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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
Commission File No. 0-20139
Diacrin, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-3016912
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Building 96 13th Street, Charlestown Navy
Yard, Charlestown, MA 02129
(Address of principal executive offices,
including zip code)
(617) 242-9100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class
Common Stock, $.01 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 voting stock held by
non-affiliates of the registrant (based on the closing price of the Common Stock
on March 15, 2002) was $22,056,383.
As of March 15, 2002, 17,937,204 shares of the registrant's Common
Stock were outstanding.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995
concerning our business, operations and financial condition, including
statements with respect to planned timetables for the initiation and completion
of various clinical trials, development funding expected to be received in
connection with our joint venture and the expected sources of porcine cells used
in our products. All statements, other than statements of historical facts
included in this Annual Report on Form 10-K regarding our strategy, future
operations, timetables for product testing, financial position, costs,
prospects, plans and objectives of management are forward-looking statements.
When used in this Annual Report on Form 10-K, the words "expect," "anticipate,"
"intend," "plan," "believe," "seek," "estimate" and similar expressions are
intended to identify forward looking statements, although not all
forward-looking statements contain these identifying words. Because these
forward-looking statements involve risks and uncertainties, actual results could
differ materially from those expressed or implied by these forward-looking
statements for a number of important reasons, including those discussed under
"Certain Factors That May Affect Future Results," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
Annual Report on Form 10-K.
You should read these statements carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results or our future financial condition, or state other
"forward-looking" information. You should be aware that the occurrence of any of
the events described in these risk factors and elsewhere in this Annual Report
on Form 10-K could substantially harm our business, results of operations and
financial condition and that upon the occurrence of any of these events, the
trading price of our common stock could decline.
We cannot guarantee any future results, levels of activity, performance or
achievements. The forward-looking statements contained in this Annual Report on
Form 10-K represent our expectations as of the date this Annual Report on Form
10-K was first filed with the Securities and Exchange Commission and should not
be relied upon as representing our expectation as of any other date. Subsequent
events and developments will cause our expectations to change. However, while we
may elect to update these forward-looking statements, we specifically disclaim
any obligation to do so even if our expectations change.
PART I
Item 1. Business
Overview
We are developing cell transplantation technology for treating human
diseases that are characterized by cell dysfunction or cell death and for which
current therapies are either inadequate or nonexistent. Our products under
development include:
- - Porcine spinal cord cells for spinal cord injury
- - Porcine neural cells for stroke
- - Porcine neural cells for focal epilepsy
- - Porcine neural cells for chronic intractable pain
- - NeuroCell-PD for Parkinson's disease
- - Human liver cells for cirrhosis
- - Porcine liver cells for acute liver failure
- - Human muscle cells for cardiac disease
Although scientists have demonstrated the feasibility of cell
transplantation, an inadequate supply of human donor cells has hampered
widespread use of cell transplantation in clinical applications. To overcome
this constraint, we have pioneered the use of porcine (pig) cells for clinical
transplantation. Because porcine cells are functionally similar to human cells,
we believe that pigs will be a reliable source of a wide range of cell types
suitable for transplantation into humans. We have shown in preclinical studies
and clinical trials that transplanted porcine cells appear capable of
integrating into the surrounding tissue and addressing the functional deficits
caused by cell damage or cell death.
After receiving clearance from the United States Food and Drug
Administration, commonly referred to as the FDA, to conduct the first ever
clinical trial of transplanted porcine neural cells in humans, we completed a
three-year, twelve-patient, Phase 1 clinical trial to evaluate NeuroCell-PD for
the treatment of Parkinson's disease in 1999. Based on encouraging results from
this Phase 1 clinical trial, we initiated an 18-patient, pivotal, randomized,
double-blinded, placebo-controlled Phase 2 clinical trial of NeuroCell-PD in
1998. In March 2001, the trial was unblinded and we announced a preliminary
analysis of the results. We did not see a statistically significant difference
between the treated patients and the patients in the control group and,
therefore, did not meet the primary endpoint in the trial. Development of
NeuroCell-PD is currently suspended while we gather and evaluate additional
data.
We are currently evaluating six other product candidates in Phase 1
clinical trials. These include porcine spinal cord cells for spinal cord injury,
fetal porcine neural cells for stroke recovery, fetal porcine neural cells for
the treatment of focal epilepsy, human liver cells for cirrhosis, porcine liver
cells for acute liver failure, and human muscle cells for cardiac disease. We
have also received FDA clearance to initiate a Phase 1 clinical trial to
evaluate fetal porcine neural cells for chronic intractable pain.
We are also developing a proprietary technology designed to modulate the
human immune system in order to prevent rejection of transplanted cells without
the use of immunosuppressive drugs. This technology, which we refer to as our
immunomodulation technology, involves the selective treatment of cell
populations prior to transplantation to prevent the patient's immune system from
rejecting the transplanted cells. Our approach would eliminate the need for
long-term immunosuppressive drugs, which may leave the patient vulnerable to a
wide range of undesirable side effects, including increasing the patient's
susceptibility to infections and cancer. We have shown in preclinical and
clinical studies the ability of our immunomodulation technology to prevent
rejection of transplanted porcine cells without compromising the immune system
or causing undesirable side effects. We published scientific evidence in The
Journal of Immunology in June 1999 that describes how this technology might work
to allow survival of transplanted cells.
We were incorporated in October 1989. Our principal executive offices are
located at Building 96, 13th Street, Charlestown Navy Yard, Charlestown, MA
02129, and our telephone number at that location is (617) 242-9100.
Diacrin is our trademark. All other trademarks and service marks used in
this Annual Report are the property of their respective owners.
Diacrin's Transplantation Technology
We have pioneered the use of fetal porcine cells for clinical
transplantation for the treatment of human disease. In March 1995, we received
the first FDA clearance to transplant porcine cells into humans. We have
developed critical technology relating to the production process for obtaining
and screening porcine cells. We are also developing technology to modulate the
human immune system to enable porcine cell transplantation into the body without
the use of immunosuppressive drugs.
Each step of our production process has been designed based on FDA
guidelines and is controlled in order to obtain cells suitable for human
transplantation. We have developed procedures to screen pigs for infectious
agents and then quarantine qualified donor pigs at our biomedical animal
facilities. We harvest cells of appropriate age and type under current good
manufacturing procedures, commonly referred to as cGMP, at our facility in
Charlestown, Massachusetts.
We perform our screening procedures in accordance with FDA guidelines
covering xenotransplantation. These guidelines have been designed to prevent
contamination of transplanted cellular products with infectious agents that have
the potential to affect human cells. The FDA requires all sponsors of human
clinical trials involving porcine tissue, including us, to test for the presence
of porcine endogenous retroviruses, commonly known as PERV, in patient blood
samples. To date, none of our patients have shown any sign of PERV.
Current transplantation technology generally requires that the patient's
immune system be suppressed in order to avoid rejection of transplanted cells. T
cells, the main cells involved in directing the body's immune response,
recognize and bind to cell surface proteins known as MHC class I proteins. When
T cells recognize foreign MHC class I proteins, a cascade of events is triggered
which ultimately results in destruction of the transplanted cells that display
these foreign proteins. Cyclosporine, a standard immunosuppressive drug,
prevents this rejection process. Using cyclosporine, we have demonstrated
survival of transplanted porcine cells in a variety of preclinical animal models
and have histologically documented survival of transplanted porcine fetal neural
cells in a deceased patient who had received NeuroCell-PD.
We are also developing proprietary technology to modulate the immune system
to avoid rejection of transplanted cells. We treat isolated cell populations
prior to transplantation with antibody fragments directed against MHC class I
proteins. This technology is designed to eliminate the need for long-term
immunosuppressive drugs. To date the use of our immunomodulation technology in
clinical trials has not resulted in any undesirable side effects. Our scientists
and academic collaborators have performed preclinical studies which show that
cells that have been pretreated using our immunomodulation technology prior to
transplantation survived in several animal models without immunosuppression. The
long-term survival of the transplanted cells seen in these studies suggests that
the recipient's immune system has "learned" to accept the transplant. Thus, we
believe that treatment of cells with antibody fragments prior to transplantation
will induce a state of graft-specific immunological tolerance, which would allow
continued survival of the transplanted cells.
In connection with Phase 1 clinical trials, six Parkinson's disease
patients, six Huntington's disease patients, three focal epilepsy patients, five
stroke patients and five spinal cord injury patients have been transplanted with
antibody-pretreated porcine neural cells, using no immunosuppressive drugs.
Preliminary indications from the Phase 1 NeuroCell-PD clinical trial suggest
that the improvement in Parkinson's disease symptoms that has occurred in
patients transplanted with antibody-treated NeuroCell-PD is comparable to the
improvement shown in patients transplanted with NeuroCell-PD with
immunosuppressive drugs.
Product Development Programs
We are developing products to address human diseases characterized by cell
dysfunction or cell death which represent a broad-based application of our
technologies for cell production and transplantation. Our research and
development expenses were $6.4 million, $6.0 million and $5.9 million for the
years ended December 31, 2001, 2000 and 1999, respectively. The following table
summarizes our product development programs in cell transplantation and each
product's stage of development:
Diacrin Product Development Programs
U.S. Targeted Patient
Product Candidate Disease Indication Population Status
Porcine spinal cord cells Spinal cord injury 200,000 Phase 1
Porcine neural cells Stroke 3,100,000 Phase 1
Porcine neural cells Focal epilepsy 200,000 Phase 1
Porcine neural cells Chronic intractable pain 2,100,000 IND cleared
NeuroCell-PD Parkinson's disease 130,000 Phase 2
(development
suspended)
Human liver cells Cirrhosis 1,100,000 Phase 1
Porcine liver cells Acute liver failure 45,000 Phase 1
Human muscle cells Cardiac disease 200,000 Phase 1
Porcine Spinal Cord Cells for Spinal Cord Injury
The prevalence of spinal cord injury, commonly known as SCI, in the United
States is approximately 200,000, with 13,000 additional SCIs annually. Nearly
80% of the injured patients are males in their late 20s to early 30s. Greater
than 95% of these SCIs are compression injuries, the remainder are cases in
which the cord is severed. The spinal cord in the neck is vulnerable to injury
because of its extreme mobility, and approximately 80% of SCIs occur in this
region. Loss of sensorimotor neuron function due to injury requires lengthy
hospitalization after the initial incident as well as extensive rehabilitative
care. Furthermore, all victims of SCI face a lifelong series of acute and
chronic non-neurological complications that can be life-threatening.
The primary objective of current therapies available for SCIs is to prevent
further injury by physically stabilizing the spine and by inhibiting the
inflammatory response that results from the injury. These strategies attempt to
establish optimal conditions for functional recovery and improve patients'
rehabilitative potential. Surgery is designed to protect the patient from
further injury through immobilization, spinal cord realignment and
stabilization, and decompression. To date, there is no drug therapy available
for SCIs except palliative therapies using the corticosteroid,
methylprednisolone, to reduce inflammation of the injured area, and standard
medical practice for complications arising from chronic denervation.
We believe that the transplantation of porcine fetal spinal cord cells into
the site of injury of a damaged human spinal cord may partially reestablish
neural pathways. The transplantation of these cells into a recently injured cord
may prevent secondary neural and muscular atrophy known to occur in these
patients. Partial or full recovery of limb movement, and other motor neural
pathways may reduce the overall time spent in the hospital, decrease the
secondary equipment required for care, and reduce severe and life threatening
complications arising from the injury.
We have initiated a six-patient, Phase 1 clinical trial at Albany Medical
Center in Albany, New York and at Washington University Medical Center in St.
Louis. As of March 15, 2002, we had treated five patients in this trial. We hope
to determine from this trial whether porcine fetal spinal cord cells
transplanted into the damaged spinal cord region will engraft and repair the
damage, leading to improved mobility and function.
Porcine Neural Cells for Stroke
Stroke is the third leading cause of death in the United States, ranking
behind coronary artery disease and cancer. It is also the leading cause of
long-term disability in the United States. Approximately 600,000 people suffer a
stroke each year and there are 4.4 million people that have been disabled by
stroke in the United States. A stroke occurs when the blood supply to a part of
the brain is suddenly interrupted. When blood flow to the brain is interrupted,
some brain cells die immediately, while others will die days or weeks after the
stroke. The death of these brain cells creates a void which becomes a fluid
filled cavity in the brain.
Current therapies for stroke target the early events that occur at the time
of the stroke. Timely intervention with surgery or with non-invasive therapies
that restore blood flow can limit the cell death that occurs. Therapies include
surgical intervention to remove a clearly defined clot or anticoagulant therapy
to "break up" the clot formation. All current therapies are most effective when
administered as quickly as possible after the stroke, and there is a time
post-stroke (12-24 hours) after which therapeutic intervention is useless in
limiting brain cell death.
Our approach of using porcine fetal neural cell transplantation is based on
the premise that many patients who have survived but not fully recovered from a
stroke may benefit from the introduction of cells that may repair or replace the
damaged neural circuitry. We and others have demonstrated in numerous animal
studies the feasibility of repairing and restoring function to a stroke-damaged
brain. In an animal model of stroke, we have shown that transplanted porcine
fetal neural cells survive at high frequency. These cells not only survived in
the brain cavity, but formed solid grafts that integrated appropriately with the
normal brain tissue surrounding the cavity. We have observed extensive neural
outgrowth from the graft to the surrounding brain and behavioral improvements in
a rat model of stroke after transplantation of porcine fetal neural cells. The
transplanted cells have the capacity to form billions of new synaptic
connections as well as to release other chemicals that promote neural cell
growth.
We initiated a six-patient, Phase 1 clinical trial using porcine fetal
neural cells in stroke patients in Boston, Massachusetts at Beth Israel
Deaconess Medical Center and Brigham and Women's Hospital. In April 2000, this
Phase 1 clinical trial was suspended by the FDA to allow investigation of the
cause of two serious adverse events. At the time the trial was suspended we had
treated 5 patients. Both patients who suffered adverse events have recovered
from their adverse event. We have reviewed the scientific and clinical
information relating to these adverse events and concluded that they were most
likely associated with the surgical procedure used to implant the cells. This
conclusion has been supported by an independent group of experts convened by
Diacrin. We are now working with the FDA to obtain clearance to continue
recruiting patients in this trial, which we expect will occur in the first half
of 2002.
Porcine Neural Cells for Focal Epilepsy
Epilepsy is a chronic, recurrent disorder characterized by excessive
neuronal discharge in the brain, causing muscle spasms or convulsions. Epileptic
seizures are usually associated with some alteration of consciousness. Epilepsy
is one of the most common neurological disorders and is estimated to affect 1.8
million people in the United States. The only currently available treatments for
epilepsy are drug therapy and surgery. A number of anti-epileptic drugs are
available to treat seizures. However, these drugs fail to control seizure
activity in a significant number of patients and frequently cause side effects
that range in severity from minimal impairment of the central nervous system to
death from liver failure. By several estimates, approximately 200,000 patients
with complex partial epilepsy have seizures that are not well-controlled with
currently available drug therapy. The seizures are of many different types and
arise as a result of diverse pathologies. Other therapies available to these
patients are surgical removal of portions of the temporal or frontal lobe and
vagal nerve stimulation through an implantable device. We believe that
transplantation of porcine fetal neural cells will be preferable to removal of
brain tissue if the transplantation is shown to be safe and efficacious.
Our initial therapeutic focus in this area is in the treatment of patients
with complex partial seizures, which are characterized by a focal onset and a
loss of consciousness. Because focal epilepsy is characterized by excessive
electrical activity in a localized area of the brain and the spread of this
activity through the brain, our approach to therapy is to transplant porcine
fetal neural cells in order to exert an inhibitory effect on the hyperexcitable
brain region.
We have initiated a six-patient, Phase 1 clinical trial of porcine fetal
neural cells at Beth Israel Deaconess Medical Center and Brigham and Women's
Hospital in Boston, SUNY Health Science Center in Syracuse, New York and Emory
University in Atlanta, Georgia. As of March 15, 2002, we had treated three
patients in this trial.
Porcine Neural Cells for Chronic Intractable Pain
Chronic intractable pain can be caused by neuropathologic processes in
tissues and organs, or by prolonged dysfunction of peripheral or central nervous
system pathways. Chronic intractable pain is characterized by the death of
inhibitory neural cells in the spinal cord and cannot be relieved even with pain
killers such as morphine. It is estimated that 500,000 individuals in the United
States suffer from unrelieved chronic pain as a result of these peripheral
neuropathies. Peripheral neuropathies can also be associated with diseases such
as HIV, diabetes and cancer. Many patients with malignant disease develop
chronic intractable pain, and the prevalence of severe pain in cancer patients
increases as the disease progresses to the advanced stages. There are an
estimated 1.6 million cancer patients who experience chronic intractable pain in
the United States.
We intend to use porcine fetal neural cells to alleviate chronic pain by
repopulating inhibitory neural cells to recover appropriate neurotransmission in
the spinal cord. We have demonstrated in animal studies a favorable safety
profile and survival of porcine fetal inhibitory neural cells transplanted into
the dorsal horn of the spinal cord. Our Investigational New Drug Application,
commonly referred to as IND, has been cleared by the FDA and we plan to initiate
a six-patient, Phase 1 clinical trial in 2002 at New England Medical Center in
Boston, Washington University Medical Center in St. Louis, Missouri and
University of Washington in Seattle, Washington.
NeuroCell-PD for Parkinson's Disease
Parkinson's disease is a neurodegenerative disease that results from the
loss of dopamine-producing neural cells within an area of the brain called the
substantia nigra, causing the loss of coordinated muscular activity. The disease
is generally characterized by progressively worsening physical conditions,
including difficulty in movement, muscular rigidity, tremors and postural
instability. In addition to a decreased quality of life, Parkinson's disease may
also result in premature death. In the United States, there are approximately
500,000 people afflicted with Parkinson's disease. The majority of Parkinson's
disease patients are first diagnosed between the ages of 45 and 65. NeuroCell-PD
will be directed to the treatment of patients with advanced Parkinson's disease,
which we estimate to be approximately 130,000 patients in the United States. We
expect the prevalence of Parkinson's disease to increase with the increasing
average age of the population.
Current therapies consist of administration of levodopa, commonly known as
L-dopa, a precursor of dopamine, and dopamine analogues. However, L-dopa is only
effective for a limited period of time, with most patients experiencing a
progressive reduction in drug efficacy over a 10 to 15 year period, due to the
cumulative loss of viable neural cells and tolerance to L-dopa. In addition,
L-dopa therapy can result in severe side-effects, including uncontrolled
movements, also known as dyskinesia, and hallucinations. No currently available
therapy prevents progression of the neurological deficits caused by Parkinson's
disease.
Clinical researchers have shown that transplantation of human fetal neural
cells into Parkinson's disease patients is effective in treating the disease.
For example, Swedish researchers have demonstrated survival and function of
transplanted human fetal neural cells in Parkinson's disease patients in an
ongoing study which commenced in 1989. This study has shown long-term survival
of cells and improvements in patients' conditions. However, the lack of
availability of human fetal neural cells and ethical concerns regarding the use
of human fetal tissue limit its widespread clinical application. Moreover, even
when available, the quality of human fetal neural cells is variable, which may
limit the clinical effectiveness of this treatment.
Our approach to the treatment of Parkinson's disease is to produce and
transplant NeuroCell-PD to replace the function of those neural cells damaged by
the disease. We and our collaborators have shown in animal models that
transplanted porcine fetal neural cells become integrated into the surrounding
brain tissue and correct functional deficits. While NeuroCell-PD is not a cure
for Parkinson's disease, the goal of this treatment is to significantly improve
the clinical condition of patients with severe Parkinson's disease in order to
allow them to function independently.
Our twelve-patient Phase 1 clinical trial of NeuroCell-PD, which completed
enrollment in October 1996, was the first FDA-authorized trial involving
transplantation of porcine cells into humans. Although the study was designed to
evaluate the safety of NeuroCell-PD, we also evaluated its effects on the
Parkinson's disease symptoms of the transplant recipients. Each of the twelve
patients in the study received approximately 12 million cells transplanted
unilaterally (one side of the brain). A histological study of one of the
patients, who died of causes unrelated to the transplant, published in the March
1997 issue of Nature Medicine, demonstrated that porcine fetal neural cells
survived and matured in his brain. This study marked the first published
documentation of the survival of cells transplanted from another species into
the human brain and the appropriate growth of the non-human neural cells in the
brain of a Parkinson's disease patient.
Our clinical evaluators observed clinical improvement in the Parkinson's
disease patients beginning approximately three months after transplantation. The
patients who have been followed demonstrated statistically significant clinical
improvement at one year, two years and three years post transplantation as
measured by the Unified Parkinson's Disease Rating Scale.
In 1996, we formed Diacrin/Genzyme LLC with Genzyme, a joint venture
to develop and commercialize NeuroCell-PD and a previously suspended product
candidate, NeuroCell-HD. We refer to NeuroCell-PD and NeuroCell-HD as the joint
venture's product candidates. In 1999, our joint venture with Genzyme completed
accrual of patients in an 18-patient pivotal, randomized, double-blinded,
placebo-controlled Phase 2 clinical trial involving the transplantation of
NeuroCell-PD in conjunction with cyclosporine immunosuppression versus a control
group. Each of the treated patients in this trial received approximately 48
million cells transplanted bilaterally (both sides of the brain). In March 2001,
the trial was unblinded and we announced a preliminary analysis of the results.
We did not see a statistically significant difference between the treated
patients and the patients in the control group and, therefore, did not meet the
primary endpoint in the trial. Development is currently suspended while we
gather and evaluate additional clinical data.
Human Liver Cells for Cirrhosis
Cirrhosis of the liver is a common affliction in the United States,
affecting an estimated 1.5 million individuals and leading to approximately
50,000 deaths annually. In cirrhosis, liver tissue is progressively lost due to
accumulation of fibrous tissue and scarring, and liver function is compromised
due to the degenerative changes. The most common causes of cirrhosis are viral
hepatitis B and C infections and alcoholic liver disease. In the initial stages
of the disease, the patient may experience jaundice and disorientation as liver
function decreases. As the disease progresses, the patient will be hospitalized
with increasing central nervous system effects, known as encephalopathy, which
may lead to coma. The tremendous reserve of liver tissue allows the continued
function of the organ, despite loss of up to 90% of the normal complement of
liver cells. In advanced cirrhosis, little normal liver tissue remains.
The only effective therapy for advanced cirrhosis is liver transplantation.
However, the United Network of Organ Sharing has documented a national lack of
donor livers for transplantation, resulting in a waiting period of over two
years for the average patient. Over 5,000 individuals await liver transplants in
the United States and about 4,000 liver transplants are performed per year for
all indications. Recently, artificial extra-corporeal liver assist devices,
commonly known as ELAD, containing porcine or human liver cells attached to a
dialysis cartridge have been used in an attempt to treat liver failure in
advanced cirrhosis. Studies to date suggest that ELAD may improve some
biochemical parameters such as ammonia levels but the devices have not resulted
in increased survival. Human whole liver transplantation has also been used in
both acute and chronic liver failure. In pilot clinical trials by others,
transplantation of liver cells into either the liver or the spleen has been
shown to be both safe and potentially effective in humans as a bridge to whole
liver transplantation.
For chronic liver disease, we and others have shown in animal models that
liver cell integration is possible when liver cells are injected into the liver
or into the spleen. The spleen appears to be the preferred site due to the
fibrosis and loss of blood supply to the cirrhotic liver. In animal models,
transplantation of liver cells into the spleen is well described, and results in
populating parts of the spleen with functioning liver cells that perform normal
liver functions.
We have initiated a six-patient, Phase 1 clinical trial of human liver cell
transplantation for the treatment of cirrhosis in patients that have been listed
for organ transplantation but are likely to wait at least one year before
receiving a transplant. We believe these patients may benefit from the growth of
transplanted liver cells in their liver or spleen leading to an increase in
liver function. In addition, expansion of the cells may allow sufficient
improvement to render a liver transplant unnecessary, unlike the case with ELAD
which are used only as a bridge to transplantation. As part of the clinical
trial, conventional immunosuppression will be compared to the use of our
immunomodulation technology to determine whether graft protection is achieved by
this technique. We are conducting this study in collaboration with Massachusetts
General Hospital, New England Medical Center and at the University of Nebraska
Medical Center in Omaha, Nebraska.
Porcine Liver Cells for Acute Liver Failure
Acute liver failure is a severe life-threatening disease that can result
from alcohol consumption, viral infections, such as hepatitis B and C, and drugs
or toxins that damage the liver. The clinical spectrum of acute liver disease
can vary from patients with severe liver failure to patients without symptoms.
The mortality from acute liver failure can be as high as 70%, with patients
dying from associated complications. Acute liver failure results in
approximately 63,000 deaths annually in the United States.
There is currently no therapy that is beneficial for all patients with
acute liver failure. The best available therapy is liver transplantation.
However, many patients are unable to qualify as candidates for liver
transplantation due to multi-organ failure or active alcohol consumption.
Current therapies attempt to treat complications arising from the acute
condition, such as swelling of the brain, infections, and circulatory collapse.
Our approach to the treatment of acute liver failure is to support the
patient by liver cell transplantation in order to provide liver function while
allowing the patient's own liver to recover. In extensive studies in animal
models, our scientists have shown that porcine liver cells can be isolated and
infused into the recipient liver where they continue to function. Long-term
survival and function of these cells has been demonstrated in these animal
models. We believe liver cell transplantation could become a viable alternative
to whole liver transplantation for the treatment of acute liver disease. We
believe this approach would be preferable to transplantation of a whole liver,
due to the difficulty of obtaining livers for transplantation as well as the
expense and invasiveness of the procedure.
Porcine liver cells will be infused into the spleen or liver of these
patients by minimally invasive procedures, thus avoiding a surgical procedure
for these critically ill patients. In addition to the high level of quality
control that can be maintained over the production of porcine liver cells, these
cells also have the advantage of being resistant to infection by human hepatitis
B and C viruses. Since many of the patients enrolled in this study are likely to
carry these viruses, we believe the resistance of the porcine liver cells to
infection may provide a further advantage over human liver transplantation in
which hepatitis B and C reinfect donor livers.
We have initiated a six-patient, Phase 1 clinical trial and as of March 15,
2002 one patient has been treated. We are currently recruiting patients for this
clinical trial which is being conducted at Massachusetts General Hospital, New
England Medical Center and University of Nebraska Medical Center.
Additional Liver Cell Applications
Successful delivery of liver cells to patients with alcoholic hepatitis or
cirrhosis may provide the possibility of applying this technology to a variety
of other diseases. The preparation of the cells and their delivery by minimally
invasive procedures should be the same in most of these applications, thus
providing a platform that may be used in multiple applications.
Additional applications include the use of liver cells for the treatment of
metabolic diseases resulting from genetic mutations. Familial
hypercholesterolemia is a disease caused by a defective receptor gene for low
density lipoprotein, commonly referred to as LDL, that leads to elevated levels
of LDL cholesterol and coronary disease at an early age. Familial
hypercholesterolemia afflicts approximately 500,000 patients in the United
States. Currently available drugs do not sufficiently lower circulating LDL
cholesterol levels in approximately 20% of these patients, who may thus benefit
from liver cell transplantation. Our scientists have shown through
transplantation of liver cells into a rabbit model of this disease that porcine
liver cells provide the animal with functional receptors that reduce serum LDL
levels. There is a range of additional metabolic disorders that may be
candidates for treatment by liver cell transplantation. Approximately 30,000
patients in the United States suffer from these metabolic disorders.
Human Muscle Cells for Cardiac Disease
Coronary heart disease is the leading cause of death in the United States,
responsible for approximately 1 of every 5 deaths, or approximately 500,000
deaths each year. According to the American Heart Association, approximately 1
million heart attacks occur annually in the United States. Of the 800,000
patients who survive, approximately 200,000 will die within a year. The disease
is caused by the accumulation of plaque, consisting of lipid deposits,
macrophages and fibrous tissue, on the walls of vessels supplying blood to the
heart muscle. Rupture of unstable plaques exposes substances that promote
platelet aggregation and clot formation. The clot is composed of platelets,
blood cells and fibrin that can block one or more of the coronary vessels,
resulting in an inadequate supply of oxygen to the heart muscle. This highly
active muscle is quickly damaged and the lesions are irreversible because heart
muscle cells are not capable of cell division. The end result is an infarct, a
damaged area of heart muscle in which scar tissue and fibrosis replace dead
heart muscles, lowering the ability of the heart to contract and function.
Treatments to prevent tissue damage after a heart attack include drugs that
break down fibrin clots and open up blocked arteries. These drugs have greatly
influenced morbidity and mortality, but must be administered within a short
interval after a heart attack to be effective. Even with current medical
management, over one third of acute heart attacks are fatal. Cardiac
catheterization and angioplasty to dislodge the clot and open the blocked vessel
have proved effective in restoring blood flow, but cannot reverse preexisting
tissue damage.
Our scientists have isolated and expanded muscle cells from human tissue
and are studying the use of these cells for transplantation into damaged heart
muscle. We believe that patients suffering from heart attacks would benefit if
these muscle cells could repair their damaged hearts. These cells would be
isolated from a muscle biopsy of a patient who had suffered a heart attack,
thereby allowing transplantation of a patient's own muscle cells into his or her
heart, which would avoid any rejection. In preclinical studies, we have
demonstrated that muscle cells integrate into rodent heart muscle. The cells
form stable grafts in a damaged heart.
We are currently conducting two Phase 1 clinical trials treating patients
with damaged heart muscle. One clinical trial is treating patients at the same
time they receive a ventricular assist device (VAD) while the other is treating
patients as they undergo coronary bypass surgery (CABG). The VAD is implanted in
patients in order to maintain heart function while they wait for a donor heart
to become available. Our clinical trial involves implantation of 300 million
myoblasts in six patients. After the patient is transplanted with a new heart,
we are able to histologically examine the old heart. Preliminary results from
one heart showed that cells survive and new blood vessel formation was
stimulated. The clinical trial involving CABG patients is a 12-patient dose
escalation trial, with safety being evaluated at doses ranging from 10 million
to 300 million cells. It is planned that all patients will be enrolled in this
trial by mid-2002.
Our clinical trials are being conducted at six medical centers,
including Temple University Hospital in Philadelphia, Pennsylvania, the
University of Michigan in Ann Arbor, Michigan, the UCLA Medical Center in Los
Angeles, California, The Cleveland Clinic in Cleveland, Ohio, the Arizona Heart
Institute in Phoenix, Arizona and Ohio State University in Columbus, Ohio. As
of March 15, 2002, we had treated 13 patients in these clinical trials.
Manufacturing
The manufacture of most of our products will require the continuous
availability of porcine tissue harvested under cGMP from pigs tested to be free
of infectious agents. Our current source of pig facilities and services is
obtained under contracts from Tufts University School of Veterinary Medicine and
PharmServices, Inc., a division of Charles River Laboratories, Inc. We have also
qualified several pig producers to provide pigs for our production processes.
We currently obtain the antibody fragments used in our immunomodulation
technology from a contract manufacturer. We will evaluate on an ongoing basis
the cost effectiveness and other relevant factors necessary to determine whether
we should continue to obtain the antibody fragment from a contract manufacturer
or produce them ourselves.
We isolate and prepare cell populations in our own clinical production
facilities in Charlestown, Massachusetts. Our long-range plan is to expand our
internal manufacturing capabilities, including the facilities necessary to test,
isolate and package an adequate supply of finished cell products in order to
meet our long-term clinical and commercial manufacturing needs.
Patents and Licenses
We intend to aggressively seek patent protection for any products we
develop. We also intend to seek patent protection or rely upon trade secrets to
protect certain of our technologies which will be used in discovering and
evaluating new products. We have 16 issued U.S. patents and 20 patent
applications pending with the United States Patent and Trademark Office. We have
also filed foreign counterparts in the European Union and other selected
countries. These applications seek composition-of-matter and use protection for
the various products we have in development.
Massachusetts General Hospital has been awarded two patents in the United
States covering the basic immunomodulation technology we use. Foreign
counterparts of these patents have been filed in the European Union and other
selected countries. Under an agreement with MGH, we have an exclusive, worldwide
license to the technology and the inventions described in the patents, and all
foreign counterparts, including any continuations, reissues or substitutions as
well as any patents and equivalents which may mature from such patents, subject
to the payment of royalties. Unless sooner terminated, our rights will continue,
on a country by country basis, until the last patent expires. We or MGH may
terminate the agreement, upon notice, in the event the other party defaults in
its material obligations and has failed to cure this default within 60 days of
receipt of written notice of the default.
To protect our trade secrets and other proprietary information, we require
all employees, consultants, advisors and collaborators to enter into
confidentiality agreements with us.
Sales and Marketing
We have not yet developed sales and marketing capabilities for our product
candidates. We may form strategic alliances with established pharmaceutical or
biotechnology companies in order to finance the development of certain of our
products and, assuming successful development, to market such products. These
alliances may enable us to expand or accelerate our product development efforts
and also may provide us with access to established marketing organizations.
Alternatively, we may decide to market some of our products on our own.
Government Regulation
Regulation by governmental authorities in the United States, the European
Union member states and other foreign countries is a significant factor in the
development, manufacture and marketing of our product candidates and in our
ongoing research and product development activities. All of our products will
require regulatory approval by governmental agencies prior to commercialization.
In particular, human therapeutic products are subject to rigorous testing and
approval procedures by the FDA and similar authorities in foreign countries.
Various statutes and regulations govern the preclinical and clinical testing,
manufacturing, labeling, distribution, advertising and sale of these products.
The process of obtaining these approvals and the subsequent compliance with
applicable statutes and regulations require the expenditure of substantial time
and financial and other resources.
Preclinical testing is generally conducted in the laboratory on animals to
evaluate the potential efficacy and the safety of a product. In the United
States, the results of these studies are submitted to the FDA as part of an IND
application, which must receive FDA clearance before human clinical testing can
begin. Clinical trials are typically conducted in three phases which may
overlap. Generally, in Phase 1, clinical trials are conducted with a small
number of human subjects to determine the early safety profile. In Phase 2,
clinical trials are conducted with groups of patients afflicted with the
specific disease in order to determine preliminary efficacy, optimal treatment
regimens and expanded evidence of safety. Where a product candidate is found to
have an effect at an optimal dose and to have an acceptable safety profile in
Phase 2, larger scale, multi-center, randomized and blinded Phase 3 clinical
trials are conducted with patients afflicted with the target disease to further
test for safety, to further evaluate clinical effectiveness and to obtain
additional information for labeling. In addition, the FDA may request
post-marketing (Phase 4) monitoring of the approved product, during which
clinical data are collected on selected groups of patients to monitor
longer-term safety.
Upon completion of Phase 3, for products regulated by the FDA's Center for
Biologic Evaluation and Research, commonly referred to as CBER, the results of
preclinical and clinical testing are submitted to the FDA in the form of a
Biologics License Application, commonly referred to as BLA, for approval to
manufacture and commence commercial sales. In responding to these applications,
the FDA may grant marketing approval, request additional information or deny the
application if it determined that the application does not satisfy the agency's
regulatory approval criteria. We expect that CBER will regulate all of our
product candidates.
The nature of the marketing claims we will be permitted to use for labeling
and advertising will be limited to those allowed in the FDA's approval. Claims
beyond those approved would constitute a violation of the Food, Drug & Cosmetic
Act or the FD&C Act. Noncompliance with the provisions of the FD&C Act or Public
Health Service Act can result in, among other things, loss of approval,
voluntary or mandatory product recall, seizure of products, fines, injunctions
and civil or criminal penalties. Our advertising is also subject to regulation
by the Federal Trade Commission under the FTC Act, which prohibits unfair
methods of competition and unfair or deceptive acts or practices in or affecting
commerce. Violation can result in a variety of enforcement actions including
fines, injunctions and other remedies.
In the European member states and other foreign countries, our ability to
market a product is contingent upon receiving marketing authorization from the
appropriate regulatory authorities. The requirements governing the conduct of
clinical trials, marketing authorization, pricing and reimbursement vary widely
from country to country. Generally, we intend to apply for foreign marketing
authorizations at a national level. However, within the European Union,
procedures are available to companies wishing to market a product in one or all
European Union member states. This centralized process is conducted through the
European Medicines Evaluation Agency, known as the EMEA. The EMEA coordinates
the regulatory process, while a body of experts drawn from member states
undertakes the scientific assessment of the product and recommends whether a
product satisfies the criteria of safety, quality and efficacy for approval. If
the authorities are satisfied that adequate evidence of safety, quality and
efficacy has been presented, a marketing authorization will be granted. This
foreign regulatory approval process includes all of the risks associated with
FDA approval set forth above. We may rely on licensees to obtain regulatory
approval for marketing certain of our products in certain European Union member
states or other foreign countries.
We are also subject to various federal, state and local laws, regulations
and recommendations relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances, including radioactive
compounds, infectious disease agents and recombinant DNA materials used in
connection with our research work.
We intend to take advantage of the regulatory pathways which may provide
expedited review of our cell transplantation products and allow limited cost
recovery during the clinical research phase. These include: (1) expedited review
for more effective or better tolerated therapies for serious conditions,
commonly referred to as fast track designation, and (2) seeking approval for
limited cost recovery during clinical testing under treatment IND status. We
also intend to seek marketing exclusivity for products which qualify for orphan
drug status, where appropriate.
Fast Track Designation. In 1997, Congress enacted the Food and Drug
Administration Modernization Act, in part, to ensure the availability of safe
and effective drugs by expediting the FDA review process for new products. This
act establishes a statutory program for the approval of fast track products. A
fast track product is defined as a new drug intended for the treatment of a
serious or life-threatening condition, which demonstrates the potential to
address unmet medical needs. Under the fast track program, the sponsor of a new
drug may request the FDA to designate the drug as a fast track product at the
time of the IND submission or after. If a preliminary review of the clinical
data suggests that a fast track product may be effective, the FDA may initiate
review of sections of a marketing application for a fast track product before
the sponsor completes the application. NeuroCell-PD was granted fast track
designation in 1999.
Treatment IND. Treatment IND is a mechanism established by the FDA in 1987
which allows a company to distribute promising investigational therapies to
patients outside of the established clinical trials and to charge a reasonable
fee for such therapy. The disease must be serious or life-threatening and there
must not be satisfactory alternative treatments. Treatment IND status has been
applied to a variety of diseases including cancer, AIDS, Parkinson's disease,
Alzheimer's disease and multiple sclerosis and to several anti-infectives for
renal transplant patients. We intend to pursue this designation, where
appropriate.
Orphan Drug Status. The Orphan Drug Act generally provides incentives to
manufacturers to undertake development and marketing of products to treat
relatively rare diseases or diseases where fewer than 200,000 persons in the
United States would be likely to receive the treatment. A drug that receives
orphan drug designation by the FDA and is the first product to receive FDA
marketing approval for its product claim is entitled to a seven-year exclusive
marketing period in the United States for that product claim. The FDA may
terminate an orphan drug designation for many reasons, including if the
manufacturer of the orphan drug product cannot provide an adequate supply of the
product. Furthermore, a drug that the FDA considers to be different from a
particular orphan drug is not barred from sale in the United States during such
seven-year exclusive marketing period. Legislation to limit the marketing
exclusivity provided for certain orphan drugs has occasionally been introduced
in Congress. Although the outcome of that legislation is uncertain, future
legislation may limit the incentives currently afforded to the developers of
orphan drugs.
We have assigned to our joint venture with Genzyme the orphan drug
designation we received from the FDA for the joint venture's product candidates.
Our porcine fetal spinal cord cells for spinal cord injury product is also
targeted to a population of less than 200,000 and, therefore, we will pursue
orphan drug designation for this product candidate.
Competition
We believe that our ability to compete successfully will be based on our
ability to create and maintain scientifically advanced technology, develop
proprietary products and attract and retain qualified scientific personnel. In
addition, we have to obtain adequate financing, patents, orphan drug designation
or other protection for our products, and required regulatory approvals, and to
manufacture and successfully market our products both independently and through
collaborators.
The biopharmaceutical and pharmaceutical industries are characterized by
intense competition. We compete against numerous companies, many of which have
substantially greater financial and other resources than we do. Private and
public academic and research institutions also compete with us in the research
and development of human therapeutic products. In addition, many of our
competitors have significantly greater experience than we do in the testing of
pharmaceutical and other therapeutic products and obtaining FDA and other
regulatory approvals of products for use in health care. Accordingly, our
competitors may succeed in obtaining FDA approval for products more rapidly than
we do. If we commence significant commercial sales of our products, we will also
be competing with respect to manufacturing efficiency and marketing
capabilities, areas in which we have limited or no experience.
Our products under development will compete with products and therapies
which are either currently available or currently under development. Competition
will be based, among other things, on efficacy, safety, reliability, price,
availability of reimbursement and patent position. We are aware of other
companies which are pursuing research and development of alternative products or
technologies addressing the same disease categories as our development programs.
Employees
As of March 15, 2002, we had 30 full-time employees, 23 of whom were
engaged in research, development, clinical and quality assurance/quality control
activities. None of our employees are represented by a labor union or covered by
a collective bargaining agreement.
Item 2. Properties
We lease a facility which contains approximately 25,000 square feet of
space in Charlestown, Massachusetts. The current lease has a five-year term
ending in 2006, providing for a base rental rate of approximately $75,000 per
month, plus applicable property taxes and insurance. We have the right to extend
the lease an additional five years commencing in 2006. Our facilities are
equipped with laboratory and cell culture capabilities sufficient to satisfy our
research and development requirements for the foreseeable future and cell
isolation capabilities sufficient to satisfy the clinical production
requirements of several of our product candidates. To the extent that additional
similar facilities may be required, we will be required to secure additional
facilities or seek outside contractors to provide such capabilities.
Item 3. Legal Proceedings
We are currently not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of our security holders, through
solicitation of proxies or otherwise, during the last quarter of the fiscal year
ended December 31, 2001.
Executive Officers of the Registrant
The following table sets forth the names, ages and positions of the
directors, executive officers and other key employees of the Company:
Name Age Position
Thomas H. Fraser, Ph.D. 54 President and Chief Executive Officer;
Director
E. Michael Egan 48 Chief Operating Officer
Kevin Kerrigan 31 Controller
Jonathan H. Dinsmore, Ph.D. 40 Senior Director of Cell Transplantation
Roger J. Gay, Ph.D. 48 Senior Director of Process Development
Abdellah Sentissi, Ph.D. 52 Senior Director of Quality Control
and Quality
Douglas B. Jacoby, Ph.D. 41 Director of Research
Zola P. Horovitz, Ph.D. (1) 67 Director
John W. Littlechild (2) 50 Director
Stelios Papadopoulos, Ph.D.(1)(2) 53 Director
Joshua Ruch (1) 52 Director
Henri A. Termeer (2) 55 Director
(1) Member of Audit Committee
(2) Member of Compensation Committee
Thomas H. Fraser, Ph.D., has served as our President and Chief Executive
Officer and as a Director since 1990. Dr. Fraser was previously Executive
Vice President, Corporate Development, for Repligen Corporation, a
biopharmaceutical company. Dr. Fraser was the founding Vice President for
Research and Development at Repligen in 1981 and served as Executive Vice
President from 1982 through 1990 as well as Chief Technical Officer from
1982 through 1988. Prior to joining Repligen, Dr. Fraser headed the
recombinant DNA research group in Pharmaceutical Research and Development at
The Upjohn Company, a pharmaceutical company. Dr. Fraser received his Ph.D.
in Biochemistry from the Massachusetts Institute of Technology and was a Damon
Runyon-Walter Winchell Cancer Fund Postdoctoral Fellow at The University of
Colorado.
E. Michael Egan was promoted to Chief Operating Officer in January 2001.
Prior to that, Mr. Egan had served as our Senior Vice President, Corporate
Development, since 1993. Mr. Egan joined us from Repligen, where he was employed
from 1983 to 1993, and since 1989 had been Vice President of Business
Development. He was also a member of the Board of Directors of Repligen Clinical
Partners, L.P., and the Secretary/Treasurer of Repligen Sandoz Research
Corporation. Mr. Egan's previous positions at Repligen include Director of
Business Development and Manager of Business Development. Prior to joining
Repligen in 1983, Mr. Egan was a laboratory supervisor at Dana-Farber Cancer
Institute, Division of Medicine. He received a B.S. in biology from Boston
College and a Certificate of Special Studies in Administration and Management
from Harvard University in 1986.
Kevin Kerrigan has served as our Controller since November 1998. Mr.
Kerrigan joined us in 1997 as Accounting Manager. From 1993 to 1997 Mr.
Kerrigan was a member of the professional staff of Price Waterhouse LLP.
Mr. Kerrigan received a B.S. degree in accounting from Merrimack College
and was awarded a CPA certificate from the Commonwealth of Massachusetts in
1993.
Jonathan H. Dinsmore, Ph.D., has been Senior Director of Cell
Transplantation Research since April 1999. He joined Diacrin in 1992 as a
Research Scientist and was subsequently promoted to Principal Investigator and
then Director of Cell Transplantation Research. Dr. Dinsmore was previously a
Postdoctoral Fellow of the American Cancer Society in the Biology department at
the Massachusetts Institute of Technology from 1988 to 1992. He received a Ph.D.
in biology from Dartmouth College, where he was a Presidential Scholar and
recipient of a Kramer Fellowship. Dr. Dinsmore has worked on National Science
Foundation-sponsored research projects at the Marine Biological Laboratories in
Woods Hole, Massachusetts and at a United States research base in Antarctica.
Roger J. Gay, Ph.D., has been Senior Director of Process Development
since February 2000. Dr. Gay was hired by Diacrin in 1993 as Director of
Process Development. From 1986 through 1993, he was Director of Product
Development at Organogenesis, Inc. Dr. Gay's previous positions were Manager
of a Contract Research and Cytotoxicity Testing Laboratory and Director of
Product Development at Bioassay Systems Research Corporation from 1982 to
1986. He received a B.A. in chemistry from the College of the Holy Cross in
1975 and a Ph.D. in biochemistry from the University of Rochester in 1981.
From 1981 through 1983, he was a postdoctoral research fellow in the
Department of Microbiology and Molecular Genetics at Harvard Medical School.
Abdellah Sentissi, Ph.D., has been Senior Director of Quality Control and
Quality Assurance since February 2000. Dr. Sentissi came to Diacrin in 1995 as
Director of Quality Control and Quality Assurance. Prior to joining Diacrin,
from 1992 to 1995, he served as the Director of QC/QA and Technical Affairs at
Endocon, Inc. From 1985 through 1992, he was the Chief of Quality Control at
Massachusetts Biologics Laboratories. He received a pharmacy degree in 1973 and
a biology degree in 1976 from the University of Paul Sabatier, Toulouse, France,
and a Ph.D. in biomedical sciences from Northeastern University in 1984. From
1984 through 1985, he was a postdoctoral research fellow in the Department of
Clinical Chemistry at Northeastern University. He has been a lecturer in
pharmaceutical biotechnology at the School of Pharmacy at Northeastern
University since 1990.
Douglas B. Jacoby, Ph.D., was appointed Director of Research in April 1999.
He joined Diacrin in 1993 as a Research Scientist and was subsequently promoted
to Principal Investigator. While a postdoctoral fellow in the Biochemistry
department at Brandeis University, Dr. Jacoby was awarded a fellowship from the
NIH. He received his Ph.D. in Biochemistry from the University of Minnesota with
awards from the NIH and a Doctoral Dissertation Fellowship. He was graduated
with an A.B. in Biology from Kenyon College.
Zola P. Horovitz, Ph.D., has served as a Director of Diacrin since 1994.
Dr. Horovitz was Vice President, Business Development and Planning at
Bristol-Myers Squibb Pharmaceutical Group from 1991 until 1994 and was Vice
President, Licensing from 1989 to 1991. Prior to 1989, Dr. Horovitz spent 30
years as a member of the Squibb Institute for Medical Research, most recently
as Vice President, Research Planning. Dr. Horovitz is also a director of
Avigen, Inc., BioCryst Pharmaceuticals, Genaera Pharmaceuticals,
Paligent, Synaptic Pharmaceuticals, Inc. and Palatin Technologies. Dr. Horovitz
received his Ph.D. from the University of Pittsburgh.
John W. Littlechild has been a Director of Diacrin since 1992. Mr.
Littlechild is associated with several venture capital partnerships managed by
HealthCare Ventures LLC, including HealthCare Ventures II, L.P., HealthCare
Ventures III, L.P., and HealthCare Ventures IV, L.P. Mr. Littlechild currently
serves as Vice Chairman of HealthCare Ventures LLC. From 1984 to 1991, Mr.
Littlechild was a Senior Vice President of Advent International Corporation, a
venture capital company in Boston and London. Prior to working at Advent in
Boston, Mr. Littlechild was involved in establishing Advent in the United
Kingdom. From 1980 to 1982, Mr. Littlechild served as Assistant Vice President
for Citicorp Venture Corporation, a venture capital company, in London, prior to
which he worked with ICI Ltd., an agro-chemical company, and Rank Xerox, an
office equipment company, in marketing and financial management. Mr. Littlechild
holds a B.Sc. (1st class honors) from the University of Manchester and an MBA
from Manchester Business School. Mr. Littlechild serves on the board of
directors of various health care and biotechnology companies, including Dyax, a
biotechnology company, and Orthofix International N.V., a medical device
company. Mr. Littlechild also serves on several Boards for the Harvard Medical
School including the Executive Committee of the Board of Fellows, the Science
and Technology Committee, and is Chairman of the Microbiology Department
Advisory Board. He is also a member of the Board of Visitors of the Beth Israel
Deaconess Center for Research and Education.
Stelios Papadopoulos, Ph.D., has been a Director of Diacrin since 1991. Dr.
Papadopoulos is a Managing Director in the investment banking division at SG
Cowen Securities Corporation focusing on the biotechnology and pharmaceutical
sectors. Prior to joining SG Cowen Securities Corporation in February 2000, he
spent 13 years as an investment banker at PaineWebber, where he was most
recently Chairman of PaineWebber Development Corp., a PaineWebber subsidiary.
Prior to becoming an investment banker he spent two years as a biotechnology
analyst, first at Donaldson, Lufkin & Jenrette and subsequently at Drexel
Burnham Lambert, where he was elected to the Institutional Investor 1987
All-American Research Team. Before coming to Wall Street in 1985, Dr.
Papadopoulos was on the faculty of the Department of Cell Biology at New York
University Medical Center. He continues his affiliation with NYU Medical Center
as an Adjunct Associate Professor of Cell Biology. Dr. Papadopoulos holds a
Ph.D. in biophysics and an MBA in finance, both from New York University. He is
a founder and Chairman of the Board of Exelixis, Inc., and sits on the board of
several private companies in the biotechnology sector.
Joshua Ruch has been a Director of Diacrin since March 1998. Mr. Ruch is
the Chairman and Chief Executive Officer of Rho Capital Partners, Inc., an
international investment management firm which he co-founded in 1981. Prior to
founding Rho, Mr. Ruch was employed in investment banking at Salomon Brothers
and Bache Halsey Stuart, Inc. Mr. Ruch received a B.S. degree in electrical
engineering from the Israel Institute of Technology (Technion) and an MBA from
the Harvard Business School. Mr. Ruch also serves on the board of directors of
3-Dimensional Pharmaceuticals, Inc. as well as several private companies in
the technology sector.
Henri A. Termeer has been a Director of Diacrin since December 1996. Mr.
Termeer has served as President and Director of Genzyme Corporation, a
biopharmaceutical company, since 1983, as Chief Executive Officer since 1985 and
as Chairman of the Board since 1988. For ten years prior to joining Genzyme, Mr.
Termeer held various management positions at Baxter Travenol Laboratories, Inc.,
a manufacturer of human health care products. Mr. Termeer also serves on the
boards of directors of Abiomed, Inc., AutoImmune, Inc., Genzyme Transgenics
Corporation and is a trustee of Hambrecht & Quist Healthcare Investors and
Hambrecht & Quist Life Sciences Investors.
Directors are elected annually by our stockholders and hold office until
the next annual meeting of stockholders or until their resignation or removal.
Each executive officer serves at the discretion of the board of directors and
holds office until his or her successor is elected and qualified or until his or
her earlier resignation or removal. There are no family relationships among any
of our directors or executive officers.
Scientific Advisory Board
Our scientific advisory board is a multi-disciplinary assemblage of
scientists and physicians in the fields of transplantation, immunology,
endocrinology, neurophysiology and neuromuscular physiology, transplantation
biology and surgery. The scientific advisory board meets regularly to review and
evaluate our research programs and advise us with respect to technical matters.
The members of the scientific advisory board are as follows:
Member
Name Since Position
Hugh Auchincloss, Jr., M.D. 1992 Professor of Surgery, Harvard
Medical School; Director, Kidney
Transplantation, Brigham and
Women's Hospital; Surgical
Director, Pancreas Transplantation
and Visiting Surgeon,
Massachusetts General Hospital
Jay A. Berzofsky, M.D., Ph.D. 1992 Chief, Molecular Immunogenetics
and Vaccine Research Section,
Metabolism Branch, National
Cancer Institute, National
Institutes of Health
Robert H. Brown, Jr., M.D., D.Phil. 1992 Director of Cecil B. Day
Laboratory for Neuromuscular
Research, Associate in Neurology,
Massachusetts General Hospital;
Professor of Neurology, Harvard
Medical School
Laurie H. Glimcher, M.D. 1993 Professor of Immunology,
Department of Immunology and
Infectious Diseases, Harvard
School of Public Health; Professor
of Medicine, Harvard Medical
School
Ronald D. McKay, Ph.D. 1998 Chief, Laboratory of Molecular
Biology, National Institute of
Neurological Disorders and Stroke,
National Institutes of Health
David H. Sachs, M.D. 1990 Director, Transplantation Biology
Research Center, Massachusetts
General Hospital; Paul S. Russell/
Warner-Lambert Professor of
Surgery(Immunology), Harvard
Medical School
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Our common stock is traded on the NASDAQ National Market under the
symbol DCRN. The following table sets forth for the periods indicated the high
and low sale prices for the common stock during 2000 and 2001 as reported on the
Nasdaq National Market:
High Low
Fiscal Year 2000
First Quarter 19.6875 5.7500
Second Quarter 13.5000 6.3125
Third Quarter 9.6250 6.2500
Fourth Quarter 7.6250 3.8750
Fiscal Year 2001
First Quarter 6.5000 1.1250
Second Quarter 2.9700 1.0500
Third Quarter 2.2000 1.5000
Fourth Quarter 2.1500 1.5000
As of March 15, 2002 there were approximately 105 record holders of our
common stock and approximately 3,500 beneficial owners of our common stock.
We have never declared or paid cash dividends on our capital stock. We
intend to retain earnings, if any, for use in our business and do not anticipate
declaring or paying any cash dividends in the foreseeable future.
We did not sell any equity securities during the quarter ended December 31,
2001 that were not registered under the Securities Act.
Item 6. Selected Financial Data
The selected financial data set forth below as of December 31, 2000 and
2001 and for each of the three years in the period ended December 31, 2001 are
derived from our financial statements which have been audited by Arthur Andersen
LLP, independent public accountants, and which are included elsewhere in this
Annual Report on Form 10-K. The selected financial data set forth below as of
December 31, 1997, 1998 and 1999 and for the years ended December 31, 1997 and
1998 are derived from our financial statements which have been audited by Arthur
Andersen LLP and are not included herein. The data set forth below should be
read in conjunction with our financial statements, related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Annual Report on Form 10-K.
Year Ended December 31,
-------------------------------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Statement of Operations Data: (in thousands, except share and per share data)
REVENUES:
Research and development $ 4,763 $ 3,623 $ 2,971 $ 2,082 $ 737
Investment income 1,302 1,576 1,323 3,125 3,150
------- ------- ------- ------ -------
Total revenues 6,065 5,199 4,294 5,207 3,887
------- ------- ------- ------ -------
OPERATING EXPENSES:
Research and development 6,863 7,372 5,921 5,997 6,350
General and administrative 1,460 1,484 1,398 1,348 1,624
Interest expense 93 89 47 30 14
-------- ------ ------- ------ -------
Total operating expenses 8,416 8,945 7,366 7,375 7,988
-------- ------ ------- ------ -------
Equity in operations of joint venture - (1,084) (1,688) (1,369) (547)
-------- ------- ------- ------- -------
Net loss $ (2,351) $(4,830) $(4,760) $(3,537) $(4,648)
======== ======= ======= ======== ========
Net loss per common share:
Basic and diluted $ (.18) $ (.34) $ (.33) $ (.21) $ (.26)
========= ======= ======== ======== =======
Weighted average shares outstanding(1):
Basic and diluted 13,235,286 14,156,179 14,364,154 17,073,194 17,914,889
========== ========== ========== ========== ==========
At December 31,
--------------------------------------------------------
Balance Sheet Data: 1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Cash, cash equivalents and investments $ 21,347 $ 26,270 $ 21,420 $ 54,607 $ 49,727
Working capital 9,551 21,812 17,133 32,502 41,078
Total assets 22,780 27,484 22,366 55,793 50,681
Long-term debt 672 392 249 119 -
Stockholders' equity 20,204 24,845 20,145 53,766 49,146
- ---------------------------------------
(1) Computed as described in Note 2 (d) of Notes to Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Since our inception, we have principally focused our efforts and resources
on research and development of cell transplantation technology for treating
human diseases that are characterized by cell dysfunction or cell death and for
which current therapies are either inadequate or nonexistent. Our primary source
of working capital to fund those activities has been proceeds from the sale of
equity and debt securities. In addition, since October 1, 1996, we have received
funding from our joint venture with Genzyme in support of the joint venture's
product development programs. We have not received any revenues from the sale of
products to date and do not expect to generate product revenues for the next
several years. We have experienced fluctuating operating losses since inception
and expect that the additional activities required to develop and commercialize
our products will result in increasing operating losses for the next several
years. At December 31, 2001, we had an accumulated deficit of $52.4 million.
In 1996, we formed a joint venture with Genzyme to develop and
commercialize the joint venture's product candidates. We are currently
responsible for funding 25% of the development and commercialization costs of
the joint venture and will share all costs in excess of $50 million equally with
Genzyme. As of December 31, 2001, approximately $33.0 million had been
contributed to the joint venture by Genzyme and approximately $7.6 million had
been contributed by us. Genzyme's President and Chief Executive Officer is a
director of the Company.
Critical Accounting Policies
Our significant accounting policies are discussed in Note 2 of our audited
financial statements which are included in this Form 10-K. We believe our most
critical accounting policies are those that dictate how we recognize revenue and
expense related to the joint venture's activity. We record as research and
development expense all costs related to the joint venture's product candidates
incurred by us on behalf of the joint venture. We then recognize research and
development revenue equal to the amount of reimbursement received by us from the
joint venture out of funds contributed by Genzyme. We do not recognize research
and development revenue for amounts we receive from the joint venture out of
funds contributed by us. As Genzyme incurs costs on behalf of the joint venture
that we are obligated to fund, we recognize an expense in our statement of
operations captioned "Equity in operations of joint venture."
Results of Operations
Year Ended December 31, 2001 Versus Year Ended December 31, 2000
Research and development revenues were approximately $737,000 for the year
ended December 31, 2001 and $2.1 million for the year ended December 31, 2000.
Revenues for both years were comprised entirely of revenue from the joint
venture. The decrease in revenues was primarily a result of a decrease in
clinical production activity related to our joint venture with Genzyme.
Investment income of $3.1 million for the years ended December 31, 2001
and 2000 remained relatively unchanged. We expect our investment income in
2002 will decrease due to a drop in interest rates.
Research and development expenses were $6.4 million for the year ended
December 31, 2001 versus $6.0 million for the year ended December 31, 2000. The
increase in research and development expenses was primarily due to an increase
in the costs associated with sponsoring and managing our clinical trials.
General and administrative expenses were $1.6 million for the year ended
December 31, 2001 versus $1.3 million for the year ended December 31, 2000. The
increase in general and administrative expenses was primarily due to an increase
in personnel costs related to an executive retention plan and an increase in
professional fees incurred as we evaluated strategic relationships.
Interest expense was $14,000 for the year ended December 31, 2001 and
$30,000 for the year ended December 31, 2000. The decrease in 2001 was due to
the scheduled pay down of lease and loan debt outstanding.
For the year ended December 31, 2001, we recorded a $547,000 charge related
to our equity in the operations of the joint venture compared to a $1.4 million
charge for the year ended December 31, 2000. This expense related to funds
contributed by us to the joint venture that were used to fund expenses incurred
by Genzyme on behalf of the joint venture. The decreased charge in 2001 was
primarily due to a decrease in clinical activity performed by Genzyme on behalf
of the joint venture.
We incurred a net loss of approximately $4.6 million for the year ended
December 31, 2001 versus a net loss of approximately $3.5 million for the year
ended December 31, 2000.
Year Ended December 31, 2000 Versus Year Ended December 31, 1999
Research and development revenues were approximately $2.1 million for the
year ended December 31, 2000 and $3.0 million for the year ended December 31,
1999. Revenues for both years were comprised entirely of revenue from the joint
venture. The decrease in revenues was primarily a result of a decrease in
clinical production activity related to our joint venture with Genzyme. The
joint venture completed accruing patients into its Phase 2 clinical trial for
NeuroCell-PD in 1999.
Investment income was $3.1 million for the year ended December 31, 2000
versus $1.3 million for the year ended December 31, 1999. The increase in 2000
was due to greater cash balances available for investment in 2001 as a result
of our public stock offering completed in March 2000.
Research and development expenses of $6.0 million for the year ended
December 31, 2000 and $5.9 million for the year ended December 31, 1999,
remained relatively unchanged between the periods.
General and administrative expenses of $1.3 million for the year ended
December 31, 2000 and $1.4 million for the year ended December 31, 1999,
remained relatively unchanged between the periods.
Interest expense was $30,000 for the year ended December 31, 2000 and
$47,000 for the year ended December 31, 1999. The decrease in 2000 was due to
the scheduled pay down of lease and loan debt outstanding.
For the year ended December 31, 2000, we recorded a $1.4 million charge
related to our equity in the operations of the joint venture compared to a $1.7
million charge for the year ended December 31, 1999. This expense related to
funds contributed by us to the joint venture that were used to fund expenses
incurred by Genzyme on behalf of the joint venture. The decreased charge in 2000
was primarily due to a decrease in clinical activity performed by Genzyme on
behalf of the joint venture as the joint venture completed recruiting patients
into it Phase 2 clinical trial in 1999.
We incurred a net loss of approximately $3.5 million for the year ended
December 31, 2000 versus a net loss of approximately $4.8 million for the year
ended December 31, 1999.
Liquidity and Capital Resources
We have financed our activities primarily with the net proceeds from the
sale of equity and debt securities aggregating $102.0 million and with interest
earned thereon. In addition, we have recorded approximately $15.2 million in
revenue from our joint venture since it commenced on October 1, 1996. At
December 31, 2001, we had cash and cash equivalents, short-term investments and
long-term investments aggregating approximately $49.7 million.
Net cash used in operating activities was $3.9 million for the year ended
December 31, 2001, $2.5 million for the year ended December 31, 2000 and $2.9
million for the year ended December 31, 1999. Cash used in operations for the
years ended December 31, 2001, 2000 and 1999 was primarily attributable to our
net loss, offset in part by our equity in operations of the joint venture.
Net cash provided by investing activities was $1.4 million for the year
ended December 31, 2001. Net cash used in investing activities was $25.6 million
for the year ended December 31, 2000. Net cash provided by investing activities
was $344,000 for the year ended December 31, 1999. Net cash provided by
investing activities for the year ended December 31, 2001, was primarily
attributable to a decrease in long-term investments offset by an increase in
short-term investments. Net cash used in investing activities for the year ended
December 31, 2000, was primarily attributable to an increase in short-term
investments and long-term investments. The increase in investments was due to
our public offering of Common Stock in March 2000. Net cash provided by
investing activities for the year ended December 31, 1999 was primarily
attributable to a decrease in short-term investments and the return of capital
for services provided on behalf of our joint venture, offset in part by our
investment in our joint venture.
Net cash used in financing activities was $102,000 for the year ended
December 31, 2001. Net cash provided by financing activities was $37.0 million
for the year ended December 31, 2000. Net cash used in financing activities was
$220,000 for the year ended December 31, 1999. Net cash used in financing
activities for the year ended December 31, 2001 was primarily attributable to
principal payments made towards long-term debt. Net cash provided by financing
activities for the year ended December 31, 2000 was primarily attributable to
net proceeds from the sale of common stock in a public offering in March 2000.
Net cash used in financing activities for the year ended December 31, 1999 was
primarily attributable to principal payments made towards long-term debt.
In November 1997, we borrowed $650,000 at the prime rate plus 0.5% (5.25%
at December 31, 2001) under an unsecured five-year term loan with a bank to
finance our biomedical animal facility acquired during 1997. As of December 31,
2001, we owed $119,000 under this term loan. We had no material commitments for
capital expenditures as of December 31, 2001. In October 2000, we exercised the
first of two options we have to extend the lease of a facility an additonal five
years. During the extension period, which began in October 2001, we will pay
annual rent of approximately $898,000.
We believe that our existing funds will be sufficient to fund our operating
expenses and capital requirements as currently planned for the foreseeable
future. However, our cash requirements may vary materially from those now
planned because of results of research and development, the scope and results of
preclinical and clinical testing, any termination of the joint venture,
relationships with future strategic partners, changes in the focus and direction
of our research and development programs, competitive and technological
advances, the FDA's regulatory process, the market acceptance of any approved
products and other factors.
We expect to incur substantial additional costs, including costs related to
ongoing research and development activities, preclinical studies, clinical
trials, expanding our cell production capabilities and the expansion of our
laboratory and administrative activities. Therefore, in order to achieve
commercialization of our potential products, we may need substantial additional
funds. We cannot assure you that we will be able to obtain the additional
funding that we may require on acceptable terms, if at all.
Diacrin/Genzyme LLC Financial Statements
For the year ended December 31, 2000, our equity in operations of the joint
venture exceeded 20% of our net loss. Accordingly, pursuant to the rules of the
Securities and Exchange Commission, our prior year Annual Report on Form 10-K
included separate audited financial statements for the joint venture. For the
year ended December 31, 2001, our equity in operations of the joint venture did
not exceed 20% of our net loss. As a result, the current year financial
information with respect to the joint venture presented in this Annual Report on
Form 10-K is unaudited.
Recently Issued Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, and portions of Accounting Principles Bulletin Opinion
30, Reporting the Results of Operations. This statement provides a single
accounting model for long-lived assets to be disposed of and significantly
changes the criteria that would have to be met to classify an asset as
held-for-sale. In addition, it requires expected future operating losses from
discontinued operations to be displayed in the period(s) in which the losses are
incurred, rather than as of the measurement date as presently required. This
statement is effective for fiscal years beginning after December 15, 2001. We
adopted SFAS No. 144 as of January 1, 2002 and, based on current circumstances,
we do not expect the adoption of the statement will have a material impact on
our financial statements.
Certain Factors That May Affect Future Results
The following important factors, among others, could cause actual results
to differ materially from those contained in forward-looking statements made in
this Annual Report on Form 10-K or presented elsewhere by management from time
to time. The forward-looking statements contained in this Annual Report on Form
10-K represent our expectations as of March 28, 2002, the date our Annual Report
on Form 10-K was filed with the SEC. Subsequent events will cause our
expectations to change. However, while we may elect to update these
forward-looking statements, we specifically disclaim any obligation to do so.
See "Cautionary Note Regarding Forward-Looking Statements."
Risks Related to Our Business, Industry and Strategy
We have not successfully commercialized any products to date and, if we do
not successfully commercialize any products, we will not be profitable
Neither we nor any other company has received regulatory approval to market
the types of products we are developing. The products that we are developing
will require additional research and development, clinical trials and regulatory
approval prior to any commercial sale. Our product candidates are currently in
early phase clinical trials or in the preclinical stage of development. Our
products may not be effective in treating any of our targeted disorders or may
prove to have undesirable or unintended side effects, toxicities or other
characteristics that may prevent or limit their commercial use.
We currently have no products for sale and do not expect to have any
products available for sale for several years. If we are not successful in
developing and commercializing any products, we will never become profitable.
The evaluation of the unblinded data from our Phase 2 clinical trial of
NeuroCell-PD may not support further development
In March 2001, we unblinded our Phase 2 clinical trial of NeuroCell-PD and
announced a preliminary analysis of the results. We did not see a statistically
significant difference between the treated patients and the patients in the
control group and, therefore, did not meet the primary endpoint in the trial.
While we are still evaluating the data from this clinical trial, it is possible
that further clinical development of NeuroCell-PD by the joint venture will not
be supported by Genzyme, or that we may choose to discontinue development or
modify the clinical trial protocols, which could result in the termination of or
significant delay in the progress of the NeuroCell-PD development program or the
termination of the joint venture.
Our cell transplantation technology is complex and novel and there are
uncertainties as to its effectiveness
We have concentrated our efforts and therapeutic product research on cell
transplantation technology, and our future success depends on the successful
development of this technology. Our principal approach is based upon
xenotransplantation, or the transplantation of cells, tissues or organs from one
species to another. Our product candidates generally involve the transplantation
of porcine (pig) neural cells into humans. Xenotransplantation is an emerging
technology with limited clinical experience. Neither the FDA nor any foreign
regulatory body has approved any xenotransplantation-based therapeutic product
for humans.
Our technological approaches may not enable us to successfully develop and
commercialize any products. If our approaches are not successful, we may be
required to change the scope and direction of our product development
activities. In that case, we may not be able to identify and implement
successfully an alternative product development strategy.
Xenotransplantation involves risks which have resulted in additional FDA
oversight and which in the future may result in additional regulation
Xenotransplantation poses a risk that viruses or other animal pathogens may
be unintentionally transmitted to a human patient. The FDA requires us to
perform tests to determine whether infectious agents, including porcine
endogenous retroviruses, referred to as PERV, are present in patients who have
received porcine cells. While PERV has not been shown to cause any disease in
pigs, it is not known what effect, if any, PERV may have on humans. We have
performed tests on patients who have received our porcine cells. No PERV has
been detected to date, but we cannot assure you that we will not detect PERV or
another infectious agent in the future.
The FDA requires lifelong monitoring of porcine cell transplant recipients.
If PERV or any other virus or infectious agent is detected in tests or samples,
the FDA may require us to halt our clinical trials and perform additional tests
to assess the risk to patients of infection. This could result in additional
costs to us and delays in the trials of our porcine cell products. Furthermore,
even if patients who have received our porcine cells remain PERV-free, we could
be adversely affected if PERV is detected in patients who receive porcine cells
provided by others.
In January 2001, the FDA issued definitive regulatory guidelines for
xenotransplantation titled "PHS Guideline on Infectious Disease Issues in
Xenotransplantation." We cannot assure you that we will be able to comply with
these guidelines.
We face substantial competition, which may result in others discovering,
developing or commercializing products before or more successfully than we do
The products we are developing compete with existing and new products being
developed by pharmaceutical, biopharmaceutical and biotechnology companies, as
well as universities and other research institutions. Many of our competitors
are substantially larger than we are and have substantially greater capital
resources, research and development staffs and facilities than we have. Efforts
by other biotechnology or pharmaceutical companies could render our products
uneconomical or result in therapies for the disorders we are targeting that are
superior to any therapy we develop. Furthermore, many of our competitors are
more experienced in product development and commercialization, obtaining
regulatory approvals and product manufacturing. As a result, they may develop
competing products more rapidly and at a lower cost. These competitors may
discover, develop and commercialize products which render non-competitive or
obsolete the products that we are seeking to develop and commercialize.
If the market is not receptive to our products upon introduction, our
products may not achieve commercial success
The commercial success of any of our products will depend upon their
acceptance by patients, the medical community and third-party payors. Among the
factors that we believe will materially affect acceptance of our products are:
- the timing of receipt of marketing approvals and the countries in which
those approvals are obtained;
- the safety and efficacy of our products;
- the need for surgical administration of our products;
- problems encountered in the field of xenotransplantation;
- the success of physician education programs;
- the cost of our products which may be higher than conventional
therapeutic products because our products involve surgical
transplantation of living cells; and
- the availability of government and third-party payor reimbursement of our
products.
Risks Relating to Clinical and Regulatory Matters
If our clinical trials are not successful for any reason, we will
not be able to develop and commercialize any related products
In order to obtain regulatory approvals for the commercial sale of our
product candidates, we will be required to complete extensive clinical trials in
humans to demonstrate the safety and efficacy of the products. We have limited
experience in conducting clinical trials.
The submission of an investigational new drug application, or IND, may not
result in FDA authorization to commence clinical trials. If clinical trials
begin, we may not complete testing successfully within any specific time period,
if at all, with respect to any of our product candidates. Furthermore, we or the
FDA may suspend clinical trials at any time on various grounds, including a
finding that the patients are being exposed to unacceptable health risks.
Clinical trials, if completed, may not show any potential product to be safe or
effective. Thus, the FDA and other regulatory authorities may not approve any of
our product candidates for any disease indication.
The rate of completion of clinical trials depends in part upon the rate of
enrollment of patients. Patient enrollment is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites, the eligibility criteria for the study, the existence of
competitive clinical trials and the availability of alternative treatments. In
particular, the patient population for some of our potential products is small.
Delays in planned patient enrollment may result in increased costs and program
delays.
We rely on third-party clinical investigators to conduct our clinical
trials. As a result, we may encounter delays outside of our control.
We may not be able to reinitiate a clinical trial that has been suspended
by the FDA
Clinical trials are subject to ongoing review by the FDA. The FDA has the
authority to suspend a clinical trial for various reasons, as they did in April
2000 with respect to our clinical trial using porcine neural cells to treat
stroke patients. Because our products are novel and complex, getting the FDA to
lift a suspension could result in significant program delays and additional
costs to us. It is possible that we may not be able to obtain permission from
the FDA to continue a clinical trial that has been suspended. Cost increases and
ongoing delays as a result of an FDA suspension could result in our decision to
postpone pursuing certain product candidates.
The regulatory approval process is costly and lengthy and we may not be
able to successfully obtain all required regulatory approvals
We must obtain regulatory approval for each of our product candidates
before we can market or sell it. We may not receive regulatory approvals to
conduct clinical trials of our products or to manufacture or market our
products. In addition, regulatory agencies may not grant approvals on a timely
basis or may revoke previously granted approvals. Any delay in obtaining, or
failure to obtain, approvals could adversely affect the marketing of our
products and our ability to generate product revenue.
The process of obtaining FDA and other required regulatory approvals is
lengthy and expensive. The time required for FDA and other clearances or
approvals is uncertain and typically takes a number of years, depending on the
complexity and novelty of the product. We have only limited experience in filing
and prosecuting applications necessary to gain regulatory approvals.
Our analysis of data obtained from preclinical and clinical activities is
subject to confirmation and interpretation by regulatory authorities which could
delay, limit or prevent regulatory approval. Any regulatory approval to market a
product may be subject to limitations on the indicated uses for which we may
market the product. These limitations may limit the size of the market for the
product.
We also are subject to numerous foreign regulatory requirements governing
the design and conduct of the clinical trials and the manufacturing and
marketing of our future products. The approval procedure varies among countries.
The time required to obtain foreign approvals often differs from that required
to obtain FDA approvals. Moreover, approval by the FDA does not ensure approval
by regulatory authorities in other countries.
Even if we obtain marketing approval, our products will be subject to
ongoing regulatory oversight which may affect the success of our products
Any regulatory approvals that we receive for a product may be subject to
limitations on the indicated uses for which the product may be marketed or
contain requirements for costly post-marketing follow-up studies. After we
obtain marketing approval for any product, the manufacturer and the
manufacturing facilities for that product will be subject to continual review
and periodic inspections by the FDA and other regulatory authorities. The
subsequent discovery of previously unknown problems with the product, such as
the presence of PERV, or with the manufacturer or facility, may result in
restrictions on the product or manufacturer, including withdrawal of the product
from the market.
If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions, and criminal prosecution.
Risks Relating to Financing Our Business
We have incurred substantial losses, we expect to continue to incur losses
and we may never achieve profitability
We have incurred losses in each year since our founding in 1989. At
December 31, 2001, we had an accumulated deficit of $52.4 million. We expect to
incur substantial operating losses for the foreseeable future. We have no
material sources of revenue from product sales or license fees. We anticipate
that it will be a number of years, if ever, before we develop significant
revenue sources or become profitable, even if we are able to commercialize
products.
We expect to increase our spending significantly as we continue to expand
our research and development programs, expand our clinical trials, apply for
regulatory approvals and begin commercialization activities. In particular, we
may devote significant economic resources to funding our joint venture with
Genzyme and to its product development plans. Under the joint venture agreement,
we are currently required to provide 25% of the funding required for the
development and commercialization of NeuroCell-PD and NeuroCell-HD and in the
future will be required to provide 50% of the required funding.
We may require additional financing, which may be difficult to obtain and
may dilute your ownership interest
We will require substantial funds to conduct research and development,
including clinical trials of our product candidates, and to manufacture and
market any products that are approved for commercial sale. Our future capital
requirements will depend on many factors, including the following:
- the analysis of the data from the Phase 2 clinical trial of NeuroCell-PD
which could result in the termination of our joint venture with Genzyme;
- continued progress in our research and development programs, as well as
the magnitude of these programs;
- the resources required to successfully complete our clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the cost of manufacturing and commercialization activities;
- the cost of any additional facilities requirements;
- the timing, receipt and amount of milestone and other payments from
future collaborative partners;
- the timing, receipt and amount of sales and royalties from our potential
products in the market; and
- the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and other patent-related costs, including
litigation costs and the costs of obtaining any required licenses to
technologies.
We may seek additional funding through collaborative arrangements and
public or private financings. Additional financing may not be available to us on
acceptable terms or at all.
If we raise additional funds by issuing equity securities further dilution
to our then existing stockholders may result. In addition, the terms of the
financing may adversely affect the holdings or the rights of our stockholders.
If we are unable to obtain funding on a timely basis, we may be required to
significantly curtail one or more of our research or development programs.
We also could be required to seek funds through arrangements with
collaborative partners or others that may require us to relinquish rights to
certain of our technologies, product candidates, or products which we would
otherwise pursue independently.
Risks Relating to Intellectual Property
We may not be able to obtain patent protection for our discoveries and we
may infringe patent rights of others
The patent positions of pharmaceutical and biotechnology companies,
including us, are generally uncertain and involve complex legal, scientific and
factual issues.
Our success depends significantly on our ability to:
- obtain patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
Patents may not issue from any patent applications that we own or license.
If patents do issue, the claims allowed may not be sufficiently broad to protect
our technology. In addition, issued patents that we own or license may be
challenged, invalidated or circumvented. Our patents also may not afford us
protection against competitors with similar technology. Because patent
applications in the United States may be maintained in secrecy until patents
issue, others may have filed or maintained patent applications for technology
used by us or covered by our pending patent applications without our being aware
of these applications.
We may not hold proprietary rights to some patents related to our proposed
products. In some cases, others may own or control these patents. As a result,
we or our collaborative partners may be required to obtain licenses under
third-party patents to market some of our proposed products. If licenses are not
available to us on acceptable terms, we will not be able to market these
affected products.
If we are not able to keep our trade secrets confidential, our technology
and information may be used by others to compete against us
We rely significantly upon unpatented proprietary technology, information,
processes and know how. We seek to protect this information by confidentiality
agreements with our employees, consultants and other third-party contractors as
well as through other security measures. These confidentiality agreements may be
breached, and we may not have adequate remedies for any such breach. In
addition, our trade secrets may otherwise become known or be independently
developed by competitors.
We may become involved in expensive patent litigation or other intellectual
property proceedings which could result in liability for damages or stop our
development and commercialization efforts
There has been substantial litigation and other proceedings regarding the
complex patent and other intellectual property rights in the pharmaceutical and
biotechnology industries. We may become a party to patent litigation or other
proceedings regarding intellectual property rights.
The types of situations in which we may become involved in patent
litigation or other intellectual property proceedings include:
- we may initiate litigation or other proceedings against third parties to
enforce our patent rights;
- we may initiate litigation or other proceedings against third parties to
seek to invalidate the patents held by these third parties or to obtain a
judgment that our products or services do not infringe the third parties'
patents;
- if our competitors file patent applications that claim technology also
claimed by us, we may participate in interference or opposition
proceedings to determine the priority of invention; and
- if third parties initiate litigation claiming that our processes or
products infringe their patent or other intellectual property rights, we
will need to defend against such claims.
The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be able
to sustain the cost of such litigation or proceedings more effectively than we
can because of their substantially greater financial resources. If a patent
litigation or other intellectual property proceeding is resolved unfavorably to
us, we may be enjoined from manufacturing or selling our products and services
without a license from the other party and be held liable for significant
damages. We may not be able to obtain any required license on commercially
acceptable terms or at all.
Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our
ability to compete in the marketplace. Patent litigation and other proceedings
may also absorb significant management time.
If we breach any of the agreements under which we license technology from
others we could lose license rights that are important to our business
We are a party to technology in-licenses that are important to our business
and expect to enter into additional licenses in the future. In particular, our
immunomodulation technology and some of our product candidates are covered by
patents licensed from Massachusetts General Hospital. These licenses impose
commercialization, sublicensing, royalty, insurance and other obligations on us.
If we fail to comply with these requirements, the licensor will have the right
to terminate the license.
Risks Relating to Product Manufacturing, Marketing and Sales
Since we have no sales and marketing experience or infrastructure, we must
rely on third parties
We have no sales, marketing and distribution experience or infrastructure.
We plan to rely significantly on sales, marketing and distribution arrangements
with third parties for the products that we are developing. For example, under
our joint venture agreement, we have granted to Genzyme (on behalf of the joint
venture) exclusive worldwide marketing rights to NeuroCell-PD and NeuroCell-HD.
We may have limited or no control over the sales, marketing and distribution
activities of Genzyme, the joint venture or any future collaborative partners.
Our future revenues will be materially dependent upon the success of the efforts
of these third parties.
If in the future we determine to perform sales, marketing and distribution
functions ourselves, we would face a number of additional risks, including:
- we may not be able to attract and build a significant marketing or sales
force;
- the cost of establishing a marketing or sales force may not be
justifiable in light of any product revenues; and
- our direct sales and marketing efforts may not be successful.
Delays in obtaining regulatory approval of our manufacturing facility and
disruptions in our manufacturing process may delay or disrupt our
commercialization efforts
Before we can begin commercially manufacturing our product candidates, we
must obtain regulatory approval of our manufacturing facility and process.
Manufacturing of our product candidates must comply with cGMP, and foreign
regulatory requirements. The cGMP requirements govern quality control and
documentation policies and procedures. In complying with cGMP and foreign
regulatory requirements, we will be obligated to expend time, money and effort
on production, recordkeeping and quality control to ensure that our product
candidates meet applicable specifications and other requirements. If we fail to
comply with these requirements, we would be subject to possible regulatory
action and may be limited in the jurisdictions in which we are permitted to sell
our product candidates.
We are the only manufacturers of our product candidates. For the next
several years, we expect that we will conduct all of our manufacturing in our
facility in Charlestown, Massachusetts. If this facility or the equipment in
this facility is significantly damaged or destroyed, we will not be able to
replace quickly or inexpensively our manufacturing capacity.
We have n