with the Pennsylvania Secretary of State on November 1, 1991.
(Incorporated by reference to Exhibit 4.1(c) to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1991.)
3.1(d) Amendment to the Second Amended and Restated Articles of Incorporation,
as amended, as filed with the Pennsylvania Secretary of State on
February 12, 1993. (Incorporated by reference to Exhibit 4.1(d) to the
Registrant's Report on Form 10-Q for the quarter ended December 31,
1992.)
3.2 Amended and Restated By-Laws of Alkermes, Inc., effective as of July 1,
1994. (Incorporated by reference to Exhibit 4.2 to the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1994.)
4.1 Specimen of Common Stock Certificate of Alkermes, Inc. (Incorporated by
reference to Exhibit 4 to the Registrant's Registration Statement on
Form S-1, as amended (File No. 33-40250).)
4.2 Form of 1992 Warrant to purchase 2,800 shares of the Registrant's
Common Stock. (Incorporated by reference to Exhibit 4.2 to the
Registrant's Report on Form 10-K for the fiscal year ended March 31,
1992.)
4.3 Form of 1995 Warrant to purchase 300 shares of the Registrant's Common
Stock. (Incorporated by reference to Exhibit 4.3 to the Registrant's
Report on Form 10-K for the fiscal year ended March 31, 1992.)
4.4 Form of Global Warrant Certificate for 1994 Class A Warrants.
(Incorporated by reference to Exhibit 4.6 to the Registrant's Report on
Form 10-Q for the quarter ended December 31, 1994.)
4.5 Form of Global Warrant Certificate for 1994 Class B Warrants.
(Incorporated by reference to Exhibit 4.7 to the Registrant's Report on
Form 10-Q for the quarter ended December 31, 1994.)
61
4.6 Form of Global Warrant Certificate for 1994 Affiliate Warrants.
(Incorporated by referenced to Exhibit 4.8 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1994.)
4.7 Form of Global Warrant Certificate for 1994 Incentive Warrants.
(Incorporated by reference to Exhibit 4.9 to the Registrant's Report on
Form 10-Q for the quarter ended December 31, 1994.)
4.8 Warrant Agreement, dated as of November 18, 1994, by and between the
Registrant and The First National Bank of Boston. (Incorporated by
reference to Exhibit 4.10 to the Registrant's Report on Form 10-Q for
the quarter ended December 31, 1994.)
4.9 Stock Purchase Agreement, dated as of February 13, 1997, between the
Registrant and ALZA Corporation. (Incorporated by reference to Exhibit
4.5 to the Registrant's Registration Statement on Form S-3, as amended
(File No. 333-19955).)
10.1 Amended and Restated 1989 Non-Qualified Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 4.2(c) to the Registrant's
Registration Statement on Form S-8 (File No. 33-44752).)+
10.2 Amended and Restated 1990 Omnibus Stock Option Plan, as amended.+
10.3 1991 Restricted Common Stock Award Plan. (Incorporated by reference to
Exhibit 4.2(a) to the Registrant's Registration Statement on Form S-8
(File No. 33-44752).)+
10.4 1992 Non-Qualified Stock Option Plan. (Incorporated by reference to
Exhibit 10.26 to the Registrant's Registration Statement on Form S-4,
as amended (File No. 33-54932).)+
10.5 Stock Option Plan for Non-Employee Directors. (Incorporated by
reference to Exhibit 10.5 to the Registrant's Report on Form 10-K for
the fiscal year ended March 31, 1996.)+
10.6 Lease, dated as of September 18, 1991, between Forest City 64 Sidney
Street, Inc. and the Registrant. (Incorporated by reference to Exhibit
10.19 to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1992.)
10.6(a) First Amendment of Lease, dated September 18, 1992, between Forest City
64 Sidney Street, Inc. and the Registrant. (Incorporated by reference
to Exhibit 10.24 to the Registrant's Registration Statement on Form
S-4, as amended (File No. 33-54932).)
10.7 Lease, dated as of March 16, 1990, between Forest City 64 Sidney
Street, Inc. and Enzytech, Inc. (Incorporated by reference to Exhibit
10.25 to the Registrant's Registration Statement on Form S-4, as
amended (File No. 33-54932).)
10.8 Lease, dated July 26, 1993, between the Massachusetts Institute of
Technology and Alkermes, Inc.
10.8(a) First Amendment of Lease, dated June 9, 1997, between the Massachusetts
Institute of Technology and Alkermes, Inc.
62
10.9 Product Development Agreement, dated as of March 6, 1992, between the
Partnership and the Registrant. (Incorporated by reference to Exhibit
10.21 to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1992.)
10.10 Purchase Agreement, dated as of March 6, 1992, by and among the
Registrant and each of the Limited Partners, from time to time, of the
Partnership. (Incorporated by reference to Exhibit 10.22 to the
Registrant's Report on Form 10-K for the fiscal year ended March 31,
1992.)
10.11 Alkermes Clinical Partners, L.P. Agreement of Limited Partnership,
dated as of February 7, 1992. (Incorporated by reference to Exhibit
10.23 to the Registrant's Report on Form 10-K for the fiscal year ended
March 31, 1992.)
10.11(a) Amendment No. 1 to Alkermes Clinical Partners, L.P. Agreement of
Limited Partnership, dated as of September 29, 1992. (Incorporated by
reference to Exhibit 10.22(a) to the Registrant's Registration
Statement on Form S-4, as amended (File No. 33-54932).)
10.11(b) Amendment No. 2 to Alkermes Clinical Partners, L.P. Agreement of
Limited Partnership, dated as of March 30, 1993. (Incorporated by
reference to Exhibit 10.22(b) to the Registrant's Registration
Statement on Form S-3, as amended (File No. 33-64964).)
10.12 Class A Note of Alkermes Development Corporation II, dated April 10,
1992, to PaineWebber Development Corporation in the amount of $100.00.
(Incorporated by reference to Exhibit 10.24 to the Registrant's Report
on Form 10-K for the fiscal year ended March 31, 1992.)
10.13 License Agreement, dated February 5, 1990, between Enzytech, Inc. and
Massachusetts Institute of Technology. (Incorporated by reference to
Exhibit 10.36 to the Registrant's Registration Statement on Form S-4,
as amended (File No. 33-54932).)*
10.14 Development and License Agreement, dated February 4, 1992, between
Enzytech, Inc. and Schering Corporation. (Incorporated by reference to
Exhibit 10.38 to the Registrant's Registration Statement on Form S-4,
as amended (File No. 33-54932).)*
10.14(a) Amendment to Development and License Agreement, dated July 26, 1995,
between Alkermes Controlled Therapeutics, Inc. and Schering
Corporation. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Report on Form 10-Q for the quarter ended June 30,
1995.)**
10.15 Prepaid Royalty Agreement, dated July 26, 1995, between Alkermes
Controlled Therapeutics, Inc. and Schering Corporation. (Incorporated
by reference to Exhibit 10.2 to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1995.)**
10.16 Development and License Agreement, dated as of August 1, 1996, by and
between The R.W. Johnson Pharmaceutical Research Institute, Alkermes
Controlled Therapeutics, Inc. and the Registrant. (Incorporated by
reference to Exhibit 10.1 to the Registrant's Report on Form 8-K dated
November 14, 1996.)***
63
10.17 Supply and License Agreement dated as of August 1, 1996, by and between
The R.W. Johnson Pharmaceutical Research Institute, Alkermes Controlled
Therapeutics, Inc. and the Registrant. (Incorporated by reference to
Exhibit 10.2 to the Registrant's Report on Form 8-K dated November 14,
1996.)***
10.18 Collaborative Development Agreement, dated as of January 9, 1995, by
and between Genentech, Inc. and Alkermes Controlled Therapeutics, Inc.
(Incorporated by reference to Exhibit 10.27 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1994.)****
10.19 Note Purchase Agreement, dated as of January 9, 1995, by the between
the Registrant and Genentech, Inc. (Incorporated by reference to
Exhibit 10.28 to the Registrant's Report on Form 10-Q for the quarter
ended December 31, 1994.)
10.20 Convertible Promissory Note of the Registrant dated January 31, 1995.
(Incorporated by reference to Exhibit 10.28 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1994.)
10.21 License Agreement, dated as of November 13, 1996, by and between
Genentech, Inc. and Alkermes Controlled Therapeutics, Inc.
(Incorporated by reference to Exhibit 10.3 to the Registrant's Report
on Form 8-K dated November 14, 1996.)***
10.22 Development Agreement, dated as of December 23, 1993, between Medisorb
Technologies International L.P. and Janssen Pharmaceutica
International. (Incorporated by reference to Exhibit 10.18 to the
Registrant's report on Form 10-K for the fiscal year ended March 31,
1996.)#
10.22(a) First Amendment to Development Agreement, dated as of December 23,
1993, between Medisorb Technologies International L.P. and Janssen
Pharmaceutica International. (Incorporated by reference to Exhibit
10.18(a) to the Registrant's report on Form 10-K for the Fiscal year
ended March 31, 1996.)#
10.22(b) Second Amendment to the Development Agreement, dated April 28, 1997, by
and between Alkermes Controlled Therapeutics Inc. II, Janssen
Pharmaceutica International and Janssen Pharmaceutica Inc.
10.23 License Agreement, dated as of February 13, 1996, between Medisorb
Technologies International L.P. and Janssen Pharmaceutica International
(United States). (Incorporated by reference to Exhibit 10.19 to the
Registrant's report on Form 10-K for the fiscal year ended March 31,
1996.)#
10.24 License Agreement, dated as of February 21, 1996, between Medisorb
Technologies International L.P. and Janssen Pharmaceutica International
(worldwide except United States). (Incorporated by reference to Exhibit
10.20 to the Registrant's report on Form 10-K for the fiscal year ended
March 31, 1996.)#
64
10.25 Loan Agreement, dated December 30, 1993, among the Registrant, Alkermes
Investments, Inc. and The Daiwa Bank, Limited. (Incorporated by
reference to Exhibit 10.33 to the Registrant's Report on Form 10-Q for
the quarter ended December 31, 1993.)
10.25(a) Amendment No. 1 to Loan Agreement, dated as of December 31, 1994, among
the Registrant, Alkermes Investments, Inc. and The Daiwa Bank, Limited.
(Incorporated by reference to Exhibit 10.21(a) to the Registrant's
report on Form 10-K for the fiscal year ended March 31, 1996.)
10.25(b) Amendment to Loan Agreement, dated as of December 29, 1995, by and
among Registrant, Alkermes Investments, Inc. and The Daiwa Bank,
Limited (Incorporated by reference to Exhibit 10.3 to the Registrant's
Report on Form 10-Q for the quarter ended December 31, 1995.)
10.25(c) Omnibus Amendment to Loan Documents, dated as of July 26, 1996, among
the Registrant, Alkermes Investments, Inc. and The Sumitomo Bank,
Limited (as assignee of The Daiwa Bank, Limited). (Incorporated by
reference to Exhibit 10.4 to the Registrant's Report on Form 10-Q for
the quarter ended December 31, 1996.)
10.26 Second Amended and Restated Note, dated July 26, 1996, by Registrant
and Alkermes Investments, Inc. to The Sumitomo Bank, Limited.
(Incorporated by reference to Exhibit 10.5 to the Registrant's Report
on Form 10-Q for the quarter ended December 31, 1996.)
10.27 Letter Agreement, dated September 27, 1996, by and among Fleet National
Bank, Alkermes Controlled Therapeutics, Inc., Alkermes Controlled
Therapeutic Inc. II and the Registrant. (Incorporated by reference to
Exhibit 10.3 to the Registrant's Report on Form 10-Q for the quarter
ended September 30, 1996.)##
10.27(a) Loan Supplement and Modification Agreement, dated as of June 2, 1997,
by and among Fleet National Bank, Alkermes Controlled Therapeutics,
Inc., Alkermes Controlled Therapeutics Inc. II and the Registrant.
10.28 Security Agreement, dated as of September 27, 1996, from the
Registrant, Alkermes Controlled Therapeutics, Inc. and Alkermes
Controlled Therapeutic Inc. II to Fleet National Bank. (Incorporated by
reference to Exhibit 10.4 to the Registrant's Report on Form 10-Q for
the quarter ended September 30, 1996.)
10.29 Pledge Agreement, dated as of September 27, 1996, from the Registrant
to Fleet National Bank. (Incorporated by reference to Exhibit 10.5 to
the Registrant's Report on Form 10-Q for the quarter ended September
30, 1996.)
10.30 Mortgage and Security Agreement, dated as of September 27, 1996, from
Alkermes Controlled Therapeutics Inc. II to Fleet National Bank.
(Incorporated by reference to Exhibit 10.6 to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1996.)
10.31 Environmental Indemnity Agreement, dated as of September 27, 1996, from
the Registrant and Alkermes Controlled Therapeutics Inc. II to Fleet
National Bank. (Incorporated by
65
reference to Exhibit 10.7 to the Registrant's Report on Form 10-Q for
the quarter ended September 30, 1996.)
10.32 Promissory Note of the Registrant, dated December 23, 1994, to Fleet
Bank of Massachusetts, N.A. (Incorporated by reference to Exhibit 10.20
to the Registrant's Report on Form 10-Q for the quarter ended December
31, 1994.)
10.32(a) Allonge to Promissory Note, dated as of September 27, 1996, executed by
Fleet National Bank, Alkermes Controlled Therapeutics, Inc. and the
Registrant. (Incorporated by reference to Exhibit 10.1 to the
Registrant's Report on Form 10-Q for the quarter ended September 30,
1996.)
10.33 Promissory Note, dated December 19, 1995, by Registrant to Fleet Bank
of Massachusetts, N.A. (Incorporated by reference to Exhibit 10.2 to
the Registrant's Report on From 10-Q for the quarter ended December 31,
1995.)
10.33(a) Allonge to Promissory Note, dated as of September 27, 1996, executed by
Fleet National Bank, Alkermes Controlled Therapeutics, Inc. and the
Registrant. (Incorporated by reference to Exhibit 10.2 to the
Registrant's Report on Form 10-Q for the quarter ended September 30,
1996.)
10.34 Promissory Note, dated September 27, 1996, from the Registrant and
Alkermes Controlled Therapeutics Inc. II to Fleet National Bank.
(Incorporated by reference to Exhibit 10.8 to the Registrant's Report
on Form 10-Q for the quarter ended September 30, 1996.)
10.35 Promissory Note, dated June 2, 1997, from the Registrant, Alkermes
Controlled Therapeutics, Inc. and Alkermes Controlled Therapeutics Inc.
II to Fleet National Bank.
10.36 Employment Agreement, entered into as of February 7, 1991, between
Richard F. Pops and the Registrant. (Incorporated by reference to
Exhibit 10.12 to the Registrant's Registration Statement on Form S-1,
as amended (File No. 33-40250).)+
10.37 Employment Agreement, entered into as of June 13, 1994, by and between
Robert A. Breyer and the Registrant. (Incorporated by reference to
Exhibit 10.28 to the Registrant's Report on Form 10-K for the fiscal
year ended March 31, 1994.)+
11 Statement re: computation of per share earnings.
21 Subsidiaries of the Registrant.
22 Proxy Statement dated June 27, 1997.
23 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule.
66
* Confidential status has been granted for certain provisions thereof
pursuant to a Commission Order granted January 8, 1993. Such provisions
have been filed separately with the Commission.
** Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted September 19, 1995. Such
provisions have been filed separately with the Commission.
*** Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted April 25, 1997. Such provisions
have been filed separately with the Commission.
**** Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted March 24, 1995. Such provisions
have been filed separately with the Commission.
# Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted September 3, 1996. Such
provisions have been filed separately with the Commission.
## Confidential status has been granted for certain portions thereof
pursuant to a Commission Order granted April 17, 1997. Such provisions
have been filed separately with the Commission.
+ Constitutes a management contract or compensatory plan required to be
filed as an Exhibit to this Report pursuant to Item 14(c) of Form 10-K.