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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1998
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 0-22025
AASTROM BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
Michigan 94-3096597
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 Frank Lloyd Wright Drive
P.O. Box 376
Ann Arbor, MI 48106
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (734) 930-5555
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The approximate aggregate market value of the registrant's Common Stock, no par
value ("Common Stock"), held by non-affiliates of the registrant (based on the
closing sales price of the Common Stock as reported on the Nasdaq National
Market) on September 23, 1998 was $2.00. Excludes shares of Common Stock held
by directors, officers and each person who holds 5% or more of the outstanding
shares of Common Stock, since such persons may be deemed to be affiliates of the
registrant. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of September 18, 1998, 13,694,429 shares of Common Stock, no par value, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT FORM 10-K REFERENCE
- -------- -------------------
Proxy Statement for the Annual Meeting of Shareholders
scheduled for November 11, 1998 Items 10, 11, 12 and 13 of Part III
Annual Report to Shareholders for fiscal year ended 1998 Items 5, 6, 7, 7A, 8, 9 and 14(a) of Part II
2
AASTROM BIOSCIENCES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
AASTROM BIOSCIENCES, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
No.
----
PART I...................................................................... 4
Item 1. BUSINESS..................................................... 4
Item 2. PROPERTIES................................................... 23
Item 3. LEGAL PROCEEDINGS............................................ 23
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 23
PART II..................................................................... 23
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.......................................... 23
Item 6. SELECTED FINANCIAL DATA...................................... 23
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... 23
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK... 23
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 34
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................... 34
PART III.................................................................... 34
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT........... 34
Item 11. EXECUTIVE COMPENSATION....................................... 34
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 34
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............... 34
PART IV..................................................................... 35
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K.................................................. 35
SIGNATURES.................................................................. 37
EXHIBIT INDEX............................................................... 38
3
Except for the historical information presented, the matters discussed in
this Report include forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed under the caption "Business Risks" in "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
PART I
ITEM 1. BUSINESS
OVERVIEW
Aastrom Biosciences, Inc. ("Aastrom" or the "Company") is developing automated
cell therapy systems designed to enable therapeutic procedures using living
cells for therapeutic procedures or for the restoration of normal tissues in
patients treated for cancer and other diseases. The AastromReplicell/(TM)/ Cell
Production System (the "AastromReplicell/(TM)/ System"), the Company's lead
product, is currently in multi-site U.S. clinical trials for the production of
either bone marrow or umbilical cord blood cells to mitigate the toxicity of
aggressive chemotherapy used to treat cancer and other diseases. The
AastromReplicell/(TM)/ System is designed to place patient-specific cell
production capability directly in patient treatment centers and to enable
physicians to access cells for therapy just as they do with traditional
pharmaceuticals. Improved, cost effective, access to cells should expand the use
of current cell therapies as well as increase the breadth of new disease
treatments with cells. The AastromReplicell/(TM)/ System is designed as a family
of products keyed by a multi-use instrumentation platform that operates single-
use therapy-specific kits tailored for each patient application.
In 1993, the Company entered into a global marketing alliance with COBE BCT
for worldwide marketing of the AastromReplicell/(TM)/ System for stem cell
therapy. COBE BCT is a leader in the manufacture, sale and customer support of
blood cell processing equipment, including transfusion medicine, therapeutic
apheresis and stem cell therapy.
The Company believes that the AastromReplicell/(TM)/ System can be modified to
produce a wide variety of other cell types for selected emerging therapies being
developed by other companies and institutions. The Company intends to develop
additional strategic collaborations for the development of the
AastromReplicell/(TM)/ System in certain of these other cell therapy market
segments. In ex vivo gene therapy, the Company is also developing the Aastrom
Gene Loader, which is being designed to address the production of gene-modified
cells.
CELL THERAPY
Cell therapy is the transplantation use of living cells in the treatment of
medical disorders. These cells can either be used in conjunction with, or as a
replacement to, traditional pharmaceuticals. Cell therapy has been used for
many years, beginning with simple, but very effective, blood and platelet
transfusion. More recently, cell therapies have expanded to include specialized
procedures including bone marrow, or stem cell transplants. In this procedure,
stem cells are transplanted into patients to restore blood and immune system
function that is damaged or destroyed by aggressive chemotherapy used to treat
the cancer. This form of cell therapy, as with a number of emerging new
therapies, have been hastened by a number of limitations involving the access to
the cells necessary for transplantation.
To date, cell therapies have involved the collection of large amounts of cells
from the patient, or from a matched donor and subsequently re-infused. This
approach is time consuming, expensive and quite invasive to the patient. An
alternative to the collection of large quantities of cells for these therapies
is to grow the cells in culture. However, this approach has been hampered by a
number of technical difficulties and a requirement to comply with stringent
regulatory standards, which have limited the widespread practice of ex vivo cell
production.
The success of cellular therapy is based, in part, on the need for care
providers to be able to access therapeutic quantities of biologically active
cells necessary for patient treatment. The AastromReplicell/(TM)/ System is
being developed to fill this current and growing need in cell therapy.
4
In ex vivo gene therapy, genes are introduced into target cells in order to
selectively correct or modulate disease conditions, or to modify cells for
production of a therapeutic protein. The Company believes that the successful
practice of ex vivo gene therapy will require the development of processes and
products for the reliable, high-efficiency transfer of genes into cells and a
means to produce the necessary dose of the genetically modified cells under
current Good Manufacturing Practices ("cGMP").
Stem Cell Therapy
Stem cell therapy is used to treat cancer patients who undergo chemotherapy or
radiation therapy at dose levels that are toxic to the hematopoietic system,
which is comprised of the bone marrow and the cells of the blood and immune
systems. The objective of stem cell therapy is to restore the hematopoietic
system via the infusion and subsequent engraftment of healthy cells to replace
bone marrow and result in the rapid recovery of neutrophils and platelets that
have been destroyed by chemotherapy and radiation therapy. Stem cell therapy
reduces the risk of life-threatening infections and therapy bleeding episodes
following cancer treatments. In order to treat many cancers, high intensity
chemotherapy or radiation therapy is often required, which may substantially
destroy ("myeloablation") or partially destroy ("myelosuppression") the
patient's hematopoietic system.
Cells required for effective stem cell therapy include stem cells, to
replenish depleted bone marrow and provide a long-term ongoing source of the
multilineage progenitor cells of the blood and immune systems, and early and
late stage hematopoietic progenitor cells, to provide for rapid neutrophil and
platelet recoveries. Stromal accessory cells are believed to further augment the
growth of bone marrow. In the adult, all of these cell types originate in the
bone marrow. For traditional stem cell transplant procedures, these cells are
currently collected from the donor or patient directly through multiple syringe
aspirations under anesthesia, known as bone marrow collection, or through blood
apheresis following treatment with drugs which cause cells to be released or
mobilized from the bone marrow into the blood. This latter technique is known as
a peripheral blood stem cell ("PBSC") collection. The blood cells found in the
umbilical cord of newborn infants include cells effective for stem cell therapy.
This source of cells is being explored by physicians as a significant new
development in stem cell therapy, but is currently limited by difficulties in
obtaining sufficient quantities of these cells and by prolonged engraftment
times for the cells once transplanted into the patient. See "--Current Stem Cell
Collection Methods."
Once collected, the stem cell mixture is infused intravenously and the stem
and stromal accessory cells migrate into the bone cavity where they engraft to
form a new marrow. The hematopoietic progenitor cell components of the cell
mixture provide early restoration of circulating white blood cells and
platelets. The replenished bone marrow will normally provide long-term
hematopoietic function, but complete restoration of bone marrow may take years
following myeloablative cancer therapy. When the patient's hematopoietic system
is malignant, such as in the case of leukemia, cells from a suitable donor are
generally required in order to avoid reintroducing the disease during cell
infusion. Such donor derived transplants are termed "allogeneic" transplants.
Procedures using cells derived from the patient are termed "autologous"
transplants.
STEM CELL THERAPY MARKET OPPORTUNITY
Stem cell therapy is a widely used medical procedure used in the treatment of
cancer patients. It is estimated that over 50,000 stem cell transplant
procedures are performed annually. Stem cell therapy, in the form of bone marrow
transplantation, was originally used in patients who had received treatment for
blood and bone marrow cancers such as leukemia, and genetic diseases of the
blood. However, because stem cell therapy has been shown to promote the rapid
recovery of hematopoietic function, it is now being increasingly used to enable
patients with other forms of cancer to receive high dose or multicycle
chemotherapy and radiation treatments. These high-intensity therapies are
believed to have a greater probability of eradicating dose-sensitive cancers
but, because of their hematopoietic toxicity, cannot generally be given without
stem cell therapy. As a result, some patients are treated with lower and less
effective doses, and fewer cycles of therapy than might otherwise be used.
Stem cell therapy may also enhance the effectiveness of blood cell growth
factors. The timing and extent of additional cycles of chemotherapy is often
limited by the recovery of a patient's white blood cells and platelets because a
delayed recovery of these cells can leave the patient susceptible to life-
threatening infection and bleeding episodes, and this limitation may allow for
the regrowth of residual tumor cells. Many cancer patients are routinely treated
with growth factors including G-CSF, such as Neupogen and GM-CSF, such as
Leukine, which enhance the development of mature circulating white blood cells
and platelets from the early progenitor bone-marrow derived cells, thereby
decreasing the time between cycles of therapy and the probability of infection.
However, during high dose or multicycle therapy, the stem and progenitor cells
on which
5
these growth factors act are often depleted. Without these cells, growth factors
have a limited or negligible effect. Stem cell therapy generally enhances the
effectiveness of growth factors by introducing target stem and progenitor cells
for growth factors to act upon such that patients generally exhibit a more rapid
and consistent hematopoietic recovery.
CURRENT STEM CELL COLLECTION METHODS
Currently, the bone marrow-derived cells required for stem cell therapy are
collected primarily either through the bone marrow harvest method or the PBSC
collection method.
BONE MARROW HARVEST
A traditional bone marrow harvest is a costly and invasive surgical procedure
in which a physician removes approximately one liter of bone marrow from a
patient or donor. This volume of bone marrow is removed using needles inserted
into the cavity of the hip bone. The bone marrow harvest procedure typically
requires between two to four hours of operating room time, with the physician
often making more than 90 separate puncture sites in the hip bone to collect the
necessary amount of bone marrow. Due to the length of the procedure and the
trauma to the patient, general surgical anesthesia is administered and the
patient is often hospitalized for a day. Frequently, the patient suffers pain
from the procedure for several days after being discharged from the hospital.
Furthermore, complications resulting from the general anesthesia or invasive
nature of the procedure occur in a small percentage of patients. Bone marrow
harvest provides a reliable source of stem and stromal accessory cells and has
been the preferred source of cells in allogeneic transplants.
PBSC MOBILIZATION AND COLLECTION
PBSC mobilization is a technique in which bone marrow-derived cells are
harvested from a patient's or donor's circulating blood, rather than from bone
marrow. In a PBSC mobilization procedure, the patient receives multiple
injections of growth factors or cytotoxic drugs, or both, over the course of a
week or more, which cause stem and progenitor cells resident in the bone marrow
to mobilize into the circulating blood. The mobilized cells are then collected
by connecting the patient to a blood apheresis device, often times through the
placement of a catheter which draws and returns large volumes of the patient's
or donor's blood in order to selectively remove the therapeutic volume of stem
and progenitor cells. Each collection procedure typically lasts for two to six
hours and is typically repeated on two to five consecutive days, however,
procedure time has decreased and is expected to continue to decrease as the
procedure is further optimized. Specialized laboratory testing over the period
of mobilization and cell harvesting is necessary to determine that a
sufficient quantity of desired cells has been collected, adding to the cost of
the procedure. The PBSC process has become the predominant procedure in
autologous stem cell therapy.
UMBILICAL CORD BLOOD
Umbilical Cord Blood ("UCB"), which is collected directly from the umbilical
cord of newborn infants, without pain or risk to the infant or the mother, is
emerging as a new source of cells for stem cell therapy. UCB has been reported
to have stem cell concentrations that are much higher than that typically
obtained from traditional bone marrow and PBSC collection methods. After
collection, UCB is typically frozen for later use in a stem cell therapy
procedure. Storage of UCB samples involves small volumes of cells, compared to
typical bone marrow or PBSC storage. Accordingly, the costs of collection and
storage of UCB cells are comparatively low. UCB may provide a "tumor-free,"
source of cells making it a preferred source of cells for many current stem cell
therapy procedures in metastatic cancer patients. Before UCB can becom e a major
supply source for stem cell therapy, a coordinated UCB banking system must
emerge. In this regard, several UCB banking institutions have been established
to date, and the group is growing in both number and size. The establishment of
these UCB banking institutions is an initial step which may lead to a
coordinated UCB banking system.
PROCEDURE CONSIDERATIONS
Although stem cell therapy is being utilized to treat more patients for a
broader range of diseases, its availability continues to be limited by the high
costs of procuring cells, the invasive nature of traditional cell procurement
techniques, and by the technical difficulties related to those collection
procedures. The Company believes that current charges for typical stem cell
collection procedures through bone marrow harvest or PBSC collection ranges from
$10,000 to $20,000 with considerable variability between institutions.
6
Overall costs of stem cell therapy include the costs of the cell collection
and infusion procedures, and the costs associated with supporting the patient
during post-transplant recovery. Post-transplant costs include hospitalization
time, antibiotic support, management of adverse reactions to the large volume
cell infusions, and infusions of platelets and red blood cells. Any new stem
cell therapy process will generally need to provide similar recovery endpoints
to be competitive with the current procedures. In this regard, PBSC procedures
have gained popularity compared with bone marrow harvests because the number of
platelet transfusions is reduced for some patients.
While UCB is a promissory new source of cells for transplantation, certain
disadvantages exits including the relatively low number of available cells which
may contribute to prolonged engraftment times for the cells once transplanted
into the patient. Unlike bone marrow or PBSC harvest, where the collection of
more cells to meet a particular treatment is typically achievable, the number of
cells available from a UCB donor is limited. This problem is exacerbated by the
required cryopreservation of the cells, which causes significant cell loss. The
resultant low cell number is believed to be responsible for the longer
hematopoietic recovery times observed with UCB transplants, as compared with
bone marrow or PBSC transplants. Further, because of the low cell number, UCB
transplants are typically restricted to small patients. Therefore, increasing
the number of therapeutic cells from a UCB sample may facilitate the more
widespread use of UCB transplants. Aastrom believes that providing the
transplant site with the capability to carry out the UCB cell expansion will be
a major factor in the increased use of UCB for stem cell therapy and a
significant business opportunity.
Products to implement a cell isolation method known as CD34 selection have
been developed by other companies in conjunction with bone marrow harvest and
PBSC collections. CD34 selection is a process designed to isolate specific types
of cells in order to decrease storage and infusion problems associated with the
large volume of fluids collected in bone marrow or multiple apheresis procedures
and to assist in depleting contaminating tumor cells from the transplant cells
collected. CD34 selection is used after the initial collection of stem and
progenitor cells and, therefore, increases the difficulties or costs associated
with the basic cell collection procedures. CD34 selection is also used to assist
in depleting tumor cells from the transplant cells collected.
AASTROM TECHNOLOGY
Aastrom is developing product and proprietary process technologies that are
pioneering the ex vivo production of human stem and progenitor cells. The
Company's initial product candidate, the AastromReplicell/(TM)/ System utilizes
the Company's process technology and is designed to enable the ex vivo
production of human stem and progenitor cells as an alternative to bone marrow
harvest and PBSC mobilization methods and to enhance the clinical utility of UCB
cells. The initial application of the AastromReplicell/(TM)/ System is the
production of cells for stem cell therapy. However, once established for use in
stem cell therapy, the Company plans to leverage the cell production
capabilities of the AastromReplicell/(TM)/ System across multiple cell therapy
opportunities as they develop. As these emerging cell therapies are developed,
Aastrom intends to develop and introduce new therapy kits through collaborative
relationships with others directed toward the treatment of cancer, infectious
diseases, auto-immune diseases and in the restoration of solid tissues.
CORE TECHNOLOGIES
Stem Cell Growth Process
Aastrom has developed proprietary processes and patented technologies for ex
vivo production of therapeutic stem and progenitor cells as well as other key
cells found in human bone marrow. The Company's proprietary process entails
the placement of a stem cell mixture in a culture environment that mimics the
biology and physiology of natural bone marrow. This process enables the stem
and early and late-stage progenitor cells needed for an effective stem cell
therapy procedure to be concurrently expanded. Growth factors can be added to
stimulate specific cell lineages to grow or to increase cell growth to meet a
particular therapeutic objective. The stem cell growth process can best be
completed with little or no additional stem cell selection or purification
procedures. This stem cell replication process can also enable or augment the
genetic modification of cells by providing the cell division step needed for
new genes to integrate into the stem cell DNA. Currently available cell
culture methods tend to result in a loss of stem cells, either through death
or through differentiation into mature cells. The Company has exclusive rights
to several issued U.S. patents that cover these processes and cell
compositions. See "--Additional Stem Cell and Other Cell Therapies."
7
Aastrom Cell Culture Chamber
Aastrom has developed a proprietary cell culture chamber to implement the
Company's process technology. The culture chamber produces cells on a clinical
scale and allows for simple, sterile recovery of the cells for therapeutic use.
The Company believes that the Aastrom cell culture chamber may also be used for
growing other human therapeutic cells, such as T-Cells and dendritic cells used
for immunotherapies, chondrocytes for cartilage replacement, and mesenchymal
tissues for bone and cartilage replacement. The Company holds exclusive rights
to issued U.S. patents and additional applications for its cell culture chamber
device technology. See "--Additional Stem Cell and Other Cell Therapies."
Efficient Gene Transfer
Aastrom has developed proprietary processes and device technology that may
enable increased efficiency of vector-mediated gene transfer into cells as
compared to conventional procedures. This directed-motion gene transfer or gene
loading technology is being pursued by the Company for application in most cell
and tissue types and most vector technologies. The Company intends to develop
products based upon its gene loading technology. Development of additional
products, however, will require the Company to raise additional funds or to seek
collaborative partners, or both, to finance related research and development
activities, as to which there can be no assurance of success. Furthermore, due
to the uncertainties involved, the Company is unable to estimate the length of
time such development may take. If successfully developed into products, the
Company believes that such products would facilitate the advancement of numerous
gene therapy protocols into the clinic and ultimately the market. The Company
has exclusive rights to three issued U.S. patents, and has additional
applications pending, for this technology. See "Aastrom Product Candidates For
Ex Vivo Gene Therapy."
The AastromReplicell/(TM)/ System
The AastromReplicell/(TM)/ System is the Company's lead product under
development. While potentially applicable to multiple cell therapy applications
such as immunotherapy, solid tissue repair and ex vivo gene therapy, the
AastromReplicell/(TM)/ System is being developed initially by the Company for
stem cell therapy. The AastromReplicell/(TM)/ System is a proprietary system
that the Company believes will enable the large scale ex vivo production of a
variety of therapeutic cells at healthcare facilities, independent laboratories,
transplant centers and blood banks, and has been designed to implement Aastrom's
stem cell growth process as well as processes for the production of other cell
types.
The AastromReplicell/(TM)/ System is comprised of several components,
including single-use therapy kits and microprocessor-controlled instruments,
which are at various stages of development. The single use therapy kits contain
a cell cassette cartridge which contains the Aastrom cell culture chamber,
supply waste reservoirs and harvest bag, necessary growth medium and supplements
and process specific software which provides the cell production processing
parameters to the AastromReplicell/(TM)/ System instruments. The microprocessor-
controlled instruments include the AastromReplicell/(TM)/ Incubator which
controls the culture conditions for the operation of the AastromReplicell/(TM)/
Cell Cassette, and the Processor which automates the innoculation of cells into
and harvesting of the cells from the AastromReplicell/(TM)/ Cell Cassette. The
AastromReplicell/(TM)/ System Manager is a user interface computer that is being
developed to simultaneously track and monitor the cell production process in
over twenty-four AastromReplicell/(TM)/ Incubators and record relevant process
variables and operator actions. Prototype components of the
AastromReplicell/(TM)/ System are currently being used in clinical trials and
ongoing development activities are directed at completing other production level
components of the AastromReplicell/(TM)/ System.
The AastromReplicell/(TM)/ System is designed to be operated with minimal
operator activity by a medical or laboratory technician and can implement
clinical scale cell production at the patient care site. The end product of the
AastromReplicell/(TM)/ System process is a blood-bag container with the cell
product. The control and documentation features of the AastromReplicell/(TM)/
System have been designed to meet cGMP requirements for the therapeutic
production of cells.
8
AASTROMREPLICELL/(TM)/ SYSTEM FOR STEM CELL THERAPY
The Company's initial application for the AastromReplicell/(TM)/ System is
expected to be in the growing field of stem cell therapy, where the Company
believes that the AastromReplicell/(TM)/ System may address many of the
limitations of existing procedures. The AastromReplicell/(TM)/ System is based
on a comparatively simple process in which a small volume of bone marrow cells
are collected from the patient or donor using a needle aspiration procedure,
typically under a local anesthetic or sedative. Alternatively, UCB cells have
been shown to be a new source of cells for use in stem cell transplantations.
The starting mixture of either bone marrow or UCB cells is quantified, and an
appropriate volume of cells is then inoculated into one or more
AastromReplicell/(TM)/ Cell Cassettes with the necessary growth media. Growth-
factor-stimulated cells are produced using the AastromReplicell/(TM)/ System in
approximately 12 to 13 days, with no further patient involvement. Depending upon
the cell quantity necessary for a therapeutic application, single or multiple
AastromReplicell/(TM)/ Cell Cassettes may be required, with a different volume
requirement of starting cells taken from the patient at the initial visit or
obtained from the UCB bank. The AastromReplicell/(TM)/ System has been designed
to minimize operator involvement during the cell production process, and the
steps required before and after the AastromReplicell/(TM)/ System are standard
laboratory procedures. Cells derived from UCB may also serve as a tumor-free
source of stem and progenitor cells for expansion in the AastromReplicell/(TM)/
System.
POTENTIAL ADVANTAGES OF AASTROMREPLICELL/(TM)/ SYSTEM
The Company believes that the AastromReplicell/(TM)/ System, if approved for
commercial sale by the U.S. Food and Drug Administration ("FDA") and foreign
regulatory agencies, may provide certain improvements and efficiencies over
traditional cell collection and infusion processes. The following table, which
sets forth estimates based on a 1996 survey conducted by the Company of 11 stem
cell transplant physicians at different transplant institutions throughout the
United States, compares estimated patient care episodes and procedure time for
currently established cell collection and infusion techniques with the
AastromReplicell/(TM)/ System method of cell procurement:
PROCEDURE TIME
CELL SOURCE CARE EPISODES(1) (HOURS)(1)
----------- ---------------- --------------
Bone Marrow Harvest (2)................... 8 16
PBSC Mobilization and Collection (3)...... 21 39
AastromReplicell/(TM)/ System (4)......... 2 1-3
---------------
(1) Includes all outpatient, inpatient, and home care episodes.
(2) Includes operating room procedure and all preparatory and recovery
procedures.
(3) Based on an average of three rounds of apheresis following cell
mobilization injections.
(4) Projections, based on data accumulated during the Company's research
and clinical trials.
The Company believes that the AastromReplicell/(TM)/ System may provide the
following benefits when compared to current cell collection and infusion
methods:
Cost-Effectiveness. The Company believes the AastromReplicell/(TM)/ System
has the potential to cost-effectively replace or reduce the labor intensive and
invasive cell collection and infusion procedures currently employed for stem
cell therapy and to reduce physician, staff and patient time requirements.
Reduced Patient and Physician Burden. Cell production with the
AastromReplicell/(TM)/ System is expected to require the collection of a small
volume of starting material compared to current collection procedures,
eliminating the requirement for general surgical anesthesia, multiple drug
injections or multiple blood apheresis. Patient benefits are expected to include
fewer needle sticks than with current cell collection and infusion methods and a
reduction in overall patient procedure time. Additionally, Aastrom's process for
cell expansion is expected to minimize the time requirement for physicians
compared with bone marrow harvest.
Enhanced Multicycle High-Dose Chemotherapy. The long restoration period for
the hematopoietic system following myeloablative therapy effectively limits
patients to one opportunity for cell collection prior to cancer therapy. The
9
AastromReplicell/(TM)/ System may enhance the practice of multicycle, high-dose
chemotherapy by providing the ability to produce a therapeutic dose of cells
from a small starting volume. The initial cell collection can be divided into
multiple samples and stored frozen until expansion at a later time is required.
Reduced Quantity of Lymphocytes. The Company believes its approach to stem
cell therapy may provide an additional benefit over current methods by depleting
potentially harmful cells such as T-cells and B-cells. These cells are believed
to be primarily responsible for graft-versus-host disease, a common
manifestation of allogeneic transplants in which the grafted donor's cells
attack the host's tissues and organs.
Tumor Cell Purging. Cancer patients with tumor metastases, in which the
cancer has spread to the blood and bone marrow, have not traditionally been
candidates for autologous stem cell transplants because such transplant might
reintroduce cancer cells into the patient. Additionally, patients may have
undetected tumor cells present in their marrow or PBSC transplant, which could
re-establish cancer in the patient following transplant. The Company's initial
clinical results, as well as studies conducted by third-party investigators,
have shown that some primary human tumor cells die or do not grow during
hematopoietic cell culture. The smaller volume of starting cells used for the
AastromReplicell/(TM)/ System compared with bone marrow harvest or PBSC
transplants may provide approximately 10 to 70 fold less tumor cells in a
transplant. Further, in an evaluation of seven tumor-contaminated bone marrow
samples that were expanded with the AastromReplicell/(TM)/ System process, the
presence of breast cancer cells in each sample was either substantially reduced
or was no longer detectable. The Company believes that this combination of
passive depletion during culture with the lower starting volume of tumor cells
may result in a tumor-free or tumor-reduced cell product for transplant. The
clinical benefit of such tumor depletion, if any, will vary depending upon the
type of cancer and state of disease.
Supplemental therapy with AastromReplicell/(TM)/ System produced cells.
Collection of cells for transplant is a variable procedure requiring longer
collection procedures for some patients compared to others. The
AastromReplicell/(TM)/ System offers a means to augment current collection
techniques thereby reducing the overall collection burden for the patient and
care provided to a single care episode, and improving patient recoveries.
CLINICAL DEVELOPMENT
The AastromReplicell/(TM)/ System is an automated clinical system designed to
be used by medical personnel at hospitals and patient care centers to produce
therapeutic cells for the treatment of a broad range of diseases, including
cancer, infectious diseases and the restoration of solid tissues.
The AastromReplicell/(TM)/ System is designed as a family of products
consisting of an instrumentation platform that operates single-use, patient-
specific, therapy kits. Each therapy kit, which is specific to the desired cell
or tissue type, is operated by the AastromReplicell/(TM)/ System instrument
platform which automates the otherwise complex cell production processes. This
instrument platform allows for on site cell manufacturing directly at the
hospital, that is compliant with cGMP's. The reagents, growth medium, cytokines,
and process instructions contained within each therapy kit are procedure
specific for the production of each cell type of therapy. This product design
feature provides for a variety of therapy kits to be integrated into the
AastromReplicell/(TM)/ System product line.
The AastromReplicell/(TM)/ System is being evaluated in multi-site clinical
trials in the U.S. under Investigational Device Exemptions (IDE's) from the FDA
and in Europe. The initial goals of the Company's clinical trial program are to
obtain a Premarket Approval (PMA) in the U.S., necessary to market the
AastromReplicell/(TM)/ System for autologous stem cell therapy and umbilical
cord blood transplants, and to obtain approval in Europe to market the
AastromReplicell/(TM)/ System for a variety of cell therapy applications, by
affixing the CE Mark.
Aastrom is conducting two clinical trials in the U.S. evaluating stem cells
produced in the AastromReplicell/(TM)/ System from a small starting amount of
bone marrow. The first study utilizes cells produced in the
AastromReplicell/(TM)/ System from a small aspirate bone marrow collection as
the sole cellular support following ablative chemotherapy. Initial results from
the first study have demonstrated the ability of the AastromReplicell/(TM)/
System to safely and reliably produce stem and progenitor cells that engraft and
restore blood and immune system function in cancer patients who had undergone
very aggressive chemotherapy. Further, the small volume aspirate, along with a
purging of contaminated tumor cells during the stem cell production has
indicated a way to offer patients a transplant with a lower risk of receiving
back tumor cells.
10
In a second U.S. study, the AastromReplicell/(TM)/ System is being used to
compliment traditional therapies by augmenting stem cells collected from a
single PBSC apheresis procedure. The objectives of this study are to demonstrate
that an optimal targeted recovery can be achieved using the
AastromReplicell/(TM)/ System produced cells with a sub-optimal PBSC cell dose
that otherwise would not provide this desired outcome. This procedure appears to
improve the certainty of procedure outcome by providing a more reliable means of
cell collection and patient recovery.
Aastrom has also initiated clinical feasibility trials to evaluate UCB cells
produced in the AastromReplicell/(TM)/ System to improve recoveries of pediatric
and adult patients requiring donor derived (or allogeneic) stem cell
transplants. Preliminary results of the pediatric transplants indicated that
AastromReplicell/(TM)/ System-produced cells were safe and well tolerated by the
patients, and that transplant cell recoveries during the 100-day post-transplant
period were very favorable. Based on the positive data, this pediatric trial was
expanded from 10 to 28 patients. Moreover, several UCB banking
institutions are now being established by other organizations. This banking
infrastructure together with the expansion capabilities of the
AastromReplicell/(TM)/ System may lead to UCB as a promising new source of cells
for therapeutic use.
Aastrom has initiated two clinical sites in Europe to evaluate the use of
AastromReplicell/(TM)/ System cells to promote hematopoietic recovery in breast
cancer patients undergoing aggressive myelosuppressive or myelotoxic
chemotherapy. Assuming the successful completion of these and other clinical
trials, the Company intends to seek approval to market the
AastromReplicell/(TM)/ System in Europe through CE Mark Registration. See
"--Government Regulation--Regulatory Process in Europe."
The preliminary results of the Company's pre-pivotal trials may not be
indicative of results that will be obtained from subsequent patients in the
trials or from more extensive trials. Further, there can be no assurance that
the Company's pre-pivotal or pivotal trials will be successful, or that PMA
registration or required foreign regulatory approvals for the
AastromReplicell/(TM)/ System will be obtained in a timely fashion, or at all.
See "Business Risks--Uncertainties Related to Clinical Trials."
ADDITIONAL STEM CELL AND OTHER CELL THERAPIES
The Company believes that AastromReplicell/(TM)/ System therapy kits may be
developed for application in a variety of other emerging cell therapies in
addition to stem cell therapy. The Company believes that the
AastromReplicell/(TM)/ System has the potential to supplant current manual cell
culture methods to produce therapeutic quantities of cell types such as T-cells,
dendritic cells, chondrocytes, mesenchymal cells, keratinocytes and neuronal
cells. Other than a limited application of chondrocyte therapy, novel cell
therapies are still in early stages of development by third parties, and no
assurance can be given that such other cell therapies will be successfully
developed. Potential advantages of the AastromReplicell/(TM)/ System in these
therapies may include: (i) reducing labor and capital costs; (ii) enhancing
process reliability; (iii) automating quality assurance; (iv) reducing the need
for specialized, environmentally controlled facilities; and (v) providing
greater accessibility of these procedures to care providers and patients and,
(vi) in certain cases, providing a more biologically active cell product.
Modification of such processes and application of the Company's products to
the expansion of other cell types may require substantial additional development
of specialized cell culture environments which may need to be incorporated
within the Company's existing product platform. Such modifications may require
the Company to raise substantial additional funds, or to seek additional
collaborative partners, or both. There can be no assurance that the Company will
be able to successfully modify or develop existing or future products to enable
such additional cell production processes. The Company's business opportunity is
dependent upon successful development and regulatory approval of these novel
cell therapies. No assurance can be given that such novel therapies will be
successfully developed by other companies or approved by applicable regulatory
authorities, or that the Company's processes or product candidates will find
successful application in such therapies. In addition, the Company may be
required to obtain license rights to such technologies in order to develop or
modify existing or future products for use in such therapies. No assurance can
be given that the Company will be able to obtain such licenses or that such
licenses, if available, could be obtained on commercially reasonable terms. See
"--Clinical Development" and "Business Risks--Future Capital Needs; Uncertainty
of Additional Funding."
IMMUNOTHERAPIES
11
Immunotherapy involves using cells of the immune system to eradicate a disease
target. T-cell lymphocytes and dendritic cells are being actively investigated
by other companies for this purpose, and the Company anticipates that many of
these procedures will require ex vivo cell production.
T-cells, a class of lymphocyte white blood cells, play a critical role in the
human immune system and are responsible for the human immune response in a broad
spectrum of diseases, including cancers and infectious diseases. Therapeutic
procedures using Cytotoxic T-lymphocytes ("CTLs") involve collecting T-cells
from a patient and culturing them in an environment resulting in T-cells with
specificity for a particular disease target. Clinical trials by third parties
have been initiated to demonstrate CTL effectiveness. The ex vivo production of
these cells under conditions for use in medical treatment represents a critical
step in the advancement of this therapy.
Dendritic cells (potent antigen presenting cells) are believed to play an
important role in the function of the immune system. Researchers believe that
cultured dendritic cells could augment the natural ability of a patient to
present tumor and antigens or antigens from infectious agents to the immune
system and aid in the generation of a cytotoxic T-cell response to the offending
agent.
SOLID TISSUE CELL THERAPIES
One of the newest areas of cell therapy involves the production of
chondrocytes for the restoration of cartilage. Chondrocyte therapy involves the
surgical removal of a small amount of tissue from the patient's knee and a
therapeutic quantity of chondrocytes is produced from this surgical biopsy. The
cells are then implanted into the patient's knee. Published reports indicate
that such cells then reestablish mature articular cartilage. Currently, this
cell production process is completed in highly specialized laboratory facilities
using trained scientists and manual laboratory procedures. The Company believes
that the AastromReplicell/(TM)/ System may have the potential to reduce costs
associated with the cell production procedure and, if successfully developed by
the Company for this application, may eventually facilitate the transfer of the
cell production capability away from specialized facilities directly to the
clinical care sites.
OTHER STEM CELL THERAPY APPLICATIONS
Autoimmune Diseases. Stem cell therapy is under clinical investigation by
third parties for the treatment of other diseases. Clinical studies have
suggested a potential role for stem cell therapy in treatment of autoimmune
diseases such as rheumatoid arthritis, multiple sclerosis and lupus
erythematosus. The generic cause of these diseases is a malfunctioning immune
system, including T-lymphocytes. Clinical trials in which the patient receives
treatment resulting in immune ablation (usually involving myelotoxic cancer
drugs or radiation), followed by stem cell therapy to restore the bone marrow
and cells of the blood and immune system, have demonstrated remission of the
autoimmune disease in some patients.
Organ Transplantation. Recently, a number of academic and corporate
researchers and companies have identified the potential use of stem cell therapy
to facilitate successful solid organ and tissue transplants between human donors
and recipients, as well as using organs from non-human species for
transplantation into humans. These proposed applications are based on the
observation that donor-specific bone marrow, infused concurrent with or prior to
the organ transplant, can provide for reduction of the normal immune rejection
response by the transplant recipient (e.g. heart, lung, liver or kidney
transplants).
A major limitation to the use of stem cell therapy in solid organ transplant
is the limited availability of sufficient amounts of bone marrow to obtain a
desired therapeutic response of immune tolerization. This limitation is
particularly problematic when cadaveric donor organs are used, which has
traditionally been the source of organs for these procedures. Bone marrow is
also often available from the cadaveric donor, but only in a limited amount.
Normally this amount may be sufficient for one transplant, but a donor might
provide multiple organs for transplant into multiple recipients. Aastrom
believes that the ability to expand the available bone marrow ex vivo will
enhance the use of stem cell therapy for such transplant procedures and may
pursue development of its products for application in such therapy in the
future.
AASTROM PRODUCT CANDIDATES FOR EX VIVO GENE THERAPY
12
A novel form of cell therapy is ex vivo gene therapy. For this type of cell
therapy, cells procured from the patient or a donor are genetically modified
prior to their infusion into the patient. Analogous to other cell therapies, the
ability to produce a therapeutic dose of these gene-modified cells is a major
limitation to the commercialization of these cell therapies. This limitation is
further exacerbated by the additional requirement that the cells be genetically
modified under conditions that are sterile and comply with cGMP's.
Gene therapy is a therapeutic modality that holds the potential to
significantly impact the delivery of healthcare and the delivery of
therapeutically useful protein-based drugs within the body. Gene therapies are
generally targeted at the introduction of a missing normal gene into otherwise
defective human tissue, or the introduction of novel biologic capability into
the body via the introduction of a gene not ordinarily present (for example,
genes providing for the enhanced recognition and destruction or inhibition of
the HIV-1 virus). The major developmental focus of the ex vivo gene therapy
industry has been to identify the therapeutic gene of interest, insert it into a
suitable vector that can be used to transport and integrate the gene into the
DNA of the target cell, and then cause the gene to become expressed. The Company
believes that for ex vivo gene therapy to progress to clinical applications, a
process to produce a sufficient quantity of therapeutic cells is required as is
an efficient means to insert the gene vector into target cells. Gene therapy is
still in an early stage of development by third parties. The Company's business
opportunity is dependent upon the successful development and regulatory approval
of individual gene therapy applications. No assurance can be given that such
applications will be developed or approved or that the Company's processes or
product candidates will find successful applications in such therapies.
Successful development of the Company's processes and product candidates for
application in ex vivo gene therapy will require substantial additional research
and development, including clinical testing, and will be subject to the
Company's ability to finance such activities on acceptable terms, if at all. See
"Business Risks--Future Capital Needs; Uncertainty of Additional Funding."
THE AASTROMREPLICELL/(TM)/ SYSTEM FOR GENE THERAPY
The AastromReplicell/(TM)/ System has been designed to produce cells for
therapy and the Company believes that the AastromReplicell/(TM)/ System may be
useful in many potential ex vivo gene therapy applications. Further, the Company
anticipates that its proprietary stem cell production process technology
implemented by the AastromReplicell/(TM)/ System may provide the conditions for
clinical scale stem cell division, and enable or enhance the introduction of
therapeutic genes into stem cell DNA. The Company believes that its technology
may also enable expansion of more mature progeny of these stem cells to create a
gene therapy cell product with potential short and long term therapeutic effect.
The Company has two principal objectives for the development of
AastromReplicell/(TM)/ System for gene therapy: (i) the enablement of stem cell
gene therapies for a variety of hematologic and other disorders, based on the
AastromReplicell/(TM)/ System's ability to enable large scale stem cell
division ex vivo; and (ii) the enablement of gene transfer and therapeutic
cell production by local and regional primary patient care facilities and
ancillary service laboratories.
THE AASTROM GENE LOADER
The Aastrom Gene Loader process technology, which is under development, is
being designed to enhance the efficiency and reliability of the transfer of new
therapeutic genes, which are carried by vectors, into the target cell. This
process, which is typically inefficient in many human cells inhibits many ex
vivo gene therapies from moving forward in the clinic. The Aastrom Gene Loader
is being designed to incorporate the Company's proprietary directed motion gene
transfer technology. Complete product development is expected to require
additional funding sources or collaborations with others, or both.
The Company believes that these issues represent a general bottleneck for
other companies pursuing ex vivo gene therapy clinical applications. The
Company's technology under development may favorably influence these gene
therapy applications, the development of which are impeded due to low
transduction efficiencies and the resultant need for use of extreme quantities
of gene vectors and/or target "delivery" tissues.
STRATEGIC RELATIONSHIPS
On October 22, 1993, the Company entered into a Distribution Agreement (the
"Distribution Agreement") with Cobe for Cobe to be the Company's exclusive,
worldwide marketing, distribution and service provider for the
AastromReplicell/(TM)/ System for stem cell therapy applications (the "Stem Cell
Therapy Applications"). Under the terms of the Company's Distribution Agreement
with Cobe, other than with respect to sales to affiliates, the Company is
precluded from selling the
13
AastromReplicell/(TM)/ System to customers for stem cell therapy applications.
The Company has, however, reserved the right to sell the AastromReplicell/(TM)/
System for: (i) all diagnostic or other non-therapeutic clinical applications;
(ii) all gene therapy or gene transfer applications, including those for stem
cells; (iii) all non-human applications; (iv) certain permitted clinical
research applications; and (v) all applications that are labeled not for human
use. The Company has also reserved the unconditional right to sell other
products under development, including but not limited to products based upon its
gene loading technology. The initial term of the Distribution Agreement expires
on October 22, 2003, and Cobe has the option to extend the term for an
additional ten-year period. The Company is responsible for the expenses to
obtain FDA and other regulatory approval in the United States, while Cobe is
responsible for the expenses to obtain regulatory approval in foreign countries
to allow for worldwide marketing of the AastromReplicell/(TM)/ System for Stem
Cell Therapy Applications. See "Business Risks--Consequences of Cobe
Relationship."
Under the terms of the Distribution Agreement, the Company will realize
approximately 58% to 62% of the net sales price at which Cobe ultimately sells
the AastromReplicell/(TM)/ System for Stem Cell Therapy Applications, subject to
certain negotiated discounts and volume-based adjustments and subject to the
obligation of the Company to make aggregate royalty payments of up to 5% to
certain licensors of its technology. The Company is also entitled to a premium
on United States sales in any year in which worldwide sales exceed specified
levels.
The Distribution Agreement may be terminated by Cobe upon twelve months prior
notice to the Company in the event that any person or entity other than Cobe
beneficially owns more than 50% of the Company's outstanding Common Stock or
voting securities. The Distribution Agreement may also be terminated by Cobe, if
Cobe, determines that commercialization of the AastromReplicell/(TM)/ System for
stem cell therapy on or prior to December 31, 1998 is unlikely.
In conjunction with the Distribution Agreement, the Company also entered into
a Stock Purchase Agreement with Cobe (the "Cobe Stock Agreement"), whereby Cobe
acquired certain option, registration, preemptive and other rights pertaining to
shares of the Company's stock. Pursuant to such preemptive rights, Cobe elected
to purchase 714,200 shares of Common Stock in the Company's initial public
offering in February 1997. See "Description of Capital Stock--Rights of Cobe"
and "Certain Transactions."
The Company has entered into a Strategic Planning Consulting Services and
Collaboration Agreement (the "Consulting Agreement") with Burrill & Company, LLC
("Burrill"), pursuant to which Burrill will advise the Company on potential
strategic alliances and seek to identify potential collaborations. Pursuant to
the Consulting Agreement, Burrill will be paid a monthly retainer of $10,000 and
will be reimbursed for expenses. Aastrom has issued Burrill an immediately
exercisable warrant to purchase 100,000 shares of Common Stock at an exercise
price of $7.24 and a second warrant, which vests over a one-year period ending
on October 1998, to purchase 100,000 shares at an exercise price of $7.24. The
Consulting Agreement is terminable by either party following periods of up to 30
days following notice.
The Consulting Agreement also provides for payments to Burrill that are based
on the timing and amount of proceeds Aastrom may receive from any future
strategic alliances. In the event that the Company enters into strategic
alliances (which exclude minor technology license agreements and customary
manufacturing or supply agreements that do not involve equity investments in
Aastrom, as well as performance pursuant to any of Cobe's existing agreements
with Aastrom), the Company will pay Burrill a success fee ranging from 4% to
7.5% of the proceeds in connection with the strategic alliance. In addition to
the success fee, Aastrom will issue to Burrill additional warrants to purchase
up to 500,000 shares of Common Stock, depending upon the achievement of certain
milestones.
MANUFACTURING
The Company has established relationships with third party manufacturers which
are FDA registered as suppliers for the manufacture of medical products to
manufacture various components of the AastromReplicell/(TM)/ System.
In May 1994, the Company entered into a Collaborative Product Development
Agreement with SeaMED Corporation, ("SeaMED"). Pursuant to this agreement, the
Company and SeaMED will collaborate on the further design of certain instrument
components in the AastromReplicell/(TM)/ System, and enable SeaMED to
manufacture pre-production units of the instrument components for laboratory and
clinical evaluation. The Company is paying SeaMED for its design and pre-
production work on a time and materials basis, utilizing SeaMED's customary
hourly billing rates and actual costs for materials. In April 1998 the Company
entered into a manufacturing agreement with SeaMED for the commercial
14
manufacturing of the instrument components of the AastromReplicell/(TM)/ System
pursuant to a pricing formula set forth in the agreement. The initial term of
the manufacturing agreement is three years from the date of the initial shipment
of instruments by SeaMED, after which the agreement is automatically renewed
until terminated upon a 24-month notice from SeaMED or a 6-month notice from the
Company. The Company retains all proprietary rights to its intellectual property
which is utilized by SeaMED pursuant to this agreement. During the initial
three-year term of the manufacturing agreement, SeaMED is regarded as the
Company's preferred supplier and the Company will purchase a minimum of 65% of
its instrument requirements for the AastromReplicell/(TM)/ System.
In November 1994, the Company entered into a Collaborative Product Development
Agreement with Ethox Corporation ("Ethox"). Pursuant to this agreement, the
Company and Ethox collaborated on the design of certain bioreactor assembly and
custom tubing kit components of the AastromReplicell/(TM)/ System. The Company
is paying Ethox for its design and production work on a time and
materials'basis, utilizing Ethox's customary hourly billing rates and actual
costs for materials. The Company retains all proprietary rights to its
intellectual property which are utilized by Ethox pursuant to this agreement.
In March 1996, the Company entered into a five-year License and Supply
Agreement with Immunex Corporation ("Immunex") to purchase and resell certain
cytokines and ancillary materials for use in conjunction with the
AastromReplicell/(TM)/ System. The agreement required the Company to pay Immunex
an initial up-front fee of $1,500,000 to be followed by subsequent annual
renewal payments equal to $1,000,000 per year during the term of the agreement
in addition to payment for supplies purchased by the Company. In August 1997,
the Company and Immunex amended the agreement to expand the Company's
territorial rights to use and sell such materials to a worldwide basis. Unless
earlier terminated or renewed by the Company for an additional five-year term,
the agreement will expire in April 2001. Pursuant to an agreement between
Immunex and the Company, the annual fee due in March 1998 was paid by the
Company through the issuance of $1,100,000 in the Company's Common Stock. The
agreement may be terminated by either party effective immediately upon written
notice of termination to the other party in the event that such party materially
breaches the agreement and such breach continues unremedied after notice and
expiration of a specified cure period or in the event that a bankruptcy
proceeding is commenced against a party and is not dismissed or stayed within a
45-day period. In addition, Immunex has the right to cease the supply to the
Company of cytokines and ancillary materials if the Company fails to purchase a
minimum amount of its forecasted annual needs from Immunex after notice to the
Company and expiration of a specified cure period. The Company also has the
right to terminate the agreement at any time subject to the payment to Immunex
of a specified amount for liquidated damages. In the event that Immunex elects
to cease to supply to the Company cytokines and ancillary materials or is
prevented from supplying such materials to the Company by reason of force
majeure, limited manufacturing rights will be transferred to the Company under
certain circumstances. There is, however, no assurance that the Company could
successfully manufacture the compounds itself or identify others that could
manufacture these compounds to acceptable quality standards and costs, if at
all.
In December 1996, the Company entered into a Collaborative Supply Agreement
with Anchor Advanced Products, Inc., Mid-State Plastics Division ("MSP"). Under
this agreement, MSP will conduct both pre-production manufacturing development
and commercial manufacturing and assembly of the Cell Cassette component of the
AastromReplicell/(TM)/ System for the Company. During the initial phase of the
seven-year agreement, the Company will pay MSP for its development activities on
a time and materials basis. Upon reaching certain commercial manufacturing
volumes, MSP will be paid by the Company on a per unit basis for Cell Cassettes
delivered to the Company under a pricing formula specified in the agreement.
Throughout the term of this agreement, the Company has agreed to treat MSP as
its preferred supplier of Cell Cassettes, using MSP as its supplier of at least
60% of its requirements for Cell Cassettes.
There can be no assurance that the Company will be able to continue its
present arrangements with its suppliers, supplement existing relationships or
establish new relationships or that the Company will be able to identify and
obtain the ancillary materials that are necessary to develop its product
candidates in the future. The Company's dependence upon third parties for the
supply and manufacture of such items could adversely affect the Company's
ability to develop and deliver commercially feasible products on a timely and
competitive basis. See "Business Risks--Manufacturing and Supply Uncertainties;
Dependence on Third Parties."
PATENTS AND PROPRIETARY RIGHTS
The Company's success depends in part on its ability, and the ability of its
licensors, to obtain patent protection for its products and processes. The
Company has exclusive rights to 15 issued U.S. patents that present claims to
(i) certain methods
15
for ex vivo stem cell division as well as ex vivo human hematopoietic stem cell
stable genetic transformation and expanding and harvesting a human hematopoietic
stem cell pool; (ii) certain apparatus for cell culturing, including a
bioreactor suitable for culturing human stem cells or human hematopoietic cells;
(iii) certain methods of infecting or transfecting target cells with vectors;
and (iv) a cell composition containing human stem cells or progenitor cells, or
genetically modified stem cells, when such cells are produced in an ex vivo
medium exchange culture. Patents equivalent to two of these U.S. patents have
also been issued in other jurisdictions: one in Australia and another in Canada
and under the European Patent Convention. These patents are due to expire
beginning in 2006. In addition, the Company and its exclusive licensors have
filed applications for patents in the United States and equivalent applications
in certain other countries claiming other aspects of the Company's products and
processes, including a number of U.S. patent applications and corresponding
applications in other countries related to various components of the
AastromReplicell/(TM)/ System.
The validity and breadth of claims in medical technology patents involve
complex legal and factual questions and, therefore, may be highly uncertain. No
assurance can be given that any patents based on pending patent applications or
any future patent applications of the Company or its licensors will be issued,
that the scope of any patent protection will exclude competitors or provide
competitive advantages to the Company, that any of the patents that have been or
may be issued to the Company or its licensors will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents
and other proprietary rights held or licensed by the Company. Furthermore, there
can be no assurance that others have not developed or will not develop similar
products, duplicate any of the Company's products or design around any patents
that have been or may be issued to the Company or its licensors. Since patent
applications in the United States are maintained in secrecy until patents issue,
the Company also cannot be certain that others did not first file applications
for inventions covered by the Company's and its licensors' pending patent
applications, nor can the Company be certain that it will not infringe any
patents that may issue to others on such applications.
The Company relies on certain licenses granted by the University of Michigan
and others for certain patent rights. If the Company breaches such agreements or
otherwise fails to comply with such agreements, or if such agreements expire or
are otherwise terminated, the Company may lose its rights in such patents, which
would have a material adverse effect on the Company's business, financial
condition and results of operations. See "--Research and License Agreements."
The Company also relies on trade secrets and unpatentable know-how which it
seeks to protect, in part, by confidentiality agreements. It is the Company's
policy to require its employees, consultants, contractors, manufacturers,
outside scientific collaborators and sponsored researchers, and other advisors
to execute confidentiality agreements upon the commencement of employment or
consulting relationships with the Company. These agreements provide that all
confidential information developed or made known to the individual during the
course of the individual's relationship with the Company is to be kept
confidential and not disclosed to third parties except in specific limited
circumstances. The Company also requires signed confidentiality or material
transfer agreements from any company that is to receive its confidential
information. In the case of employees, consultants and contractors, the
agreements generally provide that all inventions conceived by the individual
while rendering services to the Company shall be assigned to the Company as the
exclusive property of the Company. There can be no assurance, however, that
these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets or unpatentable
know-how will not otherwise become known or be independently developed by
competitors.
The Company's success will also depend in part on its ability to develop
commercially viable products without infringing the proprietary rights of
others. The Company has not conducted freedom of use patent searches and no
assurance can be given that patents do not exist or could not be filed which
would have an adverse effect on the Company's ability to market its products or
maintain its competitive position with respect to its products. If the Company's
technology components, devices, designs, products, processes or other subject
matter are claimed under other existing United States or foreign patents or are
otherwise protected by third party proprietary rights, the Company may be
subject to infringement actions. In such event, the Company may challenge the
validity of such patents or other proprietary rights or be required to obtain
licenses from such companies in order to develop, manufacture or market its
products. There can be no assurances that the Company would be able to obtain
such licenses or that such licenses, if available, could be obtained on
commercially reasonable terms. Furthermore, the failure to either develop a
commercially viable alternative or obtain such licenses could result in delays
in marketing the Company's proposed products or the inability to proceed with
the development, manufacture or sale of products requiring such licenses, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. If the Company is required to defend itself
against charges of patent infringement or to protect its own proprietary rights
against third parties, substantial costs will be incurred regardless of whether
the Company is successful.
16
Such proceedings are typically protracted with no certainty of success. An
adverse outcome could subject the Company to significant liabilities to third
parties and force the Company to curtail or cease its development and sale of
its products and processes.
Certain of the Company's and its licensors' research has been or is being
funded in part by the Department of Commerce and by a Small Business Innovation
Research Grant obtained from the Department of Health and Human Services. As a
result of such funding, the U.S. Government has certain rights in the technology
developed with the funding. These rights include a non-exclusive, paid-up,
worldwide license under such inventions for any governmental purpose. In
addition, the government has the right to require the Company to grant an
exclusive license under any of such inventions to a third party if the
government determines that (i) adequate steps have not been taken to
commercialize such inventions, (ii) such action is necessary to meet public
health or safety needs or (iii) such action is necessary to meet requirements
for public use under federal regulations. Additionally, under the federal Bayh
Dole Act, a party which acquires an exclusive license for an invention that was
partially funded by a federal research grant is subject to the following
government rights: (i) products using the invention which are sold in the United
States are to be manufactured substantially in the United States, unless a
waiver is obtained; (ii) if the licensee does not pursue reasonable
commercialization of a needed product using the invention, the government may
force the granting of a license to a third party who will make and sell the
needed product; and (iii) the U.S. Government may use the invention for its own
needs.
RESEARCH AND LICENSE AGREEMENTS
In March 1992, the Company and the University entered into the License
Agreement, as contemplated by the Research Agreement. There have been clarifying
amendments to the License Agreement, in March 1992, October 1993 and June 1995.
Pursuant to this License Agreement, (i) the Company acquired exclusive worldwide
license rights to the patents and know-how for the production of blood cells and
bone marrow cells as described in the University's research project or which
resulted from certain further research conducted through December 1994, and (ii)
the Company is obligated to pay to the University a royalty equal to 2% of the
net sales of products which are covered by the University's patents. Unless it
is terminated earlier at the Company's option or due to a material breach by the
Company, the License Agreement will continue in effect until the latest
expiration date of the patents to which the License Agreement applies.
In July 1992, the Company entered into a License Agreement with Joseph G.
Cremonese pursuant to which the Company obtained exclusive worldwide license
rights for all fields of use, to utilize U.S. Patent No. 4,839,292, entitled
"Cell Culture Flask Utilizing a Membrane Barrier," which patent was issued to
Dr. Cremonese on June 13, 1989, and to utilize any other related patents that
might be issued to Dr. Cremonese. Pursuant to the License Agreement, the Company
has reimbursed Dr. Cremonese for $25,000 of his patent costs. Under the terms of
the License Agreement, the Company is to pay to Dr. Cremonese a royalty of 3% of
net sales of the products which are covered by said patent, subject to specified
minimum royalty payments ranging from $20,000 to $50,000 per year, commencing in
calendar year 1997. Unless earlier terminated or modified, the License Agreement
will continue in effect until the latest expiration date of the patents to which
the License Agreement applies, which latest expiration date is currently August
2009. The License Agreement may be terminated by either party upon default by
the other party of any of its obligations under the agreement without cure after
expiration of a 30-day notice period. The Company also has the right to
terminate the License Agreement at any time without cause upon 30 days prior
written notice to Dr. Cremonese or to transfer the license to a non-exclusive
basis.
GOVERNMENT REGULATION
The Company's research and development activities and the manufacturing and
marketing of the Company's products are subject to the laws and regulations of
governmental authorities in the United States and other countries in which its
products will be marketed. Specifically, in the United States, the FDA, among
other activities, regulates new product approvals to establish safety and
efficacy of these products. Governments in other countries have similar
requirements for testing and marketing. In the United States, in addition to
meeting FDA regulations, the Company is also subject to other federal laws, such
as the Occupational Safety and Health Act and the Environmental Protection Act,
as well as certain state laws.
REGULATORY PROCESS IN THE UNITED STATES
17
To the Company's knowledge, it is the first to develop a cell culture system
for ex vivo human cell production to be sold for therapeutic applications.
Therefore, to a certain degree, the manner in which the FDA will regulate the
Company's products is uncertain.
The Company's products are potentially subject to regulation as medical
devices under the Federal Food, Drug, and Cosmetic Act, and as biological
products under the Public Health Service Act, or both. Different regulatory
requirements may apply to the Company's products depending on how they are
categorized by the FDA under these laws. To date, the FDA has indicated that it
intends to regulate the AastromReplicell/(TM)/ System as a Class III medical
device through the Center for Biologics Evaluation and Research. However, there
can be no assurance that FDA will ultimately regulate the AastromReplicell/(TM)/
System as a medical device.
Further, it is unclear whether the FDA will separately regulate the cell
therapies derived from the AastromReplicell/(TM)/ System. The FDA is still in
the process of developing its requirements with respect to somatic cell therapy
and gene cell therapy products and has recently issued draft documents
concerning the regulation of umbilical cord blood stem cell products, as well as
cellular and tissue-based products. If the FDA adopts the regulatory approach
set forth in the draft document, the FDA may require separate regulatory
approval for such cells in some cases, called a biologic license application
("BLA"). This proposal may indicate that the FDA will extend a similar approval
requirement to other types of cellular therapies. Any such additional regulatory
or approval requirements could have a material adverse impact on the Company.
Approval of new medical devices and biological products is a lengthy procedure
leading from development of a new product through preclinical and clinical
testing. This process takes a number of years and the expenditure of significant
resources. There can be no assurance that the Company's product candidates will
ultimately receive regulatory approval.
Regardless of how the Company's product candidates are regulated, the Federal
Food, Drug, and Cosmetic Act and other Federal statutes and regulations govern
or influence the research, testing, manufacture, safety, labeling, storage,
recordkeeping, approval, distribution, use, reporting, advertising and promotion
of such products. Noncompliance with applicable requirements can result in civil
penalties, recall, injunction or seizure of products, refusal of the government
to approve or clear product approval applications or to allow the Company to
enter into government supply contracts, withdrawal of previously approved
applications and criminal prosecution.
DEVICES
In order to obtain FDA approval of a new medical device, sponsors must
generally submit proof of safety and efficacy. In some cases, such proof entails
extensive preclinical and clinical laboratory tests. The testing, preparation of
necessary applications and processing of those applications by the FDA is
expensive and may take several years to complete. There can be no assurance that
the FDA will act favorably or in a timely manner in reviewing submitted
applications, and the Company may encounter significant difficulties or costs in
its efforts to obtain FDA approvals which could delay or preclude the Company
from marketing any products it may develop. The FDA may also require
postmarketing testing and surveillance of approved products, or place other
conditions on the approvals. These requirements could cause it to be more
difficult or expensive to sell the products, and could therefore restrict the
commercial applications of such products. Product approvals may be withdrawn if
compliance with regulatory standards is not maintained or if problems occur
following initial marketing. For patented technologies, delays imposed by the
governmental approval process may materially reduce the period during which the
Company will have the exclusive right to exploit such technologies.
If human clinical trials of a proposed device are required and the device
presents significant risk, the manufacturer or distributor of the device will
have to file an IDE submission with the FDA prior to commencing human clinical
trials. The IDE submission must be supported by data, typically including the
results of pre-clinical and laboratory testing. Following submission of the IDE,
the FDA has 30 days to review the application and raise safety and other
clinical trial issues. If the Company is not notified of objections within that
period, clinical trials may be initiated, and human clinical trials may commence
at a specified number of investigational sites with the number of patients
approved by the FDA.
The FDA categorizes devices into three regulatory classifications subject to
varying degrees of regulatory control. In general, Class I devices require
compliance with labeling and recordkeeping regulations, Quality System
Regulation ("QSR"), 510(k) pre-market notification, and are subject to other
general controls. Class II devices may be subject to additional
18
regulatory controls, including performance standards and other special controls,
such as postmarket surveillance. Class III devices, which are either invasive or
life-sustaining products, or new products never before marketed (for example,
non-"substantially equivalent" devices), require clinical testing to demonstrate
safety and effectiveness and FDA approval prior to marketing and distribution.
The FDA also has the authority to require clinical testing of Class I and Class
II devices.
If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent, the manufacturer or distributor
must submit a PMA application to the FDA. A PMA application must be supported by
extensive data, including preclinical and human clinical trial data, to prove
the safety and efficacy of the device. Upon receipt, the FDA conducts a
preliminary review of the PMA application. If sufficiently complete, the
submission is declared filed by the FDA. By regulation, the FDA has 180 days to
review a PMA application once it is filed, although PMA application reviews more
often occur over a significantly protracted time period, and may take
approximately one year or more from the date of filing to complete.
Some of the Company's products may be classified as Class II or Class III
medical devices. The Company has submitted several IDEs for the
AastromReplicell/(TM)/ System, and is currently conducting pre-pivotal clinical
studies under these IDEs. The Company believes that the AastromReplicell/(TM)/
System product will be regulated by the FDA as a Class III device, although
there can be no assurance that the FDA will not choose to regulate this product
in a different manner.
The Company and any contract manufacturer are required to be registered as a
medical device manufacturer with the FDA. As such, they will be inspected on a
routine basis by the FDA for compliance with the FDA's QSR regulations. These
regulations will require that the Company and any contract manufacturer, design,
manufacture and service products and maintain documents in a prescribed manner
with respect to manufacturing, testing, distribution, storage, design control
and service activities. The Medical Device Reporting regulation requires that
the Company provide information to the FDA on deaths or serious injuries alleged
to be associated with the use of its devices, as well as product malfunctions
that are likely to cause or contribute to death or serious injury if the
malfunction were to recur. In addition, the FDA prohibits a company from
promoting an approved device for unapproved applications and reviews company
labeling for accuracy.
BIOLOGICAL PRODUCTS
For certain of the Company's new products which may be regulated as biologics,
the FDA requires (i) preclinical laboratory and animal testing, (ii) submission
to the FDA of an investigational new drug ("IND") application which must be
effective prior to the initiation of human clinical studies, (iii) adequate and
well-controlled clinical trials to establish the safety and efficacy of the
product for its intended use, (iv) submission to the FDA of a biologic license
application ("BLA") and (v) review and approval of the BLA as well as
inspections of the manufacturing facility by the FDA prior to commercial
marketing of the product.
Preclinical testing covers laboratory evaluation of product chemistry and
formulation as well as animal studies to assess the safety and efficacy of the
product. The results of these tests are submitted to the FDA as part of the IND.
Following the submission of an IND, the FDA has 30 days to review the
application and raise safety and other clinical trial issues. If the Company is
not notified of objections within that period, clinical trials may be initiated.
Clinical trials are typically conducted in three sequential phases. Phase I
represents the initial administration of the drug or biologic to a small group
of humans, either healthy volunteers or patients, to test for safety and other
relevant factors. Phase II involves studies in a small number of patients to
assess the efficacy of the product, to ascertain dose tolerance and the optimal
dose range and to gather additional data relating to safety and potential
adverse effects. Once an investigational drug is found to have some efficacy and
an acceptable safety profile in the targeted patient population, multi-center
Phase III studies are initiated to establish safety and efficacy in an expanded
patient population and multiple clinical study sites. The FDA reviews both the
clinical plans and the results of the trials and may request the Company to
discontinue the trials at any time if there are significant safety issues.
The results of the preclinical tests and clinical trials are submitted to the
FDA in the form of a BLA for marketing approval. The testing and approval
process is likely to require substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis, if at all.
Additional animal studies or clinical trials may be requested during the FDA
review period that may delay marketing approval. After FDA approval for the
initial indications, further clinical trials may be necessary to gain approval
for the use of the product for additional indications. The FDA requires that
adverse
19
effects be reported to the FDA and may also require post-marketing testing to
monitor for adverse effects, which can involve significant expense.
Under current requirements, facilities manufacturing biological products must
be licensed. To accomplish this, an BLA must be filed with the FDA. The BLA
describes the facilities, equipment and personnel involved in the manufacturing
process. An establishment license is granted on the basis of inspections of the
applicant's facilities in which the primary focus is on compliance with cGMP's
and the ability to consistently manufacture the product in the facility in
accordance with the BLA. If the FDA finds the inspection unsatisfactory, it may
decline to approve the BLA, resulting in a delay in production of products.
As part of the approval process for human biological products, each
manufacturing facility must be registered and inspected by FDA prior to
marketing approval. In addition, state agency inspections and approvals may also
be required for a biological product to be shipped out of state.
REGULATORY PROCESS IN EUROPE
The Company believes that the AastromReplicell/(TM)/ instruments and
disposables, will be regulated in Europe as a Class I Sterile or Class IIb
medical device, under the authority of the new Medical Device Directives
("MDD") being implemented by European Union ("EU") member countries. This
classification applies to medical laboratory equipment and supplies including,
among other products, many devices that are used for the collection and
processing of blood for patient therapy. Certain ancillary products (e.g.,
biological reagents) used as part of the Aastrom/(TM)/ System are expected to
be considered Class III medical devices.
The MDD regulations vest the authority to permit affixing of the "CE Mark"
with various "Notified Bodies." These are private and state organizations which
operate under license from the member states of the EU to certify that
appropriate quality assurance standards and compliance procedures are followed
by developers and manufacturers of medical device products or, alternatively,
that a manufactured medical product meets a more limited set of requirements.
Notified Bodies are also charged with responsibility for determination of the
appropriate standards to apply to a medical product. Receipt of permission to
affix the CE Mark enables a company to sell a medical device in all EU member
countries. Other registration requirements may also need to be satisfied in
certain countries.
COMPETITION
The biotechnology and medical device industries are characterized by rapidly
evolving technology and intense competition. The Company's competitors include
major pharmaceutical, medical device, medical products, chemical and specialized
biotechnology companies, many of which have financial, technical and marketing
resources significantly greater than those of the Company. In addition, many
biotechnology companies have formed collaborations with large, established
companies to support research, development and commercialization of products
that may be competitive with those of the Company. Academic institutions,
governmental agencies and other public and private research organizations are
also conducting research activities and seeking patent protection and may
commercialize products on their own or through joint ventures. The Company's
product development efforts are primarily directed toward obtaining regulatory
approval to market the AastromReplicell/(TM)/ System for stem cell therapy. That
market is currently dominated by the bone marrow harvest and PBSC collection
methods. The Company's clinical data, although early, suggests that cells
expanded in the AastromReplicell/(TM)/ System using its current process will
enable hematopoietic recovery within the time frames currently achieved by bone
marrow harvest, however, neutrophil and platelet recovery times may be slower
than with PBSC collection methods. The Company is evaluating techniques and
methods to optimize the cells produced in the Aastrom/(TM)/ System to reduce the
recovery time of neutrophils and platelets in patients. There can be no
assurance that if such procedure optimization does not lead to recovery times
equal to or faster than those of PBSC collection methods, such outcome would not
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the bone marrow harvest and PBSC
collection methods have been widely practiced for a number of years and,
recently, the patient costs associated with these procedures have begun to
decline. There can be no assurance that the AastromReplicell/(TM)/ System
method, if approved for marketing, will prove to be competitive with these
established collection methods on the basis of hematopoietic recovery time, cost
or otherwise. The Company is aware of certain other products manufactured or
under development by competitors that are used for the prevention or treatment
of certain diseases and health conditions which the Company has targeted for
product development. In particular, the Company is aware that potential
competitors such as
20
Amgen, Inc., CellPro, Incorporated, VimRx Pharaceuticals, Inc. Novartis, A.G.,
Baxter Healthcare Corp. and Rhne-Poulenc Rorer Inc. ("RPR") are in advanced
stages of development of technologies and products for use in stem cell therapy
and other market applications currently being pursued by the Company. In
addition, Cobe, a significant shareholder of the Company, is a market leader in
the blood cell processing products industry and, accordingly, a potential
competitor of the Company. There can be no assurance that developments by others
will not render the Company's product candidates or technologies obsolete or
noncompetitive, that the Company will be able to keep pace with new
technological developments or that the Company's product candidates will be able
to supplant established products and methodologies in the therapeutic areas that
are targeted by the Company. The foregoing factors could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's products under development are expected to address a broad range
of existing and new markets. The Company believes that its stem cell therapy
products will, in large part, face competition by existing procedures rather
than novel new products. The Company's competition will be determined in part by
the potential indications for which the Company's products are developed and
ultimately approved by regulatory authorities. In addition, the first product to
reach the market in a therapeutic or preventive area is often at a significant
competitive advantage relative to later entrants to the market. Accordingly, the
relative speed with which the Company or its corporate partners can develop
products, complete the clinical trials and approval processes and supply
commercial quantities of the products to the market are expected to be important
competitive factors. The Company's competitive position will also depend on its
ability to attract and retain qualified scientific and other personnel, develop
effective proprietary products, develop and implement production and marketing
plans, obtain and maintain patent protection and secure adequate capital
resources. The Company expects its products, if approved for sale, to compete
primarily on the basis of product efficacy, safety, patient convenience,
reliability, value and patent position.
EMPLOYEES
As of August 31, 1998, the Company employed approximately 87 individuals. A
significant number of the Company's management and professional employees have
had prior experience with pharmaceutical, biotechnology or medical product
companies. None of the Company's employees are covered by collective bargaining
agreements, and management considers relations with its employees to be good.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, and their respective ages as of August
31, 1998, are as follows:
Name Age Position
---- --- --------
R. Douglas Armstrong, Ph.D...... 45 President and Chief Executive Officer
William L. Odell................ 40 Senior Vice President Product Operations
Todd E. Simpson................. 37 Vice President Finance & Administration,
Chief Financial Officer, Secretary and
Treasurer
Alan K. Smith, Ph.D............. 43 Vice President Research
Bruce V. Husel.................. 40 Vice President Quality Systems
R. Douglas Armstrong, Ph.D. joined the Company in June 1991 as a director and
as its President and Chief Executive Officer. From 1987 to 1991, Dr. Armstrong
served in different capacities, including as Executive Vice President and a
Trustee of the La Jolla Cancer Research Foundation ("LJCRF") (now the Burham
Institute), a scientific research institute located in San Diego, California.
Dr. Armstrong received his doctorate in Pharmacology and Toxicology from the
Medical College of Virginia, and has held faculty and staff positions at Yale
University, University of California, San Francisco, LJCRF and University of
Michigan. Dr. Armstrong also serves on the Board of Directors of Nephros
Therapeutics, Inc.
William Odell joined the Company in August 1998 as Senior Vice President,
Product Operations. Prior to joining Aastrom, Mr. Odell was a Vice President at
Mitchell International, a healthcare consulting firm. Prior to that, Mr. Odell
served at Owens & Minor, Inc. as Division Vice President, where he was
responsible for managing sales, marketing, operations and customer service for
the Chicago division. Mr. Odell has also held senior marketing and product
development
21
positions with Smiths Industries Medical Systems, Intertech Resources and Baxter
International. Mr. Odell received his Bachelor of Science degree in Business
Administration from the University of Illinois at Champaign/Urbana.
Todd E. Simpson joined the Company in January 1996 as Vice President, Finance
and Administration and Chief Financial Officer and is also the Company's
Secretary and Treasurer. Prior to that, Mr. Simpson was Treasurer of Integra
LifeSciences Corporation ("Integra"), a biotechnology company, which acquired
Telios Pharmaceuticals, Inc. ("Telios") in August 1995 in connection with the
reorganization of Telios under Chapter 11 of the U.S. Bankruptcy Code. Mr.
Simpson served as Vice President of Finance and Chief Financial Officer of
Telios up until its acquisition by Integra and held various other financial
positions at Telios after joining that company in February 1992. Telios was a
publicly-held company engaged in the development of pharmaceutical products for
the treatment of dermal and ophthalmic wounds, fibrotic disease, vascular
disease, and osteoporosis. From August 1983 through February 1992, Mr. Simpson
practiced public accounting with the firm of Ernst & Young, LLP. Mr. Simpson is
a Certified Public Accountant and received his B.S. degree in Accounting and
Computer Science from Oregon State University.
Bruce V. Husel joined the Company in November 1997 as Vice President, Quality
Systems. From May 1994 to September 1997, Mr. Husel served as Director of
Quality Assurance for Sanofi Diagnostics Pasteur, where he led efforts to
achieve EN 46001 registration and prepare for CE Marking. From June 1992 to May
1994, Mr. Husel was Director of Quality and Regulatory Affairs for Baxter
Anesthesia Division (formerly known as Bard MedSystems). Prior to that, he
served as Quality Manager of McGaw, Inc. Mr. Husel received his B.B. degree in
Electrical Engineering from Rice University in 1980, an M.S degree in
Engineering Management from Southern Methodist University in 1986 and an M.B.A.
degree in Accounting from the University of Texas at Dallas in 1987.
Alan K. Smith, Ph.D. joined the Company in November 1995 as Vice President,
Research. Previously, Dr. Smith was Vice President of Research and Development
at Geneic Sciences, Inc., a developmental stage bone marrow transplantation
company. Prior to that, Dr. Smith held the position of Director, Cell
Separations Research and Development of the Immunotherapy Division of Baxter
Healthcare Corporation. In this capacity, he was responsible for the research
and development activities for a stem cell concentration system approved for
clinical use in Europe and currently in pivotal clinical trials in the United
States. Dr. Smith has also held positions as Research and Development Manager at
BioSpecific Technologies and as Director of Biochemistry at HyClone
Laboratories. Dr. Smith received his B.S. degree in Chemistry from Southern Utah
State College in 1976 and a Ph.D. in Biochemistry from Utah State University in
1983. Dr. Smith is a director of Chata Biosystems, Inc., a privately held
pharmaceutical service company.
ITEM 2. PROPERTIES
The Company leases approximately 22,000 square feet of office and research and
development space in Ann Arbor, Michigan under a lease agreement expiring in
August 2000. The Lease is renewable at the option of the Company for up to an
additional five year term. The Company believes that its facilities are adequate
for its current needs. However, additional facilities may be required to support
expansion of research and development activities or to assume manufacturing
operations which are currently fulfilled through contract manufacturing
relationships.
ITEM 3. LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings, although from time
to time it may become involved in disputes in connection with the operation of
its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of the Company's fiscal year ended June 30, 1998.
22
PART II
Certain information required by Part II is omitted from this Report, in
that the Company will deliver to the shareholders of the Company its Annual
Report to Shareholders, and certain information included therein is incorporated
herein by reference and filed as Exhibit 13.1 to this Report.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Certain information regarding the market for the Company's capital stock is
incorporated by reference to the Company's Annual Report to Shareholders under
the caption "Market for Registrant's Common Equity and Related Shareholders
Matters."
ITEM 6. SELECTED FINANCIAL DATA
The information relating to selected financial data is incorporated by
reference to the Company's Annual Report to Shareholders under the caption
"Selected Financial Data."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information with respect to the management's discussion and analysis of
financial condition and results of operations is incorporated by reference to
the Company's Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
BUSINESS RISKS
The Company's business is subject to a number of risks and uncertainties,
including those discussed below.
UNCERTAINTIES RELATED TO PRODUCT DEVELOPMENT AND MARKETABILITY
The Company has not completed the development or clinical trials of any of
its cell culture technologies or product candidates and, accordingly, has not
begun to market or generate revenue from their commercialization. Furthermore,
the Company's technologies and product candidates are based on cell culture
processes and methodologies which are not widely employed. Commercialization of
the Company's lead product candidate, the AastromReplicell/(TM)/ System, will
require substantial additional research and development by the Company as well
as substantial clinical trials. There can be no assurance that the Company will
successfully complete development of the AastromReplicell/(TM)/ System or its
other product candidates, or successfully market its technologies or product
candidates, which lack of success would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company or its collaborators may encounter problems and delays relating to
research and development, regulatory approval and intellectual property rights
of the Company's technologies and product candidates. There can be no assurance
that the Company's research and development programs will be successful, that
its cell culture technologies and product candidates will facilitate the ex vivo
production of cells with the expected biological activities in humans, that its
technologies and product candidates, if successfully developed, will prove to be
safe and efficacious in clinical trials, that the necessary regulatory approvals
for any of the Company's technologies or product candidates and the cells
produced in such products will be obtained or, if obtained, will be as broad as
sought, that patents will issue on the Company's patent applications or that the
Company's intellectual property protections will be adequate. The Company's
product development efforts are primarily directed toward obtaining regulatory
approval to market the AastromReplicell/(TM)/ System as an alternative to the
bone marrow harvest and peripheral blood stem cell ("PBSC") collection methods.
These stem cell collection methods have been widely
23
practiced for a number of years, and there can be no assurance that any of the
Company's technologies or product candidates will be accepted by the marketplace
as readily as these or other competing processes and methodologies, or at all.
The failure by the Company to achieve any of the foregoing would have a material
adverse effect on the Company's business, financial condition and results of
operations.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
The approval of the FDA will be required before any commercial sales of the
Company's product candidates may commence in the United States, and approvals
from foreign regulatory authorities will be required before international sales
may commence. Prior to obtaining necessary regulatory approvals in the U.S., the
Company will be required to demonstrate the safety and efficacy of its processes
and product candidates and the cells produced by such processes and in such
products for application in the treatment of humans through extensive
preclinical studies and clinical trials. The Company is currently conducting
pre-pivotal clinical trials to demonstrate the safety and biological activity of
patient-derived or UCB cells produced in the Company's prototype of the
AastromReplicell/(TM)/ System in a limited number of patients. If the results
from these pre-pivotal trials are successful, the Company intends to seek
clearance from the FDA to commence pivotal clinical trials. The results of
preclinical studies and clinical trials of the Company's product candidates,
however, may not necessarily be predictive of results that will be obtained from
subsequent or more extensive clinical trials. Further, there can be no assurance
that pre-pivotal or pivotal clinical trials of any of the Company's product
candidates will demonstrate the safety, reliability and efficacy of such
products, or of the cells produced in such products, to the extent necessary to
obtain required regulatory approvals or market acceptance.
The ability of the Company to complete its clinical trials in a timely manner
is dependent upon many factors, including the rate of patient enrollment.
Patient enrollment is a function of many factors, including the size of the
patient population, the proximity of suitable patients to clinical sites and the
eligibility criteria for the study. The Company has experienced delays in
patient accrual in its current pre-pivotal clinical trials. Further delays in
patient accrual, in the Company's current pre-pivotal clinical trials, or in
pivotal trials planned to be conducted, could result in increased costs
associated with clinical trials or delays in receiving regulatory approvals and
commercialization, if any. Furthermore, the progress of clinical investigations
with the AastromReplicell/(TM)/ System and the Company's other product
candidates will be monitored by the FDA, which has the authority to cease
clinical investigations, at any time, due to patient safety or other
considerations. Any of the foregoing would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Uncertainty of Regulatory Approval; Extensive Government Regulation."
The Company's current pre-pivotal trials are designed to demonstrate specific
biological safety and activity of cells produced in the AastromReplicell/(TM)/
System, but are not designed to demonstrate long-term sustained engraftment of
such cells. The patients enrolled in these pre-pivotal trials will have
undergone extensive chemotherapy treatment prior to the infusion of cells
produced in the AastromReplicell/(TM)/ System. Such treatments will have
substantially weakened these patients and may have irreparably damaged their
hematopoietic systems. Due to these and other factors, it is possible that
patients may die or suffer severe complications during the course of the current
pre-pivotal trials or future trials. For example, in the trials to date,
patients who were in the transplant recovery process have died from
complications related to the patient's clinical condition that, according to the
physicians involved, were unrelated to the AastromReplicell/(TM)/ System
procedure. Further, there can be no assurance that patients receiving cells
produced with the Company's technologies and product candidates will demonstrate
long-term engraftment in a manner comparable to cells obtained from current stem
cell therapy procedures, or at all. The failure to adequately demonstrate the
safety or efficacy of the Company's technologies and product candidates,
including long-term sustained engraftment, or the death of, or occurrence of
severe complications in, one or more patients could substantially delay, or
prevent, regulatory approval of such product candidates and have a material
adverse effect on the Company's business, financial condition and results of
operations.
MANUFACTURING AND SUPPLY UNCERTAINTIES; DEPENDENCE ON THIRD PARTIES
The Company does not operate and has no current intention to operate
manufacturing facilities for the production of its product candidates. The
Company currently arranges for the manufacture of its product candidates and
their components, including certain cytokines, serum and media, with third
parties, and expects to continue to do so in the foreseeable future. The Company
has entered into collaborative product development and supply agreements with
SeaMED Corporation ("SeaMED"), Ethox Corporation ("Ethox") and Anchor Advanced
Products, Inc., Mid-State Plastics Division ("MSP"), for
24
the collaborative development and manufacture of certain components of the
AastromReplicell/(TM)/ System and is dependent upon those suppliers to
manufacture its products. The Company is also dependent upon Immunex Corporation
("Immunex"), Life Technologies, Inc. and Biowhittaker for the supply of certain
cytokines, serum and media to be used in the AastromReplicell/(TM)/ System. With
regard to cytokines that are not commercially available from other sources,
Immunex is currently the Company's sole supplier and few alternative supply
sources exist. Apart from SeaMED, Ethox, MSP and Immunex, the Company currently
does not have contractual commitments from any of these manufacturers or
suppliers. There can be no assurance that the Company's supply of such key
cytokines, components and other materials will not become limited, be
interrupted or become restricted to certain geographic regions. Additionally,
there can be no assurance that the Company will not require additional
cytokines, components and other materials to manufacture, use or market its
product candidates, or that necessary key components will be available for use
on a sustained basis, if at all, by the Company in the markets in which it
intends to sell its products. There can also be no assurance that the Company
will be able to obtain alternative components and materials from other
manufacturers of acceptable quality, or on terms or in quantities acceptable to
the Company. In the event that any of the Company's key manufacturers or
suppliers fail to perform their respective obligations or the Company's supply
of such cytokines, components or other materials becomes limited or interrupted,
the Company would not be able to conduct clinical trials or market its product
candidates on a timely and cost-competitive basis, if at all, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
MANUFACTURING AND SUPPLY UNCERTAINTIES; DEPENDENCE ON THIRD PARTIES
Certain of the compounds used by the Company in its current stem cell
expansion process involve the use of animal-derived products. The availability
of these compounds for clinical and commercial use may become limited by
suppliers or restricted by regulatory authorities, which may impose a potential
competitive disadvantage for the Company's products compared to competing
products and procedures. There can be no assurance that the Company will not
experience delays or disadvantages related to the future availability of such
materials. Any restriction on the use of such materials could have a material
adverse effect on the Company's business, financial condition and results of
operations, and there can be no assurance that the Company will be able to
develop or obtain alternative compounds.
Like SeaMED, Ethox, MSP and Immunex, other suppliers would need to meet FDA
manufacturing requirements and undergo rigorous facility and process validation
tests required by federal and state regulatory authorities. Any significant
delays in the completion and validation of such facilities could have a material
adverse effect on the ability of the Company to complete clinical trials and to
market its products on a timely and profitable basis, which in turn would have a
material adverse effect on the Company's business, financial condition and
results of operations.
There can be no assurance that the Company will be able to continue its
present arrangements with its suppliers, supplement existing relationships or
establish new relationships or that the Company will be able to identify and
obtain the ancillary materials that are necessary to develop its product
candidates in the future. The Company's dependence upon third parities for the
supply and manufacture of such items could adversely affect the Company's
ability to develop and deliver commercially feasible products on a timely and
competitive basis.
HISTORY OF OPERATING LOSSES; ANTICIPATION OF FUTURE LOSSES
The Company is a development stage company and there can be no assurance that
its product applications for cell therapy will be successful. The Company has
not yet completed the development and clinical trials of any of its product
candidates and, accordingly, has not yet begun to generate revenues from the
commercialization of any of its product candidates. Aastrom was incorporated in
1989 and has experienced substantial operating losses since inception. As of
June 30, 1998, the Company has incurred net operating losses totaling
approximately $58.5 million. Such losses have resulted principally from costs
incurred in the research and development of the Company's cell culture
technologies and the AastromReplicell/(TM)/ System, general and administrative
expenses, and the prosecution of patent applications. The Company expects to
incur significant and increasing operating losses until product sales commence,
primarily owing to the expansion of its research and development programs,
including preclinical studies and clinical trials. The amount of future losses
and when, if ever, the Company will achieve profitability, are uncertain. The
Company's ability to achieve profitability will depend, among other things, on
successfully completing the development of its product candidates, obtaining
regulatory approvals, establishing manufacturing, sales and marketing
arrangements with third parties, and raising sufficient funds to finance its
activities. No assurance can be given that the Company's product development
efforts will be successful, that required regulatory approvals
25
will be obtained, that any of the Company's product candidates will be
manufactured at a competitive cost and will be of acceptable quality, or that
the Company will be able to achieve profitability or that profitability, if
achieved, can be sustained.
LIMITED SALES AND MARKETING CAPABILITIES; DEPENDENCE ON COLLABORATIVE
RELATIONSHIPS
The Company has limited internal sales, marketing and distribution
capabilities. If any of the Company's product candidates are successfully
developed and the necessary regulatory approvals are obtained, the Company
intends to market such products through collaborative relationships with
companies that have established sales, marketing and distribution capabilities.
The Company has established a strategic alliance with Cobe for the worldwide
distribution of the AastromReplicell/(TM)/ System for stem cell therapy and
related uses. Cobe has the right to terminate its Distribution Agreement with
the Company upon twelve months notice upon a change of control of the Company,
other than to Cobe, or if Cobe determines that commercialization of the
AastromReplicell/(TM)/ System for stem cell therapy on or prior to December 31,
1998 is unlikely. See "--Consequences of Cobe Relationship."
The amount and timing of resources that Cobe commits to its strategic alliance
activities with the Company are, to a significant extent, outside of the control
of the Company. There can be no assurance that Cobe will pursue the marketing
and distribution of the Company's products, continue to perform its obligations
under its agreements with the Company or that the Company's strategic alliance
with Cobe will result in the successful commercialization and distribution of
the Company's technologies and product candidates. There can also be no
assurance that Cobe will be successful in its efforts to market and distribute
the Company's products for stem cell therapy. The suspension or termination of
the Company's strategic alliance with Cobe or the failure of the strategic
alliance to be successful may have a material adverse effect on the Company's
business, financial condition and results of operations.
Subject to the contractual requirements of the Cobe relationship, the Company
will seek to enter into other agreements relating to the development and
marketing of product candidates and in connection with such agreements may rely
upon corporate partners to conduct clinical trials, seek regulatory approvals
for, manufacture and market its potential products. There can be no assurance
that the Company will be able to establish collaborative relationships for the
development or marketing of the Company's product candidates on acceptable
terms, if at all, and if such relationships are established, that they will be
successful or sustained on a long-term basis. The inability of the Company to
establish such collaborative relationships may require the Company to curtail
its development or marketing activities with regard to its potential products
which would have a material adverse effect on the Company's business, financial
condition and results of operations.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
To date, Aastrom has funded its operations primarily through the sale of
equity securities and corporate collaborations. The Company anticipates that the
net proceeds from the sale of the Series I Shares, together with the Company's
available cash and expected interest income thereon, will be sufficient to
finance the development and manufacture of the AastromReplicell/(TM)/ System for
use in clinical trials, expanded clinical trials, other research and development
and working capital and other corporate requirements until mid 1999. This
estimate is based on certain assumptions which could be negatively impacted by
the matters discussed under this heading and elsewhere under the caption
"Business Risks." In order to grow and expand its business, and to introduce its
product candidates into the marketplace, the Company will need, among other
things, to raise additional funds. The development of the Company's products for
the expansion of additional cell types will require the Company to raise
additional funds or to seek collaborative partners, or both, to finance related
research and development activities.
The Company's future capital requirements will depend upon many factors,
including, but not limited to, continued scientific progress in its research and
development programs, costs and timing of conducting clinical trials and seeking
regulatory approvals and patent prosecutions, competing technological and market
developments, possible changes in existing collaborative relationships, the
ability of the Company to establish additional collaborative relationships, and
effective commercialization activities and facilities expansions if and as
required. Because of the Company's potential long-term funding requirements, it
may attempt to access the public or private equity markets if and whenever
conditions are favorable, even if it does not have an immediate need for
additional capital at that time. There can be no assurance that any such
additional funding will be available to the Company on reasonable terms, or at
all. If adequate funds are not available, the Company may be required to delay
or terminate research and development programs, curtail capital expenditures,
and reduce
26
business development and other operating activities. The Company intends to seek
additional collaborative partners to assist in the development of certain of its
products. If the Company is not successful in finding, entering into and
maintaining such arrangements, its development efforts could be delayed.
Furthermore, there can be no assurance that the Company will be able to
implement collaborative development agreements under acceptable terms, if at
all. Any of the foregoing capital constraints would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Managements' Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
UNCERTAINTY OF REGULATORY APPROVAL; EXTENSIVE GOVERNMENT REGULATION
The Company's research and development activities, preclinical studies,
clinical trials, and the anticipated manufacturing and marketing of its product
candidates are subject to extensive regulation by the FDA and other regulatory
authorities in the United States. These activities are also regulated in other
countries where the Company intends to test and market its product candidates.
The approval of the FDA will be required before any commercial sales of the
Company's product candidates may commence in the United States. Additionally,
the Company will be required to obtain approvals from foreign regulatory
authorities before international sales may commence.
The Company's products are potentially subject to regulation as medical
devices under the Federal Food, Drug and Cosmetic Act, or as biological products
under the Public Health Service Act, or both. Different regulatory requirements
may apply to the Company's products depending on how they are categorized by the
FDA under these laws. To date, the FDA has indicated that it intends to regulate
the AastromReplicell/(TM)/ System for stem cell therapy as a Class III medical
device through the Center for Biologics Evaluation and Research. However, there
can be no assurance that the FDA will ultimately regulate the
AastromReplicell/(TM)/ System for stem cell therapy as a medical device or that
regulatory approval for such product will be obtained in a timely fashion or at
all.
Further, it is unclear whether the FDA will separately regulate the cell
therapies derived from the AastromReplicell/(TM)/ System. The FDA is in the
process of developing its requirements with respect to somatic cell therapy and
gene cell therapy products, and recently proposed a new type of license for
autologous cells manipulated ex vivo and intended for structural repair or
reconstruction; autologous cells are cells obtained from, and administered to
the same patient. This proposal may indicate that the FDA will impose a similar
approval requirement on other types of autologous cellular therapies, such as
autologous cells for stem cell therapy. Any such additional regulatory or
approval requirement could significantly delay the introduction of the Company's
product candidates to the market, and have a material adverse effect on the
Company's business, financial condition and results of operations. Until the FDA
issues definitive regulations covering the Company's product candidates, the
regulatory guidelines or requirements for approval of such product candidates
will continue to be subject to significant uncertainty.
Before marketing, the AastromReplicell/(TM)/ System or other product
candidates developed by the Company must undergo an extensive regulatory
approval process. The regulatory process, which includes preclinical studies and
clinical trials to establish safety and efficacy, takes many years and requires
the expenditure of substantial resources. Data obtained from preclinical and
clinical activities are susceptible to varying interpretations which could
delay, limit or prevent FDA approval. In addition, delays or rejections may be
encountered based upon changes in FDA policy for medical product approvals
during the period of product development, changes in FDA classification of the
Company's products, and FDA regulatory review of applications submitted by the
Company for product approval. Similar delays may also be encountered in foreign
countries. There can be no assurance that, even after the expenditures of
substantial time and financial resources, regulatory approval will be obtained
for any products developed by the Company. Moreover, if regulatory approval of a
product is obtained, such approval may be subject to limitations on the
indicated uses for which it may be marketed. Further, even if such regulatory
approval is obtained, a marketed product, its manufacturer and its manufacturing
facilities are subject to continual review and periodic inspections by the FDA,
and later discovery of previously unknown problems with a product, manufacturer
or facility may result in restrictions on such product or manufacturer,
including a withdrawal of the product from the market. Failure to comply with
the applicable regulatory requirements can, among other things, result in fines,
suspensions of regulatory approvals, product recalls, operating restrictions and
criminal prosecution. Further, additional governmental regulation may be
established which could prevent or delay regulatory approval of the Company's
products.
27
The Company believes that the AastromReplicell/(TM)/ System's components will
be regulated in Europe as Class I Sterile, Class IIb and Class III medical
devices, under the authority of the new Medical Device Directives ("MDD") being
implemented by European Union ("EU") member countries. In order for the Company
to market its products in Europe, it must obtain a CE Mark from a Notified Body
to certify that the Company and its operations comply with certain minimum
quality standards and compliance procedures, or, alternatively, that its
manufactured products meet a more limited set of requirements. There can be no
assurance that the Company and its suppliers will be able to meet these minimum
requirements, or, if met, that the Company and its suppliers will be able to
maintain such compliance. The result of such non-compliance would have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance, however, that the
AastromReplicell/(TM)/ System will ultimately be regulated in Europe as
currently expected, and, if the AastromReplicell/(TM)/ System is not so
regulated, the Company could be forced to obtain additional regulatory approvals
and could be subject to additional regulatory requirements and uncertainty,
which would have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Government Regulations."
CONSEQUENCES OF COBE RELATIONSHIP
Cobe is the largest single shareholder of the Company, beneficially owning
approximately 20.2% of the outstanding Common Stock (prior to conversion of any
1998 Series Shares into Common Stock, but including the shares of Common Stock
issuable upon conversion of the outstanding 5 1/2% Convertible Preferred Stock
as of June 30, 1998). In addition, Cobe has certain preemptive rights to
maintain its relative percentage ownership and voting interest in the Company.
Cobe also has an option, until February 2000, to purchase from the Company an
amount of Common Stock equal to 30% of the Company's fully diluted shares after
the exercise of such option, at a purchase price equal to 120% of the public
market trading price of the Company's Common Stock. If such option is exercised,
Cobe would significantly increase its ownership interest in the Company and, as
a consequence of such share ownership, obtain effective control of the Company.
Such effective control would include the ability to influence the outcome of
shareholder votes, including votes concerning the election of directors, the
amendment of provisions of the Company's Restated Articles of Incorporation or
Bylaws, and the approval of mergers and other significant transactions. Cobe
also has been granted a "right of first negotiation" in the event that the
Company determines to sell all, or any material portion, of its assets to
another company or to merge with another company. Edward C. Wood, Jr., the
President of Cobe BCT, is a director of the Company. Furthermore, the Company
has agreed to use reasonable and good faith efforts to cause a nominee
designated by Cobe to be elected to the Board of Directors for as long as Cobe
owns at least 15% of the outstanding Common Stock. The existence of the
foregoing rights or the exercise of such control by Cobe could have the effect
of delaying, deterring or preventing certain takeovers or changes in control of
the management of the Company, including transactions in which shareholders
might otherwise receive a premium for their shares over then current market
prices.
COMPETITION AND TECHNOLOGICAL CHANGE
The Company is engaged in the development of medical products and processes
which will face competition in a marketplace characterized by rapid
technological change. Many of the Company's competitors have significantly
greater resources than the Company, and have developed and may develop product
candidates and processes that directly compete with the Company's products.
Moreover, competitors that are able to achieve patent protection, obtain
regulatory approvals and commence commercial sales of their products before the
Company, and competitors that have already done so, may enjoy a significant
competitive advantage. The Company's product development efforts are primarily
directed toward obtaining regulatory approval to market the
AastromReplicell/(TM)/ System for stem cell therapy. That market is currently
dominated by the bone marrow harvest and PBSC collection methods. The Company's
clinical data, although early, suggests that cells expanded in the
AastromReplicell/(TM)/ System using its current process will enable
hematopoietic recovery within the time frames currently achieved by bone marrow
harvest, however, neutrophil and platelet recovery times may be slower than with
PBSC collection methods. The Company is evaluating techniques and methods to
optimize the cells produced in the AastromReplicell/(TM)/ System to reduce the
recovery time of neutrophils and platelets in patients. There can be no
assurance that if such procedure optimization does not lead to recovery times
equal to or faster than those of PBSC collection methods, such outcome would not
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the bone marrow harvest and PBSC
collection methods have been widely practiced for a number of years and,
recently, the patient costs associated with these procedures have begun to
decline. There can be no assurance that the AastromReplicell/(TM)/ System
method, if approved for marketing, will prove to be competitive with these
established
28
collection methods on the basis of hematopoietic recovery time, cost or
otherwise. The Company also is aware of certain other products manufactured or
under development by competitors that are used for the prevention or treatment
of certain diseases and health conditions which the Company has targeted for
product development. In particular, the Company is aware that competitors such
as Amgen, Inc., CellPro, Incorporated, Novartis, A.G., VimRx Pharmaceuticals,
Inc. and Rhone-Poulenc Rorer Inc. ("RPR") are in advanced stages of development
of technologies and products for use in stem cell therapy and other market
applications currently being pursued by the Company. In addition, Cobe, a
significant shareholder of the Company, is a market leader in the blood cell
processing products industry and, accordingly, a potential competitor of the
Company. There can be no assurance that developments by others will not render
the Company's product candidates or technologies obsolete or noncompetitive,
that the Company will be able to keep pace with new technological developments
or that the Company's product candidates will be able to supplant established
products and methodologies in the therapeutic areas that are targeted by the
Company. The foregoing factors could have a material adverse effect on the
Company's business, financial condition and results of operations.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
Aastrom's success depends in part on its ability, and the ability of its
licensors, to obtain patent protection for its products and processes, preserve
its trade secrets, defend and enforce its rights against infringement and
operate without infringing the proprietary rights of third parties, both in the
United States and in other countries. The validity and breadth of claims in
medical technology patents involve complex legal and factual questions and,
therefore, may be highly uncertain. No assurance can be given that any patents
based on pending patent applications or any future patent applications of the
Company or its licensors will be issued, that the scope of any patent protection
will exclude competitors or provide competitive advantages to the Company, that
any of the patents that have been or may be issued to the Company or its
licensors will be held valid if subsequently challenged or that others will not
claim rights in or ownership of the patents and other proprietary rights held or
licensed by the Company. Furthermore, there can be no assurance that others
have not developed or will not develop similar products, duplicate any of the
Company's products or design around any patents that have been or may be issued
to the Company or its licensors. Since patent applications in the United States
are maintained in secrecy until patents issue, the Company also cannot be
certain that others did not first file applications for inventions covered by
the Company's and its licensors' pending patent applications, nor can the
Company be certain that it will not infringe any patents that may issue to
others on such applications. The Company relies on certain licenses granted by
the University of Michigan for certain of its patent rights. If the Company
breaches such agreements or otherwise fails to comply with such agreements, or
if such agreements expire or are otherwise terminated, the Company may lose its
rights under the patents held by the University of Michigan, which would have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company also relies on trade secrets and
unpatentable know-how which it seeks to protect, in part, by confidentiality
agreements with its employees, consultants, suppliers and licensees. There can
be no assurance that these agreements will not be breached, that the Company
would have adequate remedies for any breach, or that the Company's trade secrets
or unpatentable know-how will not otherwise become known or be independently
developed by competitors.
The Company's success will also depend in part on its ability to develop
commercially viable products without infringing the proprietary rights of
others. The Company has not conducted freedom of use patent searches and no
assurance can be given that patents do not exist or could not be filed which
would have an adverse effect on the Company's ability to market its products or
maintain its competitive position with respect to its products. If the Company's
technology components, devices, designs, products, processes or other subject
matter are claimed under the existing United States or foreign patents or are
otherwise protected by third party proprietary rights, the Company may be
subject to infringement actions. In such event, the Company may challenge the
validity of such patents or other proprietary rights or be required to obtain
licenses from such companies in order to develop, manufacture or market its
products. There can be no assurance that the Company would be able to obtain
such licenses or that such licenses, if available, could be obtained on
commercially reasonable terms. Furthermore, the failure to either develop a
commercially viable alternative or obtain such licenses could result in delays
in marketing the Company's proposed products or the inability to proceed with
the development, manufacture or sale of products requiring such licenses, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. If the Company is required to defend itself
against charges of patent infringement or to protect its own proprietary rights
against third parties, substantial costs will be incurred regardless of whether
the Company is successful. Such proceedings are typically protracted with no
certainty of success. An adverse outcome could subject the Company to
significant liabilities to third parties, and force the Company to curtail or
cease its development and sale of its products and processes. See "Business--
Patents and Proprietary Rights."
29
NO ASSURANCE OF THIRD PARTY REIMBURSEMENT
The Company's ability to successfully commercialize its product candidates
will depend in part on the extent to which payment for the Company's products
and related treatments will be available from government healthcare programs,
such as Medicare and Medicaid, as well as private health insurers, health
maintenance organizations and other third party payors. Government and other
third-party payors are increasingly attempting to contain health care costs, in
part by challenging the price of medical products and services. Reimbursement
by third-party payors depends on a number of factors, including the payor's
determination that use of the product is safe and effective, not experimental or
investigational, medically necessary, appropriate for the specific patient and
cost-effective. Since reimbursement approval is required from each payor
individually, seeking such approvals is a time-consuming and costly process
which will require the Company to provide scientific and clinical support of the
use of each of the Company's products to each payor separately. Significant
uncertainty exists as to the payments status of newly approved medical products,
and there can be no assurance that adequate third-party payments will be
available to enable the Company to establish or maintain price levels sufficient
to realize an appropriate return on its investment in product development. If
adequate payment levels are not provided by government and third-party payors
for use of the Company's products, the market acceptance of those products will
be adversely affected.
There can be no assurance that reimbursement in the United States or foreign
countries will be available for any of the Company's product candidates, that
any reimbursement granted will be maintained, or that limits on reimbursement
available form third-party payors will not reduce the demand for, or negatively
affect the price of, the Company's products. The unavailability or inadequacy
of third-party reimbursement for the Company's product candidates would have a
material adverse effect on the Company. Finally, the Company is unable to
forecast what additional legislation or regulation relating to the healthcare
industry or third-party coverage and reimbursement may be enacted in the future,
or what effect such legislation or regulation would have on the Company's
business.
HAZARDOUS MATERIALS
The Company's research and development activities involve the controlled use
of hazardous materials, chemicals and various radioactive compounds. The
Company is subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of such materials and
certain waste products. In the event of any contamination or injury from these
materials, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company. Furthermore, the
failure to comply with current or future regulations could result in the
imposition of substantial fines against the Company, suspension of production,
alteration of its manufacturing processes or cessation of operations. There can
be no assurance that the Company will not be required to incur significant costs
to comply with any such laws and regulations in the future, or that such laws or
regulations will not have a material adverse effect on the Company's business,
financial condition and results of operations. Any failure by the Company to
control the use, disposal, removal or storage of, or to adequately restrict the
discharge of, or assist in the cleanup of, hazardous chemicals or hazardous,
infectious or toxic substances could subject the Company to significant
liabilities, including joint and several liability under certain statutes. The
imposition of such liabilities would have a material adverse effect on the
Company's business, financial condition and results of operations.
PRODUCT LIABILITY AND LIMITED INSURANCE
The Company faces an inherent business risk of exposure to product liability
claims in the event that the use of the AastromReplicell/(TM)/ System during
research and development efforts, including clinical trials, or after
commercialization results in adverse effects. As a result, the Company may incur
significant product liability exposure. There can be no assurance that existing
insurance coverage will be adequate or that adequate insurance coverage for
future clinical trials or commercial activities will be available at an
acceptable cost, if at all, or that a product liability claim would not
materially adversely affect the business, financial condition or results of
operations of the Company.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends in large part upon the Company's ability to
attract and retain highly qualified scientific and management personnel. The
Company faces competition for such personnel from other companies, research and
academic institutions and other entities. There can be no assurance that the
Company will be successful in hiring or retaining key personnel. See "Business--
Employees--Executive Officers of the Company."
30
SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL FOR DILUTION
On July 2, 1998 the Company sold 5,000 shares of its newly created 1998
Series I Convertible Stock (the "Series I Stock") to one investor for an
aggregate purchase price of $5 million. The shares of Series I Stock are
convertible, at the option of the holder, into shares of the Company's Common
Stock at the lower of (i) $4.81, or (ii) a price based on the market price of
the Company's Common Stock prior to conversion. With limited exceptions, the
shares of Series I Stock are not convertible into Common Stock until March 30,
1999 and, subject to extension under certain circumstances, will automatically
convert into Common Stock on July 2, 2001, unless converted sooner. In general,
the Company may require the holders to convert the Series I Stock if the average
closing bid price of the Company's Common Stock exceeds $9.62 for specified
periods after July 2, 1999.
Future sales of shares by existing stockholders and sales of substantial
amounts of Common Stock in the public market following the conversion of the
1998 Series Shares could adversely affect the market price of the Company's
Common Stock and the Company's ability to raise capital. Substantially all of
the outstanding shares of Common Stock and the shares issuable upon the
conversion of the various series of preferred stock of the Company are freely
tradeable, subject to restrictions imposed by Rule 144 under the Securities Act
of 1933, as amended, with respect to sales by affiliates.
As of September 21, 1998, 5,000 of the Series I Shares were issued and
outstanding, and none of the Series II Shares were outstanding, though the
Selling Shareholder is obligated under the Purchase Agreement to purchase 3,000
Series II Shares upon satisfaction of certain conditions. The 1998 Series
Shares are each convertible into such number of shares of Common Stock as is
determined by dividing the stated value ($1,000) of each 1998 Series Share (as
such value is increased by a premium based on the number of days the 1998 Series
Shares are held) by the then current conversion price (which is determined by
reference to the then current market price). If circumstances were such that
the Selling Shareholder was able to and did convert all of its Series I Shares
as of September 21, 1998, the Selling Shareholder would have received 2,077,456
shares of Common Stock, but this number of shares could prove to be
significantly greater in the event of a decrease in the trading price of the
Common Stock. Purchasers of Common Stock could therefore experience substantial
dilution of their investment upon conversion of the 1998 Series Shares.
Similarly, issuance and sale of the shares of Common Stock upon conversion of
the Series II Shares could result in substantial dilution of existing
shareholders and could adversely affect the market price for the Common Stock.
The 1998 Series Shares are not registered and may be sold only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. The shares of Common Stock into which the 1998
Series Shares may be converted are being registered pursuant to a registration
statement.
CONTROL BY EXISTING MANAGEMENT AND SHAREHOLDERS
As of August 31, 1998, the Company's directors, executive officers, and
certain principal shareholders, including Cobe, affiliated with members of the
Board of Directors and their affiliates beneficially own approximately 29% of
the outstanding shares of Common Stock (prior to conversion of any 1998 Series
Shares into Common Stock, but including the shares of Common Stock issuable upon
conversion of the outstanding 5 1/2% Convertible Preferred Stock). Accordingly,
such shareholders, acting together, may have the ability to exert significant
influence over the election of the Company's Board of Directors and other
matters submitted to the Company's shareholders for approval. The voting power
of these holders may discourage or prevent certain takeovers or changes in
control of the management of the Company unless the terms are approved by such
holders. See "Principal Shareholders."
POSSIBLE STOCK PRICE AND VOLUME VOLATILITY
The trading price and volume of the Company's Common Stock has experienced
significant volatility. The trading price and volume of the Common Stock and the
price at which the Company may sell securities in the future could be subject to
wide fluctuations in response to announcements of clinical results, research
activities, technological innovations or new products by the Company or
competitors, changes in government regulation, developments concerning
proprietary rights, variations in the Company's operating results, announcements
by the Company of regulatory developments, litigation, disputes concerning
patents or proprietary rights or public concern regarding the safety, efficacy
or other implications of the products or methodologies to be developed by the
Company or its collaborators or enabled by the Company's technology, general
market conditions, the liquidity of the Company or its ability to raise
additional funds, and other factors or events. In
31
addition, the stock market has experienced extreme fluctuations in price and
volume. This volatility has significantly affected the market prices for
securities of emerging technology companies for reasons frequently unrelated to
or disproportionate to the operating performance of the specific companies.
These market fluctuations, as well as shortfalls in revenue or earnings as
compared with public market analysts' expectations, changes in such analysts'
recommendations or projections and fluctuations in the stock markets generally,
as well as sales or offers of the large amounts of Shares, may adversely affect
the market price of the Common Stock. In addition, since the Company's initial
public offering in February 1997, the average daily trading volume of the Common
Stock on the Nasdaq National Market has generally been relatively low. There can
be no assurance that a more active trading market will develop in the future.
ANTI-TAKEOVER EFFECT OF CHARTER AND BYLAW PROVISIONS AND MICHIGAN LAW
The Company's Restated Articles of Incorporation authorize the Board of
Directors to issue, without shareholder approval, an additional 2,792,000 shares
of preferred stock with voting, conversion, and other rights and preferences
that could materially and adversely affect the voting power or other rights of
the holders of Common Stock. The issuance of preferred stock or of rights to
purchase preferred stock could be used to discourage an unsolicited acquisition
proposal. The Company's Bylaws contain procedural restrictions on director
nominations by shareholders and the submission of other procedures required for
director nominations and shareholder proposals could discourage a proxy contest,
make more difficult the acquisition of a substantial block of Common Stock, or
limit the price that investors might be willing to pay in the future for shares
of Common Stock. The Company's Restated Articles of Incorporation eliminate the
right of shareholders to act without a meeting, do not provide for cumulative
voting in the election of directors and provide that the holders of at least
two-thirds of the outstanding shares of Common Stock must approve certain
transactions resulting in a change of control of the Company. In addition,
certain provisions of Michigan laws applicable to the Company, including, but
not limited to, provisions requiring class or series votes in certain
circumstances with respect to proposed business combinations, could also delay
or make more difficult a merger, tender offer or proxy contest involving the
Company.
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. The Company's 5 1/2% Convertible Preferred Stock accrues a dividend at
5 1/2% per annum, payable, at the Company's option, in cash or through the
issuance of shares of Common Stock of the Company. As of June 30, 1998, 72,940
shares have been issued as payment of this dividend.
FORWARD-LOOKING STATEMENTS
This Report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act,
including, but not limited to, statements regarding: uncertainties related to
product development and marketability; uncertainties related to clinical trials;
manufacturing and supply uncertainties and dependence on third parties; history
of operating losses and anticipation of future losses; limited sales and
marketing capabilities and dependence on collaborative relationships; future
capital needs and uncertainty of additional funding; uncertainty of regulatory
approval and extensive government regulation; consequences of Cobe relationship;
competition and technological change; uncertainty regarding patents and
proprietary rights; no assurance of third party reimbursement; hazardous
materials; and potential product liability and availability of insurance. These
statements are subject to risks and uncertainties, including those set forth
under this caption, and actual results could differ materially from those
expressed or implied in these statements. All forward-looking statements
included in this Report are made as of the date hereof, and the Company assumes
no obligation to update any such forward-looking statement or reason why actual
results might differ.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information relating to Company's financial statements as of June 30,
1996, 1997, and 1998 for each of the three years in the period ended June 30,
1998 and for the period from Inception to June 30, 1998 and the report of
independent accountants are incorporated by reference to the Company's Annual
Report to Shareholders as set forth under the caption "Financial Statements and
Supplementary Data."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information relating to the Company's accountants is incorporated by
reference to the Company's Annual Report to Shareholders as set forth under the
caption "Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure."
PART III
Certain information required by Part III is omitted from this Report, and
is incorporated by reference to the Company's definitive Proxy Statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A in
connection with its Annual Meeting of Shareholders to be held on November 11,
1998.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to the directors of the Company is incorporated by
reference to the Proxy Statement as set forth under the caption "General
Information--Board of Directors." Information relating to the executive officers
of the Company is set forth in Part I of this Report under the caption
"Executive Officers of the Company."
Information with respect to delinquent filings pursuant to Item 405 of
Regulation S-K is incorporated by reference to the Proxy Statement as set forth
under the caption "Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
The information relating to executive compensation is incorporated by
reference to the Proxy Statement under the caption "Executive Compensation and
Other Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information relating to ownership of equity securities of the Company
by certain beneficial owners and management is incorporated by reference to the
Proxy Statement as set forth under the caption "General Information--Stock
Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions
is incorporated by reference to the Proxy Statement under the captions "Certain
Transactions" and "Compensation Committee Interlocks and Insider Participation."
33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
1. FINANCIAL STATEMENTS.
The information relating to the Company's financial
statements is incorporated by reference to the Company's
Annual Report to Shareholders under the caption "Financial
Statements."
2. FINANCIAL STATEMENT SCHEDULE:
All schedules are omitted because they are not applicable or
not required, or because the required information is
included in the Financial Statements or Notes thereto.
3. EXHIBITS:
See Exhibit Index.
(b) REPORTS ON FORM 8-K:
On July 15, 1998, the Company filed with the Securities and
Exchange Commission a Current Report on Form 8-K, dated July 15,
1998, which contains disclosure under Item 5.
34
REPORT OF INDEPENDENT ACCOUNTANTS
35
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.
Date: September 28, 1998 AASTROM BIOSCIENCES, INC.
By: /s/ R. Douglas Armstrong
-----------------------------------------
R. Douglas Armstrong, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on September 28, 1998 by the following persons in
the capacities indicated.
Signature Title
--------- -----
/s/ R. Douglas Armstrong President, Chief Executive Officer and Director
- ------------------------------- (Principal Executive Officer)
R. Douglas Armstrong, Ph.D.
/s/ Todd E. Simpson Vice President, Finance & Administration, Chief
- ------------------------------- Financial Officer, Secretary and Treasurer
Todd E. Simpson (Principal Financial and Accounting Officer)
/s/ Robert J. Kunze Chairman of the Board and Director
- -------------------------------
Robert J. Kunze
/s/ Stephen G. Emerson Director
- -------------------------------
Stephen G. Emerson, M.D., Ph.D.
/s/ Mary L. Campbell Director
- -------------------------------
Mary L. Campbell
/s/ Horst R. Witzel, Dr.-Ing Director
- -------------------------------
Horst R. Witzel, Dr.-Ing.
/s/ Edward C. Wood, Jr. Director
- -------------------------------
Edward C. Wood, Jr.
36
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
3.1* Restated Articles of Incorporation of the Company.
3.2** Bylaws, as amended.
4.1** Specimen Common Stock Certificate.
4.2** Amended and Restated Investors' Rights Agreement, dated April 7, 1992.
10.1**# Form of Indemnification Agreement.
10.2**# Amended and Restated 1992 Incentive and Non-Qualified Stock Option
Plan and forms of agreements thereunder.
10.3**# 1996 Outside Directors Stock Option Plan and forms of agreements
thereunder.
10.4**# 1996 Employee Stock Purchase Plan and form of agreement thereunder.
10.5** Stock Purchase Agreement, dated October 22, 1993, between Cobe
Laboratories, Inc. and the Company and amendment thereto dated October
29, 1996.
10.6**+ Distribution Agreement, dated October 22, 1993, between Cobe BCT, Inc.
and the Company and amendments thereto dated March 29, 1995, September
11, 1995 and October 29, 1996.
10.7** Lease Agreement, dated May 18, 1992, between Domino's Farms Holdings,
L.P. and the Company and amendments thereto dated February 26, 1993,
October 3, 1994, November 16, 1994 and July 29, 1996.
10.8**# Promissory Note, dated November 18, 1993, for $120,000 loan by the
Company to R. Douglas Armstrong, Ph.D. and amendment thereto dated
October 30, 1996.
10.9**# Promissory Note, dated October 20, 1993, for $47,303 loan by the
Company to Stephen G. Emerson, M.D., Ph.D. and amendment thereto dated
October 30, 1996.
10.11** Stock Purchase Commitment Agreement, dated October 15, 1996, between
the State Treasurer of the State of Michigan and the Company.
10.12** Convertible Loan Commitment Agreement, dated October 15, 1996, between
the State Treasurer of the State of Michigan and the Company.
10.13** Letter Agreement, dated November 11, 1996, between the Company and
Cobe Laboratories, Inc.
10.16** Collaborative Supply Agreement, dated December 16, 1996, between the
Company and Anchor Advanced Products, Inc. Mid-State Plastics
Division.
10.19**# 401(k) Plan.
10.20**# Form of Employment Agreement.
10.21** License Agreement, dated July 17, 1992, between J.G. Cremonese and
the Company and related addenda thereto dated July 14, 1992 and July
7, 1993.
10.22**+ Collaborative Product Development Agreement, dated May 10, 1994,
between SeaMED Corporation and the Company.
10.23**+ Collaborative Product Development Agreement, dated November 8, 1994,
between Ethox Corporation and the Company.
37
10.24**+ License and Supply Agreement, dated April 1, 1996, between Immunex
Corporation and the Company.
10.26** License Agreement, dated March 13, 1992, between the Company and the
University of Michigan and amendments thereto dated March 13, 1992,
October 8, 1993 and June 21, 1995.
10.27**# Employee Proprietary Information and Invention Agreement, effective
June 1, 1991, between the Company and R. Douglas Armstrong, Ph.D.
10.29**# Employment Agreement, dated December 8, 1995, between the Company and
Todd E. Simpson.
10.32**# Employment Agreement, dated October 26, 1995, between the Company and
Alan K. Smith, Ph.D.
10.38****# Second Amendment to Promissory Note payable to the Company by Stephen
G. Emerson, M.D., Ph.D., dated June 30, 1997.
10.39****# Second Amendment to Promissory Note payable to the Company by R.
Douglas Armstrong, Ph.D., dated June 30, 1997.
10.40**** Amendment to License and Supply Agreement, dated August 25, 1997,
between Immunex Corporation and the Company.
10.41+ Manufacturing Supply Agreement, dated as of August 14, 1998,, by and
between the Company and SeaMED Corporation.
10.42#% Employment Agreement, dated August 10, 1998, by and between the
Company and Bruce Husel.
10.42# Employment Agreement, dated August 10, 1998, by and between the
Company and William Odell.
10.43% Strategic Planning Consulting Services and Collaboration Agreement,
dated October 7, 1997, between Burrill & Company, LLC and the
Company.
11.1 Statement regarding computation of net loss per share.
13.1 Annual Report to Shareholders.
23.1 Consent of PricewaterhouseCoopers LLP.
27.1 Financial Data Schedule.
_______________
* Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1996, as filed on March 7, 1997.
** Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 333-15415), declared effective on February 3, 1997.
*** Incorporated by reference to the Company's Current Report on Form 8-K, as
filed on July 16, 1997.
**** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1997, as filed on September 25, 1997.
% Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 333-37439), as filed on October 8, 1997.
+ Confidential treatment has been requested as to a portion of this exhibit.
# Management contract or compensatory plan or arrangement covering executive
officers or directors of the Company.
38