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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-22890
SANGSTAT MEDICAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3076-069
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1505 ADAMS DRIVE
MENLO PARK, CALIFORNIA 94025
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, ZIP CODE)
Registrant's telephone number, including area code: (415) 328-0300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($.001 par value)
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 a 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 aggregate market value of voting stock held by non-affiliates of the
Registrant, as of March 10, 1997 was approximately $340,153,573 (based on the
closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq National Market System for the last trading day prior to that date).
Shares of Common Stock held by each officer, director, and holder of 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
On March 10, 1997 approximately 13,139,870 shares of the Registrant's
Common Stock, $.001 par value, were outstanding.
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PART I
ITEM 1. BUSINESS
OVERVIEW
SangStat, The Transplant Company, is a specialty pharmaceutical company
applying a disease management approach to improve the outcome of organ
transplantation. The Company's products and product candidates are designed to
prevent and treat graft rejection and monitor transplant patients throughout
their lifetimes. SangStat's lead drug candidates are THYMOGLOBULIN for the
treatment of acute graft rejection episodes, and CYCLOSPORINE, for chronic daily
immunosuppression to prevent graft rejection. In January 1997, the Company filed
a Product License Application ("PLA") with the FDA for marketing approval of
THYMOGLOBULIN. This application was accepted for review by the FDA in February
1997. In November 1996, the Company filed an Abbreviated Antibiotic Drug
Application ("AADA"), which the FDA accepted for review in January 1997, for
marketing approval of its proprietary CYCLOSPORINE formulation. Cyclosporine,
which to date has only been marketed by Novartis AG ("Novartis"), is the leading
immunosuppressive drug used by transplant patients, with reported worldwide
sales of $1.2 billion in 1995. SangStat is also conducting clinical trials for a
generic AZATHIOPRINE product candidate for use as an adjunct therapy in chronic
immunosuppression. ALLOTRAP 2702, a proprietary HLA peptide designed to promote
graft acceptance, is in Phase II clinical trials in Europe. To further the
Company's goal of providing comprehensive disease management, the Company has
established THE TRANSPLANT PHARMACY, a pilot program designed to provide mail
order distribution of drugs and transplant patient management services.
SangStat's strategy is to provide a comprehensive disease management
approach to the organ transplantation market by developing a family of products
that address the needs of patients at each stage of transplant care from
pre-transplant monitoring to the lifetime post-transplant phase. The Company
plans to capitalize on this broad product pipeline by developing relationships
with key providers and managed care organizations to better integrate the
management of the transplant patients' care and improve outcomes and lower
costs.
ORGAN TRANSPLANTATION
Organ transplantation can save or improve the lives of patients with organ
failures for whom there are few alternative treatments. Transplantation involves
surgically replacing the failed organ of a transplant recipient with a viable
organ from a donor. Because the success of a transplant depends on the degree of
compatibility between the organ donor and the recipient, a typical transplant
candidate must wait on a national computerized waiting list until a compatible
organ can be found. Currently, there are approximately 80,000 transplant
candidates registered on waiting lists in approximately 500 transplant centers
throughout North America and Europe. At any given time, approximately 70% of
these patients are waiting for kidney transplants. The other patients are
waiting for liver, heart, heart-lung, bowel or pancreas transplants. Each year
approximately 50,000 new patients receive donated organs. In order to prevent
rejection of implanted organs, recipients must begin a life-long regimen of
immunosuppressive therapy immediately upon receiving a donated organ. There are
more than 200,000 patients in North America and Europe that need daily
immunosuppressive therapy to prevent graft rejection and graft loss.
In addition to being a life-saving and life-enhancing procedure,
transplantation can be cost-effective as well. For example, the cost over a
10-year period of a kidney transplant is generally less than the cost of
dialysis. However, transplantation is still very costly, due in substantial part
to the costs of lifetime immunosuppressive therapy and associated side effects
as well as the costs of treating rejection and infection episodes. Therefore,
products that limit the need for immunosuppression and reduce the frequency and
severity of rejection and infection episodes could significantly improve the
cost-effectiveness of transplantation.
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The Transplant Immune Response
The function of the immune system is to protect the body from damage caused
by invading microorganisms or other foreign matter, including donor organs. This
defensive function is performed by the humoral (B-cell) and cell-mediated
(T-cell) arms of the immune system. When challenged, the humoral and
cell-mediated systems interact and generate a coordinated immune response to
recognize, target and eliminate the pathogen or, in the case of transplantation,
the donor organ, thereby resulting in graft rejection. Specifically, the donor
organ antigens (HLA molecules) are recognized by the immune system of the graft
recipient as being "non-self."
The immune response to a transplant depends on the level of compatibility
between donor and recipient HLA molecules. The HLA system consists of a complex
array of molecules playing a key role in the normal immune response as well as
in graft acceptance or rejection. HLAs were originally discovered by Dr. Jean
Dausset, a scientific advisor to SangStat, and Nobel Prize laureate for this
pioneering discovery.
Molecular differences between an organ donor's and a recipient's HLAs lead
to the recognition of the donor's HLAs as non-self by the recipient's immune
system. Graft rejection results when the recipient's immune system T-cell
progenitors recognize the donor's HLAs as non-self, activate against the graft
and proliferate into numerous cytotoxic T-cells. When these cytotoxic T-cells
invade and attack the graft, rejection and loss of the organ often occur. In
addition to T-cells, anti-HLA antibodies can play an active role in the
anti-graft immune response. The presence of anti-HLA antibodies in the
recipient's blood may indicate a high risk of accelerated rejection. Maximizing
HLA compatibility by selecting, for a given recipient, the donor whose HLAs are
as similar as possible to the recipient's HLAs and not recognized by antibodies
preexisting in the recipient's blood, is key to reducing the risk of rejection.
However, because it is extremely difficult to get a perfect HLA match
except in identical twins, rejection episodes occur frequently. Current
therapies used to reduce the occurrence of rejection episodes involve the
chronic use of immunosuppressants, which impair the entire immune system of the
recipient. Even with the use of immunosuppressants, graft rejection remains
frequent, and their chronic use can lead to serious side effects, including
life-threatening infections, kidney or liver toxicity and cancers.
The Transplant Process
A typical transplant patient progresses through three clinical phases: the
pre-transplant phase; the acute phase (surgery and first year post-transplant);
and the lifetime post-transplant phase.
The Pre-Transplant Phase. A transplant candidate is registered on a
national computerized waiting list, which ranks candidates according to the
urgency of the need for a transplant and maintains the data necessary to
determine if a compatible organ becomes available. A kidney transplant candidate
usually waits months or even years for a compatible organ and continues to
undergo dialysis several times per week to substitute for the failed kidneys.
Typically, a blood sample is collected as frequently as monthly and evaluated to
estimate the candidate's level of immune sensitization against a panel of HLA
molecules representative of the population of prospective organ donors. This
procedure, called Panel Reactive Antibody (PRA) testing utilizes
microlymphocytotoxicity, a complex and subjective laboratory method developed in
the 1960s. Traditional HLA compatibility testing lacks accuracy and
standardization and therefore often results in poor matching of donors and
recipients.
The Acute Phase (Surgery and First Year Post-Transplant). Most organs are
retrieved from trauma victims who are declared brain-dead but maintain cardiac
function until their organs are removed. The harvested organs are stored in a
preservation solution to prevent deterioration and then tissue typed to
determine the level of HLA antigens. Each organ is cross matched with
approximately 100 potential recipients on the transplant waiting lists. Once the
best candidate for each organ has been chosen, the
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organ is shipped in an organ preservation solution to the recipient's transplant
center. The length of storage time allowed before transplant varies among organ
types and can severely limit the distance an organ can be shipped. The quality
of organ preservation is therefore an important factor contributing to the
viability of the transplant.
Transplant surgery has become a relatively safe and standardized procedure.
After the transplant, the challenge for physicians is to prevent graft rejection
by suppressing the activity of T-cells. Consequently, the success of the
transplant is highly dependent on the immunosuppressive regimen which is
initiated the day of transplantation and continued daily for the rest of the
patient's life. In addition, organ recipients must be regularly monitored to
measure the body's immune response and blood drug levels and to identify acute
rejection episodes.
Despite the use of immunosuppressants, during the first year following
transplantation many transplant patients (estimates range from 15% in certain
populations to more than 60% in others, depending on risk factors and therapy)
undergo one or more graft rejection episodes. During a rejection episode, the
body mounts an immune attack on the graft, resulting in impaired function of the
transplanted organ. Because rejection, infection and drug toxicity produce
similar symptoms, diagnosis of rejection may be difficult until it reaches an
advanced stage and is confirmed by an invasive graft biopsy. The only way to
stop the rejection process is by administering additional immunosuppressive
therapy, such as high doses of steroids, and/or anti-T-cell monoclonal and/or
polyclonal antibodies. In many cases, rejection can be arrested and organ damage
reversed. However, at the end of the first year, about 20% of kidney transplant
patients (and a higher percentage for other organs) have lost their grafts.
Surgery is typically required to remove the rejected kidney and the patient must
return to chronic dialysis and possibly receive a second transplant, which has a
lower probability of success than the first. Failure to reverse rejection of
other organs often results in the death of the patient.
The Lifetime Post-Transplant Phase. The use of immunosuppressants,
initiated during the acute phase, is continued daily throughout the patient's
lifetime to minimize or prevent the loss of the graft by acute or chronic
rejection. Conventional therapy typically combines several drugs, most commonly
cyclosporine, azathioprine and steroids, or alternative combinations for certain
patients using tacrolimus and/or mycophenolate mofetil. These drugs act
nonspecifically and broadly impair the recipient's immune system in order to
reduce the immune response against the graft. Cyclosporine is the leading
immunosuppressive drug used in the post-transplant phase. In 1995, worldwide
sales of Novartis' cyclosporines, Sandimmune and Neoral, were reported at $1.2
billion. Even with the use of immunosuppressants, patients have an approximate
5% to 20% risk of losing grafts per year during the first three years following
transplantation, and less than 50% of patients have functioning grafts after
approximately ten years.
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PRODUCTS, PRODUCT CANDIDATES AND SERVICES
SangStat's portfolio of complementary drugs, monitoring products, product
candidates and services are designed to prevent and treat graft rejection and
monitor patients throughout the patient's lifetime. The following table
summarizes SangStat's products, product candidates and services.
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POTENTIAL CLINICAL
TRANSPLANT PHASE PRODUCT/SERVICE USE STATUS(1)
- ----------------- ----------------- ------------------ -------------------------
Pre-Transplant PRA-STAT Detects anti-HLA Marketed
Monitoring antibodies in
candidates
CROSS-STAT Detects candidate Marketed
antibodies against
a specific donor
Transplant THYMOGLOBULIN(2) Treats acute PLA under review in U.S.;
Acute Care kidney rejection NDS filed in Canada
episodes
ALLOTRAP 2702 Promotes graft Phase II trials (Europe)
acceptance
CELSIOR(3) Preserves organs Clinical trials
prior to
transplantation
Lifetime Post- CYCLOSPORINE Chronic AADA under review in U.S.
Transplant Care immunosuppression
AZATHIOPRINE Chronic Bioequivalence trials
immunosuppression
MONITORING Patient management Clinical trials
PRODUCTS
THE TRANSPLANT Mail order and Piloting at selected
PHARMACY patient management centers
program
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(1) "Phase I, II or III" indicates that the product candidate is in a
certain stage of clinical trials. "Bioequivalence Trials" are clinical
studies in healthy volunteers which assess pharmacokinetic parameters
of the drug candidate against the reference drug to support an
application for the approval of a generic drug without the need for
safety and efficacy trials. "AADA under review" means that an
Abbreviated Antibiotic Drug Application has been accepted for filing
by the FDA and is now under review for approval in the U.S. on the
basis that the product may be bioequivalent to an existing reference
listed drug and may conform with AADA regulations. "NDS Filed" means
that a New Drug Submission has been filed with the Health Protection
Board. "PLA under review" means that a Product License Application for
approval of a biological product has been accepted for filing by the
FDA and is now under review for approval in the U.S. "Marketed" means
that commercial sales of the product have commenced. See "--Government
Regulation."
(2) THYMOGLOBULIN is licensed exclusively from PMC for the United States
and Canada and commercialized by PMC in many European countries. See
"--Strategic Relationships."
(3) CELSIOR was licensed from PMC and the Company has the exclusive rights
to market the product in the United States and Canada. See
"--Strategic Relationships."
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Since its inception in 1988, SangStat has focused on the development of
products to improve the outcome of organ transplantation. The Company's revenue
is primarily derived from the distribution of the Company's therapeutic
transplantation product candidate, THYMOGLOBULIN in Canada and from sales of its
pre-transplant monitoring products PRA-STAT and CROSS-STAT in the United States,
Canada and Europe. Sales of organ transplantation products comprised 46%, 78%
and 88% of the Company's net product sales in 1994, 1995 and 1996, respectively.
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THYMOGLOBULIN
Thymoglobulin is a pasteurized, rabbit anti-human thymocyte immunoglobulin
(polyclonal antibody preparation) which induces immunosuppression as a result of
T-cell depletion. The Company filed a PLA with the FDA for market approval in
January 1997 which was accepted for review by the FDA in February 1997. SangStat
has an exclusive license from PMC to market THYMOGLOBULIN in the United States
and Canada. Thymoglobulin is commercially available in many European countries
where it is a market leader in its category. Approved for use in 39 countries,
thymoglobulin has been commercialized and used to treat more than 30,000
patients principally in Europe by PMC since 1985.
SangStat completed a pivotal Phase III human clinical trial in the United
States in August 1996. The trial was designed to demonstrate safety and efficacy
equivalent to current anti-T-cell therapy for the treatment of acute kidney
rejection episodes. The trial was a double-blinded, randomized, multi-center
Phase III clinical trial of THYMOGLOBULIN versus ATGAM (marketed by Pharmacia &
Upjohn Inc.) in the treatment of acute rejection episodes following renal
transplantation in adults. The 163 adult patients enrolled in the trial were
kidney transplant recipients with biopsy-proven acute graft rejection. Patients
randomized into the treatment groups were to receive either 1.5 mg/kg per day of
THYMOGLOBULIN or 15 mg/kg per day of ATGAM for 7 to 14 days and were followed
for three months following enrollment. Patients were stratified into groups
according to the degree of rejection severity (steroid resistant mild, moderate
or severe rejection). The severity of rejection was based on the kidney biopsy
using the standardized international Banff criteria. Of the 162 evaluable
patients in the trial, 82 received THYMOGLOBULIN and 80 received ATGAM. The
trial was conducted at 28 leading transplant centers around the United States.
An intent-to-treat analysis of the data (primary endpoint, i.e. the major
variable in the trial) indicated that the observed overall success rate in the
reversal of acute rejection for THYMOGLOBULIN was 87.8% compared to an observed
overall rate of 76.3% for ATGAM. These results, which have not yet been reviewed
by the FDA, were statistically significant and demonstrated that THYMOGLOBULIN
was not just equivalent to ATGAM, but reversed rejection in a higher number of
cases (p = 0.027). However, because the study was designed to show equivalence,
there can be no assurance that the FDA will allow a claim of superiority.
Success, according to the primary endpoint, was the post-therapy return of serum
creatinine level (a measure of kidney function) to, or below, baseline level. A
preliminary intent-to-treat analysis of the secondary endpoints (i.e. secondary
variables in the trial) showed that the two therapies were equivalent for these
secondary endpoints. Secondary endpoints were (i) graft survival at Day 30, (ii)
Day 30 creatinine to baseline creatinine ratio and (iii) histological
improvement between enrollment and post-therapy biopsies. Patients on both
therapies experienced similar side effects and there was no difference in the
safety profile between the two therapies.
SangStat believes that, because of the preclinical and clinical data
available on THYMOGLOBULIN from PMC, only the single completed Phase III trial
will be required in the United States to support FDA approval. However, there
can be no assurance that the results of a single Phase III clinical trial, in
combination with existing European safety and efficacy data, will be sufficient
to support an ELA, PLA, or any future ELA supplements needed for commercial
marketing. The Company filed an ELA and a PLA with the FDA in August 1996 and
January 1997, respectively. Both applications have been accepted for filing and
are now under review by the FDA. The Company intends to file an additional ELA
supplement for a new PMC facility necessary to meet North American market
demand. SangStat has filed an NDS and is generating fluctuating revenues through
the distribution of THYMOGLOBULIN in Canada under the EDR program, which permits
the distribution of certain products before final regulatory approval. In the
United States, SangStat has provided THYMOGLOBULIN for compassionate use for
over 50 patients. Data in support of the PLA submission were derived from
extensive European clinical trials and post-marketing surveys, as well as
experience in Canada under the EDR program. SangStat is developing THYMOSTAT, a
monitoring assay for THYMOGLOBULIN to assist in optimal definition of the
therapeutic regimen (i.e. monitoring blood levels of a product to determine
which blood levels lead to the best results for patients using the product).
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CYCLOSPORINE
In North America and Europe there are more than 200,000 transplant
recipients requiring expensive daily immunosuppressive therapy for the rest of
their lives. The majority of these patients use cyclosporine. The Company
estimates that the current cyclosporine cost per patient is $7,000 to $8,000 per
year. Cyclosporine is a small, cyclic peptide that works by inhibiting T-cell
activation and preventing T-cells from attacking a transplanted organ. The
development of cyclosporine for the prevention of graft rejection was a medical
breakthrough in the early 1980's and resulted in the rapid growth of organ
transplantation. Sandimmune, the original formulation of cyclosporine was
introduced by Novartis, formerly Sandoz, in the United States in 1983. Neoral,
an improved formulation of cyclosporine with increased bioavailability, was
launched first in Europe in 1994 and then in the United States in September
1995. Currently, the majority of all new transplant recipients are started on
Neoral, and, as of the end of 1996, the Company estimates, based on information
released by Novartis, that more than 70% of European and 50% of the United
States transplant recipients have been initiated on, or converted to, Neoral. In
November 1996, SangStat filed an AADA with the FDA, which the FDA accepted for
review in January 1997, for marketing approval of its proprietary formulation of
CYCLOSPORINE. The Company believes its formulation of CYCLOSPORINE is
bioequivalent to Novartis' newest formulation, Neoral. Worldwide sales of
Novartis' cyclosporine in 1995 are reported at $1.2 billion.
Two different formulations of the same drug are considered bioequivalent if
the drug's absorption rate, blood concentration and persistence in the
bloodstream are demonstrated to be equivalent in healthy volunteers in
controlled, crossover trials according to defined regulatory policy. Two key
pharmacokinetic parameters, area under the blood concentration vs. time curve
(AUC) and the maximum drug concentration (Cmax) are measured in human
bioequivalence trials. These parameters are calculated from drug levels measured
in the blood over a defined time period following dosing. AUC to a defined time
point (AUC (0-t)) and AUC to infinity (AUC (0-()) are calculated separately.
Among other factors, if the 90% confidence intervals (for the ratio of the log
transformed parameters of SangStat's CYCLOSPORINE and Neoral) are contained
within the range of 80% to 125%, the formulations are considered bioequivalent
under current FDA policy.
SangStat's pivotal trial was a single-dose, randomized, cross over
bioequivalence trial in 36 healthy human volunteers comparing, under fasting
conditions, SangStat's CYCLOSPORINE with Neoral. Subjects had blood samples
taken at defined time points over a 36-hour period and the cyclosporine blood
levels were analyzed using a standardized, validated cyclosporine assay.
Statistical comparison of the key pharmacokinetic parameters for SangStat's
CYCLOSPORINE and Neoral yielded the following results which the Company believes
demonstrate bioequivalence; however, the FDA has not yet reviewed any of these
data:
SANGSTAT/NEORAL 90% CONFIDENCE
PARAMETER LEAST SQUARES MEAN RATIO INTERVAL(1) POWER(2)
- ---------- ------------------------ -------------- --------
Cmax 99.6% 96.9 - 104% 99.99%
AUC(0-t) 99.8% 97.3 - 103% 99.99%
AUC(0-() 99.4% 97.0 - 103% 99.99%
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(1) Based on log transformed parameters.
(2) Power = Power (%) to detect 20% differences between treatments (a=0.05). For
the study to be statistically significant, the power should be at least 80%.
SangStat has now completed five human trials with its proprietary
CYCLOSPORINE formulation in a total of 119 healthy volunteers and patients. In
addition to the pivotal trial, a supporting trial in 21 subjects designed to
assess food effect on cyclosporine bioavailability also demonstrated
statistically significant bioequivalence between SangStat's CYCLOSPORINE and
Neoral under fed conditions. The
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Company subsequently confirmed bioequivalence in two additional healthy
volunteer trials in 38 subjects (African Americans and females) and its first
patient trial in 24 kidney transplant recipients. In each of the pivotal and
additional trials, the incidence, severity or frequency of side effects was
similar between the two products. The Company continues to expand its global
regulatory clinical trial program with trials ongoing and planned for different
populations of organ transplant recipients, and expects to present the results
of these trials at upcoming transplant and regulatory meetings.
Under current FDA regulations and policy, a generic cyclosporine that is
shown to be bioequivalent to Neoral may be approved without the need to
duplicate safety and efficacy trials. If the FDA approves SangStat's
CYCLOSPORINE based on bioequivalence to Neoral, SangStat intends to market its
formulation as a branded therapeutic substitute for Neoral.
The Company has entered into an agreement for commercial scale production
of CYCLOSPORINE bulk material (i.e. the active ingredient of CYCLOSPORINE) from
an established fermentation manufacturing source. The agreement has an initial
term of ten years following the first regulatory approval of CYCLOSPORINE for
commercial sale in North America and Europe, subject to earlier termination upon
120 days notice in the event of a substantial breach by either party of its
material obligations under the agreement. The Company has also separately
contracted for the manufacture of the finished commercial supply (i.e. product
in completed dosage form) of its CYCLOSPORINE product candidate from an
established third-party source who will prepare bulk CYCLOSPORINE, provided by
the Company, for subsequent commercial sale and distribution worldwide by the
Company. The Company retains the exclusive commercial rights worldwide. There
can be no assurance that the Company's third-party manufacturers will perform
satisfactorily and any such failure may delay clinical trial development or the
submission of product for regulatory approval, impair the Company's ability to
deliver products on a timely basis, or otherwise impair the Company's
competitive position, which would have a material adverse effect on the
Company's business, financial condition, cash flows and results of operations.
See "Risk Factors--Limited Manufacturing Capability."
Commercialization of the Company's CYCLOSPORINE drug candidate may be
several years away and successful development and commercialization is subject
to numerous risks, including failure to obtain regulatory approvals and
potential intellectual property claims of third parties, including those of
Novartis and its manufacturing contractors. In addition, if the Company is
unable to demonstrate to the FDA that its formulation is bioequivalent to
Neoral, a currently approved Novartis formulation, the Company would be required
to undertake additional development work and seek regulatory approval through
the potentially longer NDA process if it wished to continue to pursue this
product candidate.
Cyclosporine is particularly difficult to manufacture since it must be
extracted from whole cells and carefully purified. There can be no assurance
that SangStat's CYCLOSPORINE drug candidate can be manufactured in commercial
quantities at an economical cost. There can be no assurance that SangStat can
manufacture, or have manufactured, formulate or commercialize its CYCLOSPORINE
product without infringing patent or other proprietary rights of Novartis or
other third parties, due in part to the large number and scope of these patents
and the difficulty of solubilizing cyclosporine into a formulated drug product.
Although Novartis' composition of matter patent for cyclosporine expired in
September 1995 in the United States, Novartis' patents relating to formulations
are expected to continue to present significant barriers to entry to potential
competitors.
There can be no assurance that Novartis will not seek to protect its market
share through litigation, or other actions, against SangStat, its affiliates and
partners, or the FDA, or take actions which could adversely affect the
regulatory approval process. To date, no litigation has been commenced by
Novartis nor has Novartis threatened the Company with litigation. In November
1996, however, Novartis filed a citizens' petition with the FDA, seeking to
prohibit the use of Neoral as a reference drug for demonstration of
bioequivalence. Neoral was listed as a reference drug in the FDA's Approved Drug
Products with Therapeutic Equivalence Evaluations. There can be no assurance
that SangStat's formulation will not be found to infringe on Novartis'
proprietary rights. If Novartis brings suit against SangStat in the United
States or elsewhere, SangStat could be greatly delayed in obtaining regulatory
approval of any CYCLOSPORINE product, or in bringing any CYCLOSPORINE product
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candidate to market, or could be enjoined from selling the product for a
significant period of time or ultimately be prevented from selling its
CYCLOSPORINE product candidate entirely. Should this happen, the Company does
not believe it would be able to obtain a license from Novartis on acceptable
terms because the Company believes cyclosporine is an important product for
Novartis and that Novartis would not want to diminish its profits from this
product by licensing it on acceptable terms to the Company. Failure to obtain
any such required license could prevent the Company from selling CYCLOSPORINE
entirely, which would have a material adverse effect on the Company's future
results of operations. A number of key employees were previously employed at
Novartis and it is possible a claim could be asserted against SangStat based on
such prior employment. While the Company believes that such a claim would be
without merit in part because such employees have informed the Company that they
did not have any non-competition agreements with Novartis and that they have not
violated any confidentiality agreements with Novartis, such a claim could
nonetheless result in litigation. Any litigation, whether or not resolved in
favor of the Company, is likely to be expensive, lengthy and time consuming and
could have a material adverse effect on the Company's business, financial
condition, cash flows and results of operations. To date no litigation has been
threatened, but there can be no assurance that Novartis will not commence
litigation or otherwise attempt to delay the marketing of CYCLOSPORINE in the
future. See "Risk Factors--Risks Associated with CYCLOSPORINE."
AZATHIOPRINE
Azathioprine is an immunosuppressant that inhibits the development of
T-cells by interfering with the differentiation and proliferation of activated
lymphocytes. It is used as an adjunct for the prevention of rejection in renal
organ transplantation. The patent for azathioprine composition of matter has
expired. Therapy is usually initiated shortly after transplantation and
continued daily for the patient's lifetime. It is used in conjunction with
cyclosporine and steroids in the standard "triple therapy" regimen used by the
majority of U.S. transplant centers. It is currently marketed as Imuran by Glaxo
Wellcome Ltd. and as generic azathioprine by Roxane Laboratories. United States
sales of Imuran and Azathioprine in 1996 were estimated to be $80 million.
SangStat has developed a generic AZATHIOPRINE for use in transplantation as
an adjunct therapy in chronic immunosuppression and is currently conducting
human bioequivalency trials. Pending successful completion of these trials, the
Company intends to seek market approval by filing an Abbreviated New Drug
Application ("ANDA") with the FDA and to market the product as a branded
therapeutic substitute for Imuran.
ALLOTRAP PEPTIDES
ALLOTRAP 2702 is a small peptide derived from the Company's proprietary
sHLA technology that is designed to promote graft acceptance. SangStat believes
that the ALLOTRAP family of peptides may enable the body to accept a graft as
self without otherwise limiting the normal operation of the immune system, thus
possibly reducing the need for chronic immunosuppressive therapy. The Company
believes that if an ALLOTRAP peptide is exposed to the recipient's T-cell
progenitors simultaneously with the donor's HLAs, the T-cell progenitors are
deactivated. As a result, the T-cells are not activated against the donor's HLA
and do not reject the graft.
The results of an initial Phase II study in Europe showed that ALLOTRAP
2702 was safe and well-tolerated in the study. A key finding, with respect to
biological activity, was the statistically significant in vivo inhibition of
cell-mediated cytotoxicity by ALLOTRAP 2702. Such inhibition had previously been
identified as a key endpoint in preclinical studies. The trial was conducted at
the Center of Transplantation at Nantes, the largest kidney/pancreas transplant
center in France, and was a double-blinded, randomized, placebo-controlled
safety and pharmacokinetic study of ALLOTRAP 2702 in 28 renal transplant
recipients. The results showed that there were no adverse effects attributed to
ALLOTRAP 2702 therapy, and no anti-peptide antibodies, which would lower the
peptide's potential immunosuppressive efficacy, could be detected. Furthermore,
renal function, as assessed by serum
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creatinine levels at one and three months post-transplant, was similar between
the high dose peptide group and placebo group. In this study, the investigators
also found that ALLOTRAP 2702 resulted in a statistically significant difference
in cell-mediated ("Natural Killer" or "NK" cells) cytotoxicity in the group
receiving ten days' therapy as compared to controls (p = 0.001). This effect on
NK cell activity was previously demonstrated in preclinical studies to be a key
marker of efficacy whereby NK cell inhibition correlated with the prolongation
of graft survival without the need for continuous immunosuppression. These
results indicate that ALLOTRAP 2702 had a biological effect in humans and that
NK cell activity may serve as a surrogate endpoint in future trials. Additional
human studies are ongoing or planned. Additional ALLOTRAP peptides are in
preclinical research.
Although the Company believes it conducted its clinical trials taking into
account both European and U.S. regulatory standards, there can be no assurance
that such data will be accepted by the FDA. The Company expects to conduct
several additional Phase II clinical studies to assess product efficacy and
optimize dosage before potentially conducting large-scale Phase III trials. The
use of ALLOTRAP peptides to promote graft acceptance in humans is novel and
unproven and there can be no assurance that such peptides will prove to be safe
or effective in humans for any clinical indication for any transplant type or at
any dosage.
Pre-transplant HLA Monitoring Products and Product Candidates
SangStat's pre-transplant monitoring products and product candidates are
intended to improve HLA compatibility between organ donors and recipients by
providing accurate, rapid, efficient and standardized testing. Current HLA
testing mainly involves a complex procedure, microlymphocytotoxicity, which is
run in specialized transplant laboratories by highly-trained technicians. These
tests require viable cells and multiple reagents. Results obtained from visual
reading using a microscope are often subjective. This method of HLA testing is
labor intensive and lacks accuracy and standardization, often causing
inconsistent results.
sHLA constitutes a convenient biological material for testing transplant
candidates to guide HLA compatible donor selection. Found in whole blood and
plasma of all individuals, sHLA molecules are similar to cell HLAs: (i) they
have the same basic structure, (ii) they bind to anti-HLA antibodies and (iii)
they are polymorphic. SangStat has observed that sHLA molecules can be
accurately measured using immunoassay technology and substituted for cell HLAs
for detection of anti-HLA antibodies and HLA typing. SangStat's scientists
showed that sHLA molecules circulating in blood could be used for accurate and
rapid HLA typing and detection of anti-HLA antibodies. These assays form the
basis of the technology used to develop PRA-STAT and CROSS-STAT. The Company is
currently manufacturing and selling PRA-STAT and CROSS-STAT through its direct
sales force. These pre-transplant monitoring products and product candidates
together are expected to improve donor/recipient matching and post-transplant
monitoring.
PRA-STAT is designed for Panel Reactive Antibody (PRA) testing to track the
appearance and disappearance of anti-HLA antibodies in transplant candidates,
and to analyze such antibodies. This guides the selection criteria of the
prospective donor for each transplant candidate. PRA testing is often performed
every month on patients waiting for transplants. PRA-STAT was introduced in
March 1994 and is currently being marketed.
CROSS-STAT is designed to assess which candidate reacts the least to the
donor's HLAs, thus determining the best recipient for the available organ (cross
matching). If the candidate had antibodies against the donor's HLAs, the HLA
compatibility would be poor, and the candidate would not receive the transplant.
Crossmatching is the final step in determining the best donor/recipient
compatibility. The Company received FDA clearance for CROSS-STAT in May 1995 and
the product is currently being marketed. The Company believes that such
monitoring products could contribute to better management of transplant patients
and immunosuppressive therapy.
In July 1996, the Company completed an agreement with Baxter Healthcare
Corporation ("Baxter") to reacquire marketing rights to PRA-STAT and CROSS-STAT
pre-transplant monitoring
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products. The Company reacquired these products in order to market these
monitoring products directly and to better establish its own product
distribution capabilities. The terms of this reacquisition included the
acceptance of salable inventory returns and the purchase of certain equipment
from Baxter aggregating approximately $355,000, as well as the obligation to pay
Baxter royalties on future sales of the reacquired products.
Organ Preservation Product Candidate
The quality of organ preservation is an important factor contributing to
the viability of the transplant. Most organs are retrieved from trauma victims
who are declared brain-dead but maintain cardiac function until their organs are
removed. The harvested organs are stored in a preservation solution to prevent
deterioration and tissue typed to determine the HLA antigens. Following this,
each donor must be crossmatched with the patients on the transplant waiting
lists, each organ being crossmatched with approximately 100 potential
recipients. Once the best candidate for each organ has been chosen, the organs
are shipped to the recipient's transplant center. The amount of storage time
allowed before transplant varies between organ types and can severely limit the
distance an organ can be shipped. SangStat has acquired from PMC an exclusive
license to commercial rights for CELSIOR in the United States and Canada.
CELSIOR is a formulated solution to store and extend viability of organs between
organ recovery and transplantation. SangStat intends to assess the effect of
CELSIOR on organ viability and speed of post-transplant organ function recovery.
After consultation with the FDA, the Company recently voluntarily withdrew its
510(k) for a two-component CELSIOR product in favor of a one component product.
The Company is now conducting a clinical trial for a redesigned, one-component,
ready-to-use CELSIOR product candidate and intends to submit a new 510(k).
Post-transplant Monitoring Product Candidates
The efficacy and safety of a transplant depends on individual
susceptibility to graft rejection and immunosuppressive therapy. Few tools exist
for post-transplant surveillance to assist physicians in prescribing each
patient's immunosuppressive drug regimen. SangStat is developing several
monitoring products to assist the physician in customizing drug therapy for each
patient, such as THYMOSTAT to monitor patients treated with THYMOGLOBULIN.
THE TRANSPLANT PHARMACY
To further the Company's goal to provide comprehensive disease management,
in September 1996 SangStat established THE TRANSPLANT PHARMACY, a pilot program
designed to provide mail order distribution of drugs and other services for
transplant patients. Its first site of operation opened in September 1996 at the
University of Tennessee Bowld Hospital Organ Transplant Center in Memphis,
Tennessee. The Company has also established a central mail order facility in
Menlo Park, California.
SangStat intends to develop a dedicated sales force to market its
transplant products directly to transplant centers and patients. To further this
goal and to provide comprehensive disease management, SangStat established THE
TRANSPLANT PHARMACY, a pilot program dedicated to providing direct distribution
by mail order of drugs and transplant patient management services in September
1996. This service will promote medication compliance, measure clinical and
economic outcomes, and provide feedback directly to clinicians. Patients
electing to enroll will be able to have all of their medications filled through
the program's central pharmacy. THE TRANSPLANT PHARMACY will also place a key
individual, such as a pharmacist, in each transplant center that joins the
program to interact directly with physicians, nurses and patients. THE
TRANSPLANT PHARMACY program seeks to provide a singular and integrated approach
to the management of transplantation, in which the Company's drugs, monitoring
products, and services can be supplied to meet the needs of individual
transplant centers and their patients.
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Xenotransplantation
SangStat is working on a xenotransplantation technology (XE-9) through its
wholly-owned subsidiary, XenoStat, Inc. ("XenoStat"). Xenotransplantation is the
transplantation of an organ from one species to a different species. If
successful in humans, it could partly overcome the current limited availability
of organs. SangStat does not expect any application of the XenoStat technology
in humans for the next several years, if at all. Such applications will require
extensive clinical trials and regulatory approvals.
XENOJECT Technology
SangStat is developing a new platform technology called XENOJECT. The
Company believes XENOJECT will promote the elimination of undesirable cells by
halting the acceptance process of the immune system. XENOJECT specifically
redirects a graft immune response from its natural target to an undesirable
target by adding incompatible transplantation antigens to the surface of the
undesirable cell. XENOJECT may become an enabling technology which offers major
potential advantages over other specific immunotherapy technologies, such as
therapeutic monoclonal antibodies (murine or humanized) or immunotoxins.
Potential benefits include increased potency, decreased immunogenicity, easier
manufacturing (small molecule) and potential for oral administration. Potential
clinical applications include cancer and infectious disease therapy. Currently,
the Company conducts discovery research in the field of cancer and immune
disorders.
STRATEGIC RELATIONSHIPS
The Company evaluates on an ongoing basis potential collaborative
relationships with corporate and other partners where such relationships may
complement and expand SangStat's research, development, sales and marketing
capabilities. There can be no assurance that the Company will be interested in
or able to negotiate any additional collaborative arrangements or that, if
established, such relationships will be successful.
Pasteur Merieux Connaught
In October 1993, SangStat entered into an exclusive licensing agreement
with PMC for the clinical development, marketing and sale of THYMOGLOBULIN and
CELSIOR in the United States and Canada. The agreement provides, among other
things, that (i) SangStat will use commercially reasonable efforts to obtain
regulatory approval through a Phase III clinical trial for THYMOGLOBULIN for
treatment of kidney rejection episodes; (ii) PMC will manufacture and supply
products for clinical and commercial use; and (iii) SangStat will pay a fee upon
achievement of milestones as well as royalties based upon commercial sales.
Although THYMOGLOBULIN has been approved and is sold on a commercial basis in
several European countries, there can be no assurance that regulatory approval
will be obtained in the United States or Canada. The agreement has an initial
term of fifteen years, subject to earlier termination upon 120 days notice of a
substantial breach by either party of its material obligations under the
agreement.
Center of Transplantation of Nantes, France
SangStat's subsidiary, SangStat Atlantique S.A., leases approximately 2,500
square feet of office space within the Center of Transplantation of Nantes,
France (Centre Hospitalier Universitaire de Nantes). The Center of
Transplantation is the largest kidney transplant center in France and has
provided equipment and personnel to perform development work for SangStat in the
area of immunointervention. Work projects are funded by SangStat on a project by
project basis. Although it is not obligated to do so, the Center of
Transplantation has provided limited funding for certain expenses incurred as
part of the clinical development of ALLOTRAP peptides.
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Stanford University
SangStat has a worldwide, exclusive license from Stanford University to
make, sell or otherwise distribute products covered by patents and patent
applications on certain HLA peptides, including the ALLOTRAP peptides. Stanford
University has no obligation to conduct any further research with respect to
such ALLOTRAP peptides. The exclusivity of SangStat's rights under the license
agreement with Stanford University expire after the earlier of October 2007, or
10 years from the date of first commercial sale of any product covered by the
patent application licensed from Stanford University. Additionally, under the
terms of this agreement, SangStat must pay to Stanford University annual license
fees and a royalty on products covered by the license agreement.
COMPETITION
The drugs being developed by the Company compete with existing and new
drugs being created by pharmaceutical, biopharmaceutical, biotechnology
companies and universities. Many of these entities have significantly greater
research and development capabilities, as well as substantial marketing,
manufacturing, financial and managerial resources and represent significant
competition for the Company. The principal factors upon which the Company's
products compete are product utility, therapeutic benefits, ease of use,
effectiveness marketing, distribution and price. The Company believes it
competes favorably with respect to all of these factors. With respect to
THYMOGLOBULIN, CYCLOSPORINE and AZATHIOPRINE, the Company will be competing
against large companies that have significantly greater financial resources and
established marketing and distribution channels for equivalent products. The
generic drug industry is characterized by intense price competition and the
Company anticipates that it will face this and other forms of competition. There
can be no assurance that developments by others will not render the Company's
products or technologies obsolete or noncompetitive or that the Company will be
able to keep pace with technological developments. Many of the competitors have
developed or are in the process of developing technologies that are, or in the
future may be, the basis for competitive products. Some of these products may
have an entirely different approach or means of accomplishing the desired
therapeutic effect than products being developed by the Company and may be more
effective and less costly. In addition, many of these competitors have
significantly greater experience than the Company in undertaking preclinical
testing and human clinical trials of pharmaceutical products and obtaining
regulatory approvals of such products. Accordingly, the Company's competitors
may succeed in commercializing products more rapidly than the Company. For
example, the Company believes that the degree of market penetration of its
CYCLOSPORINE drug candidate is dependent in part on whether the Company is the
first company to market a generic formulation of cyclosporine. The Company
believes that other companies are developing cyclosporine formulations that may
be marketed as generic equivalents. Were these competitors to develop their
products more rapidly and complete the regulatory process sooner, it could have
a material adverse effect on the Company's business, financial condition, cash
flows and results of operations.
Treatments for the problems associated with transplantation that the
Company's products seek to address are currently available. For example,
Sandimmune and Neoral, marketed by Novartis, would compete with CYCLOSPORINE,
and Orthoclone OKT3, marketed by Johnson & Johnson and ATGAM, marketed by
Pharmacia & Upjohn Inc., would be competitive with THYMOGLOBULIN. Prograf
marketed by Fujisawa Pharmaceutical Co. Ltd, CellCept, marketed by Roche Ltd.
and Imuran, marketed by Glaxo Wellcome Ltd. would be competitive with
CYCLOSPORINE and AZATHIOPRINE. All of such products are commercially available
for use as immunosuppressive drugs and are widely prescribed. In addition, One
Lambda Inc., Pel Freez, Biotest Diagnostics Corp., and Genetic Therapy, Inc.
market products for pre-transplant HLA monitoring and Abbott Laboratories
markets a cyclosporine level post-transplant monitoring device, all of which are
widely used. Additional therapeutics and monitoring products are available or
are under development by these and other parties including, but not limited to:
Roche (mycophenolate mofetil), Glaxo-Wellcome and Roxane (azathioprine) American
Home Products Corp. (rapamycin), Fujisawa Pharmaceutical Co. Ltd.
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(tacrolimus), Bristol Myers Squibb (CTLA4), and DuPont Merck (ViaSpan), and
other companies including, but not limited to Abbott, MedImmune Inc., Novartis,
BioTransplant, Inc., PMC, and Ivax Corp. In addition, THE TRANSPLANT PHARMACY
also competes with other drug distribution companies, such as Chronimed Inc.,
HMI and Stadtlander Drug Company. To the extent these companies' therapeutics,
monitoring products and services address the problems associated with
transplantation on which the Company has focused, they may represent significant
competition.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's policy is to seek patent protection and to enforce its
intellectual property rights. The Company has ten issued patents which cover
several different test formats for sHLA-based and allied assays, including
PRA-STAT and CROSS-STAT. The Company's patents expire on various dates beginning
in the year 2008 and ending in the year 2015. SangStat has patent applications
pending in the United States in the pretransplant and post-transplant
monitoring, CYCLOSPORINE, XENOJECT and xenotransplantation areas. The Company
has also filed patent applications with respect to several product candidates in
many other countries, including Japan, Canada and the countries regulated by the
European Patent Office.
There can be no assurance that SangStat can manufacture, or have
manufactured, formulate or commercialize its CYCLOSPORINE product without
infringing patent or other proprietary rights of Novartis or other third
parties. Although Novartis' composition of matter patent for cyclosporine
expired in September 1995 in the United States, Novartis' patents relating to
cyclosporine are expected to continue to present significant barriers to entry
to potential competitors. There can be no assurance that Novartis or others will
not seek to protect their market share through litigation or otherwise against
SangStat, its affiliates and partners or the FDA, or actions which adversely
affect the regulatory approval process, such as citizens' petitions, or that
SangStat's formulation will not be found to infringe Novartis' or others'
proprietary rights. If Novartis or others bring suit against SangStat, the
Company could be greatly delayed in bringing its CYCLOSPORINE product to market,
enjoined from selling the product for a significant period of time or ultimately
be prevented from selling its CYCLOSPORINE product candidate entirely. See "Risk
Factors--Risks Associated with CYCLOSPORINE."
The Company's family of ALLOTRAP peptides is being developed under an
exclusive, worldwide, license from Stanford University. Although Stanford has
filed patent applications with respect to such technology, no assurance can be
given that the patent application or any of its claims will be allowed, valid,
or enforceable or that the Company's products will not infringe on other
patents.
Patent applications in the United States are maintained in secrecy until
patents issue. Since publication of discoveries in the scientific or patent
literature tends to lag behind actual discoveries by several months, SangStat
cannot be certain that it was the first to discover compositions covered by its
pending patent applications or the first to file patent applications on such
compositions. There can be no assurance that the Company's pending patent
applications will result in issued patents or that any of its issued patents
will afford protection against a competitor.
There can be no assurance that any patent issued to, or licensed by, the
Company will provide protection that has commercial significance. The Company's
patents involve specific claims and thus do not provide broad coverage. There
can be no assurance that the Company's patent applications or any claims of
these patent applications will be allowed, valid or enforceable, that any
patents or any claims of these patents will provide the Company with competitive
advantages for its products or that they will not be successfully challenged or
circumvented by the Company's competitors.
The Company also relies on trade secrets and proprietary know-how which it
seeks to protect, in part, by confidentiality agreements with its employees and
consultants. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or independently
developed by competitors. The Company has registered or applied for registration
of the names of most of its products under development or commercialized for
research and development use.
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However, there can be no assurance that any trademark registration will be
granted or not challenged by competitors.
MANUFACTURING
The Company lacks facilities to manufacture any of its drug candidates in
accordance with current GMP prescribed by the FDA. The Company generally relies
on third parties to manufacture its compounds for clinical trials, including
THYMOGLOBULIN, CYCLOSPORINE, ALLOTRAP, AZATHIOPRINE and CELSIOR and has
contracted or expects to contract for commercial production of these compounds.
There can be no assurance that it will be able to enter into commercial scale
manufacturing contracts or that any other third-party arrangements can be
established on a timely or commercially reasonable basis, or at all. If such
arrangements are established, the Company will depend on such third parties to
perform their obligations effectively and on a timely basis. There can be no
assurance that such parties will perform and any such failure may delay clinical
development or submission of products for regulatory approval, or otherwise
impair the Company's competitive position which could have a material adverse
effect on the Company's business, financial condition, cash flows and results of
operations. In addition, the manufacturing of drug candidates involves a number
of technical steps and requires meeting stringent quality control specifications
imposed by government regulatory bodies and by the Company itself. Additionally,
such products can only be manufactured in facilities approved by the applicable
regulatory authorities. Because of these and other factors, the Company may not
be able to quickly and efficiently replace its manufacturing capacity in the
event that its manufacturers are unable to manufacture their products at one or
more of their facilities. If these manufacturers were affected for any reason,
the Company's ability to ship its products could be impaired, which could have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations.
For certain of its potential products, the Company will need to develop
further its production technologies for use on a larger scale in order to
conduct human clinical trials and produce such potential products for commercial
sale at an acceptable cost. The Company intends to rely on its third-party
manufacturers to meet FDA required GMP. However, the Company is ultimately
responsible for any failure of such manufacturers to meet such requirements.
The Company intends to obtain quantities of THYMOGLOBULIN for clinical
trials, distribution for compassionate use and commercial use under an agreement
with PMC. There can be no assurance that PMC or any other manufacturer will meet
FDA standards governing GMP or that any ELAs or ELA supplements required for
manufacturing will be filed, reviewed and approved or that PMC will fulfill its
obligations to SangStat.
The Company has contracted for commercial scale production of cyclosporine
and azathioprine bulk material for its CYCLOSPORINE and AZATHIOPRINE drug
candidates from established third-party manufacturing sources. The Company has
also separately contracted for the manufacture of the finished commercial supply
of its CYCLOSPORINE product candidate from an established third-party source.
There can be no assurance that such third parties will perform satisfactorily
and any such failure may delay clinical trial development or the submission of
the product for regulatory approval, impair the Company's ability to deliver
products on a timely basis, or otherwise impair the Company's competitive
position, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors--Risks
Associated with CYCLOSPORINE."
The Company is currently purchasing ALLOTRAP peptides for its clinical
trials under a supply agreement with UCB. The Company believes that UCB adheres
to established GMP production methods and complies with the Company's quality
control and quality assurance standards. More than 10 lots of clinical amounts
of ALLOTRAP peptides have been manufactured by UCB to date. The Company expects
to purchase ALLOTRAP peptides from UCB for commercial sale. However, there can
be no assurance that UCB will be able to scale up its manufacturing to support
the commercial sale of ALLOTRAP peptides or that supply of ALLOTRAP peptides to
the Company will be uninterrupted.
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The Company does not expect to establish any significant manufacturing capacity
with respect to therapeutic products in the near future.
With respect to its monitoring products including PRA-STAT and CROSS-STAT
the Company currently has in-house manufacturing capabilities and believes it
operates in compliance with GMP. However, there can be no assurance that
SangStat would pass a regulatory inspection from the FDA or other agencies. The
raw materials required for the majority of the Company's products and product
candidates are currently available from several suppliers in quantities
sufficient to conduct the Company's research, development and clinical
development activities. However, there can be no assurance that the raw
materials necessary for the manufacture of the Company's products and product
candidates will be available in sufficient quantities or at a reasonable cost.
Complications or delays in obtaining raw materials or in product manufacturing
could delay the submission of products for regulatory approval, product launch
and the initiation of new development programs, which could materially impair
the Company's business, financial condition, cash flows and results of
operations. See "Risk Factors--Limited Manufacturing Capability."
MARKETING
SangStat currently retains all commercial rights to its products and plans
to market directly those products for which it obtains regulatory approval.
However, for certain territories, the Company may also enter into co-promotion
arrangements or other licensing arrangements with pharmaceutical, diagnostic or
biotechnology companies. SangStat intends to expand its direct sales force to
market all of its transplant products, including THYMOGLOBULIN, CYCLOSPORINE,
AZATHIOPRINE, CELSIOR, ALLOTRAP 2702, PRA-STAT, CROSS-STAT and other monitoring
products. Implementation of this strategy will depend on many factors, including
the market potential of any products the Company develops as well as on the
Company's financial resources. The Company sells certain of its monitoring
products for research or investigational use through a small, direct sales
operation. SangStat has also established THE TRANSPLANT PHARMACY, a pilot
program furthering the Company's approach of comprehensive disease management,
which will directly dispense all needed medications by mail to transplant
recipients enrolled in the program. See "Business--THE TRANSPLANT PHARMACY." To
the extent the Company enters into co-promotion or other licensing arrangements,
any revenues received by the Company will be dependent on the efforts of third
parties and there can be no assurance that such efforts will be successful. To
the extent that the Company itself undertakes to market a substantial portion of
its products, or is unable to enter into co-promotion agreements or to arrange
for third party distribution of its products, additional expenditures,
management resources and time will be required to develop a sales force.
GOVERNMENT REGULATION
SangStat's research and development activities, preclinical studies and
clinical trials, and ultimately the manufacturing, marketing and labeling of its
products, are subject to extensive regulation by the FDA and other regulatory
authorities in the United States and other countries. The United States Federal
Food, Drug, and Cosmetic Act (the "Act") and the regulations promulgated
thereunder and other federal and state statutes and regulations govern, among
other things, the testing, manufacture, safety, efficacy, labeling, storage,
record keeping, approval, advertising, promotion, import and export of the
Company's products. Preclinical study and clinical trial requirements and the
regulatory approval process typically take years and require the expenditure of
substantial resources. Additional government regulation may be established that
could prevent or delay regulatory approval of the Company's product candidates.
Delays or rejections in obtaining regulatory approvals would adversely affect
the Company's ability to commercialize any product candidates the Company
develops and the Company's ability to receive product revenues or royalties. If
regulatory approval of a product candidate is granted, the approval may include
significant limitations on the indicated uses for which the product may be
marketed.
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The FDA and other regulatory authorities require that the safety and
efficacy of certain of the Company's product candidates be supported through
adequate and well-controlled clinical trials. If the results of pivotal clinical
trials submitted by the Company in applications for approval do not establish
the safety and efficacy of the Company's product candidates to the satisfaction
of the FDA and other regulatory authorities, the Company will not receive the
approvals necessary to market its product candidates, which would have a
material adverse effect on the Company's business, financial condition, cash
flows and results of operations.
FDA Regulation--Approval of Therapeutic Products
The Company's therapeutic products are regulated as drugs and, in the case
of THYMOGLOBULIN, as biological products. The steps ordinarily required before a
drug or biological product may be marketed in the United States include (a)
preclinical and clinical studies, (b) the submission to the FDA of an
Investigational New Drug application ("IND"), which must become effective before
human clinical trials may commence, (c) adequate and well-controlled human
clinical trials to establish the safety and efficacy of the drug, (d) the
submission to the FDA of New Drug Application ("NDA"), or Product License
Application ("PLA") together with an Establishment License Application ("ELA"),
if applicable, and (e) FDA approval of the application, including approval of
all product labeling.
Preclinical tests include laboratory evaluation of product chemistry,
formulation and stability, as well as animal studies to assess the potential
safety and efficacy of each product. Preclinical safety tests must be conducted
by laboratories that comply with FDA regulations regarding Good Laboratory
Practice. The results of the preclinical tests are submitted to the FDA as part
of an IND and are reviewed by the FDA before the commencement of human clinical
trials. Unless the FDA objects to an IND, the IND will become effective 30 days
following its receipt by the FDA. There can be no assurance that submission of
an IND will result in FDA authorization to commence clinical trials or that the
lack of an objection means that the FDA will ultimately approve an application
for marketing approval.
Clinical trials involve the administration of the investigational product
to humans under the supervision of a qualified principal investigator. Clinical
trials must be conducted in accordance with Good Clinical Practices ("GCP")
under protocols submitted to the FDA as part of the IND. Also, each clinical
trial must be approved and conducted under the auspices of an Institutional
Review Board ("IRB") and with patient informed consent. The IRB will consider,
among other things, ethical factors, the safety of human subjects and the
possible liability of the institution conducting the clinical trials.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap. Phase I clinical trials involve the initial introduction of
the drug into healthy human volunteers. In Phase I clinical trials, the drug is
tested for safety (adverse effects), dosage tolerance, metabolism, distribution,
excretion and pharmacodynamics (clinical Pharmacology). Phase II clinical trials
are conducted in a target patient population to gather evidence about the
pharmacokinetics, safety and biological or clinical efficacy of the drug for
specific indications; to determine dosage tolerance and optimal dosage; and to
identify possible adverse effects and safety risks. When a compound has shown
evidence of efficacy and an acceptable safety profile in Phase II evaluations,
Phase III clinical trials are undertaken to evaluate clinical efficacy and to
test for safety in an expanded patient population. There can be no assurance
that any of the Company's clinical trials will be completed successfully or
within any specified time period. The Company or the FDA may suspend clinical
trials at any time, if either entity concludes that clinical subjects are being
exposed to an unacceptable health risk, or for other reasons.
There can be no assurance that, after the results of the Phase III clinical
trials have been announced, the FDA will not disagree with the design of the
Phase III clinical trial protocols. In addition, the FDA inspects and reviews
clinical trial sites, informed consent forms, data from the clinical trial
sites, including case report forms and record keeping procedures, and the
performance of the protocols by clinical trial personnel to determine compliance
with good clinical practice. The FDA
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also examines whether there was bias in the conduct of clinical trials. The
conduct of clinical trials is complex and difficult, especially in Phase III.
There can be no assurance that the design or the performance of the Phase III
clinical trial protocols will be successful.
The results of preclinical studies and clinical trials, if successful, are
submitted in an application to seek the FDA approval to market the drug or
biological product for a specified use. The testing and approval process
requires substantial time and effort, and there can be no assurance that any
approval will be granted for any product or that approval will be granted
according to any schedule. The FDA may refuse to approve an application if it
believes that applicable regulatory criteria are not satisfied. The FDA may also
require additional testing for safety and efficacy of the drug. Moreover, if
regulatory approval of a drug product is granted, the approval will be limited
to specific indications. There can be no assurance that any of the Company's
product candidates will receive regulatory approvals for marketing, or if
approved, that approval will be for the indications requested by the Company.
The FDA has implemented an accelerated review process for drugs that treat
serious or life threatening diseases and conditions. Such approval is subject to
the additional requirement that, following product launch, a Company continue to
study the drug to verify and describe its clinical benefit. Under these FDA
Accelerated Approval Procedures, the FDA may withdraw approval if the Company
fails to show due diligence in conducting post-marketing clinical trials or if
these clinical trials fail to demonstrate clinical benefit to the FDA's
satisfaction. When appropriate, the Company intends to pursue opportunities for
accelerated review of its products. The Company cannot predict the ultimate
opportunities for accelerated review of its products. The Company cannot predict
the ultimate effect of the accelerated review process on the timing or
likelihood of FDA review of any of its product candidates.
For certain drugs that are generic versions of previously approved
products, there is an abbreviated FDA approval process. A sponsor may submit an
Abbreviated Application for: (1) a drug product that is the "same" as the drug
product listed in the approved drug product list published by the FDA (the
"listed drug") with respect to active ingredient(s), route of administration,
dosage form, strength and conditions of use recommended in the labeling; (2) a
drug product that differs with regard to certain changes from a listed drug if
the FDA has approved a petition from a prospective applicant permitting the
submission of an Abbreviated Application for the changed product; and (3) a drug
that is a duplicate of, or meets the monograph for, an approved antibiotic drug.
While the Company believes that CYCLOSPORINE and AZATHIOPRINE will qualify for
this abbreviated format, there can be no assurance that the FDA will not require
additional information or that these products will be approved for marketing.
An Abbreviated Application need not contain the clinical and preclinical
data supporting the safety and effectiveness of the product. The applicant must
instead demonstrate that the product is bioequivalent to the listed drug. FDA
regulations define bioequivalence as the absence of a significant difference in
the rate and the extent to which the active ingredient moiety becomes available
at the site of drug action when administered at the same molar dose under
similar conditions in an appropriately designed study. If the approved generic
drug is both bioequivalent and pharmaceutically equivalent to the listed drug,
the agency may assign a code to the product in an FDA publication that will
represent a determination by the agency that the product is therapeutically
equivalent to the listed drug. This designation will be considered by third
parties in determining whether the generic drug will be utilized as an
alternative to the listed drug. There can be no assurance that the Company will
receive an "AB" rating on CYCLOSPORINE and AZATHIOPRINE, which in certain cases
would require substitution of the Company's CYCLOSPORINE for Neoral and
AZATHIOPRINE for Immuran.
FDA Regulation--Approval of Monitoring Products
The Company's monitoring products are regulated as medical devices by the
FDA and as such require regulatory clearance prior to commercial distribution.
New medical devices are generally
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introduced to the market based on a premarket notification or "510(k)"
submission to the FDA in which the sponsor establishes that the proposed device
is "substantially equivalent" to a legally marketed Class I or Class II medical
device or to a Class III medical device for which the FDA has not required
premarket approval. The claim of substantial equivalence will generally have to
be supported by various types of data and materials including, in some
instances, preclinical and/or clinical test results.
Following submission of the 510(k), the sponsor may not place the device
into U.S. commercial distribution until a substantial equivalence order is
issued by the FDA. The order may be sent within 90 days of submission but could
take significantly longer. The order may declare the FDA's determination that
the device is "substantially equivalent" to another legally marketed device and
allow the proposed device to be marketed in the United States. The FDA may,
however, determine that the proposed device is not substantially equivalent, or
may require further information, such as additional test data, before the FDA is
able to make a determination regarding substantial equivalence. Such
determination or request for additional information could delay the Company's
market introduction of its products by several quarters or more and could have a
material adverse effect on the Company's business, financial condition and
results of operations. There is no assurance that a 510(k) marketing clearance
will be granted for these products. Additional regulatory barriers may be
encountered by not meeting performance requirements of American Society of
Histocompatability and Immunogenetics ("ASHI") and the labeling requirements of
Clinical Laboratory Improvements Amendment ("CLIA").
If the sponsor of a 510(k) cannot obtain an FDA order declaring substantial
equivalence, the sponsor will have to submit a premarket approval application
("PMA"). A PMA will generally have to be supported by extensive data, including
preclinical and clinical trial data, to prove the safety and efficacy of the
device. Although, by statute, the FDA has 180 days to review a PMA once it has
been accepted for filing. PMA reviews more often involve a significantly longer
time period, usually 12 to 24 months or longer from the date of filing. There
also can be no assurance that the data collected by the sponsor would support a
PMA marketing approval.
The sponsor may be required to obtain an Investigational Device Exemption
("IDE") before it commences clinical testing to support a 510(k) submission or
PMA. Each clinical trial must be approved and conducted under the auspices of an
IRB and with patient informed consent. The IRB will consider, among other
things, ethical factors, the safety of human subjects, and the possible
liability of the institution conducting the clinical trials. For some products,
the sponsor must also submit the protocol to the FDA. The sponsor of the IDE may
be able to distribute limited amounts of these products for research use only if
certain FDA requirements are met. Some of these requirements may also apply to
distribution for clinical investigational use only. The FDA monitors and
oversees the use and distribution of all "research use only" and
"investigational use only" devices. There can be no assurances that the FDA will
determine that the Company's product candidates are substantially equivalent to
other legally marketed devices. The FDA may require the submission of a PMA,
which would delay the Company's market introduction of its products and could
have a material adverse effect on the Company's business, financial condition
and results of operations. The testing and approval process will require
substantial time and effort, and there can be no assurance that any approval
will be granted for any product or that approval will be granted according to
any schedule. The FDA may refuse to approve a PMA if it believes that applicable
regulatory criteria are not satisfied. The FDA may also require additional
testing for safety and efficacy of the device. Moreover, if the PMA is approved,
the approval will be limited to specific indications or uses. There can be no
assurance that any of the Company's product candidates will receive regulatory
approvals for commercial distribution, or if approved that approval will be for
the indications requested by the Company.
Prior to any approval of the Company's products for marketing, all
manufacturing facilities must pass the FDA preapproval inspections.
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FDA Regulation--Post-Approval Requirements
Even if regulatory approvals for the Company's product candidates are
obtained, the Company, its products and the facilities manufacturing the
Company's products are subject to continual review and periodic inspection. Each
U.S. drug and device manufacturing establishment must be registered with the
FDA. Domestic manufacturing establishments are subject to biennial inspections
by the FDA and must comply with the FDA's GMP regulations. To supply device
products for use in the United States, foreign manufacturing establishments must
comply with the FDA's GMP regulations and are subject to periodic inspection by
the FDA or by regulatory authorities in those countries under reciprocal
agreements with the FDA. In complying with GMP regulations, manufacturers must
expend funds, time and effort in the area of production and quality control to
ensure full technical compliance. The FDA stringently applies regulatory
standards for manufacturing.
Labeling and promotional activities are regulated by the FDA and, in
certain instances, by the Federal Trade Commission. The Company must also report
certain adverse events involving its drugs and devices to the agency under
regulations issued by the FDA. The FDA can impose other post-marketing controls
on the Company and its products, and has expanded authority in this regard for
certain products, such as devices approved under PMAs.
Failure to comply with applicable regulatory requirements, can result in,
among other things, warning letters, fines, injunctions, civil penalties recall
or seizure of products, total or partial suspension of production, refusal of
the government to grant approvals, premarket clearance or pre-market approval,
withdrawal of approvals and criminal prosecution of the Company and employees.
European Regulation
The Company's activities in Europe are regulated by both the law of the
European Union ("EU") and by the national law of the EU Member States. There are
a number of EU Regulations and Directives in force governing the authorization
and the marketing of medicinal products. The purpose of such Regulations and
Directives is to harmonize the legal framework regulating medicinal products in
the EU. In the event of a conflict between EU legislation and national law, EU
legislation takes precedence over national law. Once adopted, Regulations apply
immediately in Member States, Directives must be implemented into national law
by Member States. Failure to implement Directives by national governments either
properly or in a timely fashion still leaves significant areas of regulation to
national law. Efforts to harmonize regulation of medicines within the EU began
in 1965 with the adoption of Directive 65/65 which required Member States to
establish premarket approval requirements and prescribed the criteria for
approval. Since then, the EU has issued a series of measures aimed at making
regulation of medicinal products more uniform.
European Regulation--Approval of Therapeutic Products
In addition to Regulations and Directives, the EU has formulated
non-binding guidelines (the "Guidelines") which set out detailed EU requirements
relating to the quality, safety and efficacy of medicinal products. Such
Guidelines have been formulated by the European Commission in consultation with
the Committee for Proprietary Medicinal Products ("CPMP"). Although these
Guidelines are not legally binding, failure to comply with them makes it less
likely that product research work submitted in support of an application for
marketing authorizations will be acceptable to the competent authorities
throughout the EU. In European countries which are not EU Member States,
national laws apply which are frequently divergent from the EU framework. The
following paragraphs relate only to regulation in EU Member States.
When adequate preclinical data are available, an application normally will
be made either to the relevant national regulatory authority and/or to an ethics
committee for approval to carry out a clinical trial with the unlicensed
medicinal product. While marketing authorizations must be supported by clinical
trials of a type and extent set out in the Directives and Guidelines, the actual
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approval process for commencement of clinical trials is not currently harmonized
by EU law and varies from state to state.
Clinical trials are typically conducted in three sequential phases which
may overlap. In Phase I, the product is tested in humans to determine certain
parameters relating to safety, potential adverse effects and/or
pharmacokinetics. Phase II involves studies in a target patient population to
collect additional pharmacokinetic clinical data demonstrating safety and,
subsequently, to determine the preliminary biological or clinical efficacy and
optional dosage of the product. Phase III trials are then undertaken to collect
further data to demonstrate quality, safety and efficacy within an expanded
target patient population. The various European regulatory authorities may
require multiple Phase III trials to support the quality, safety and efficacy of
the product. This process may take three to six or more years to complete.
When appropriate clinical trial data supporting quality, safety and
efficacy are available, an application for a marketing authorization may be
submitted. In 1993, legislation was adopted which established a very new and
amended system for the registration of medicinal products in the EU. The main
purpose of this system is to prevent the existence of essentially separate
national approval systems which have been a major obstacle to harmonization. One
of the most significant features of this new system is the establishment of a
new European Agency for the Evaluation of Medicinal Products ("EMEA"). Under the
new system, marketing authorizations, broadly speaking, may be submitted at
either a centralized, a decentralized or a national level.
The centralized procedure is administered by the EMEA; this procedure is
mandatory for the approval of biotechnology and high technology products and
available at the applicant's option for other products. The centralized
procedure provides for the first time in the EU for the grant of a single
marketing authorization which is valid in all EU Member States.
As of January 1995, a mutual recognition procedure is available at the
request of the applicant for all medicinal products which are not subject to the
centralized procedure under the so-called "decentralized procedure". The
decentralized procedure will be mandatory beginning January 1, 1998. The
decentralized procedure creates a new system for mutual recognition of national
approval decisions, makes changes in existing procedures for national approvals
and establishes procedures for co-ordinated EU action on product suspensions and
withdrawals. Under this procedure, the holder of a national marketing
authorization for which mutual recognition is sought may submit an application
to one or more Member States, certify that the dossier is identical to that on
which the first approval was based or explain any differences and certify that
identical dossiers are being submitted to all Member States from which
recognition is sought. Within 90 days of receiving the application and
assessment report, each Member State must decide whether to recognize the
approval. The procedure encourages Member States to work with applicants and
other regulatory authorities to resolve disputes concerning mutual recognition.
If such disputes cannot be resolved within the 90-day period provided for
review, the application will be subject to a binding arbitration procedure.
The Company will choose the appropriate route of European regulatory filing
to accomplish the most rapid regulatory approvals. However, there can be no
assurance that the chosen regulatory strategy will secure regulatory approvals
or approvals of the Company's chosen products indications.
Under all procedures approval of an application must be refused if, after
review, it appears that the quality, safety or efficacy of a medicinal product
has not been adequately demonstrated by the applicant. In practice, requirements
for specific post-marketing surveillance, or Phase IV studies, are increasingly
imposed as de facto conditions of the grant of a marketing authorization.
In some Member States, before a product is marketed, it is also necessary
to obtain approval for the price to be charged for the product. However, this is
not, the position in the United Kingdom, for example, where the initial price is
set by the Company (subject to the constraints of the Pharmaceutical Price
Regulation System, which controls the profitability of a Company's business with
the National Health Service). The European Commission is presently reviewing
various matters relating to the
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pricing of medicinal products within the EU. Currently EU regulation does not
harmonize the pricing measures Member States may enact, but only seeks to
guarantee the transparency of these measures. The Company believes it is
unlikely the EU will regulate in the area of health care financing. The Company
believes that determination of prices and reimbursement of health care products
is therefore likely to remain a prerogative to the Member States for the
foreseeable future. There can be no assurance that Member States will not adopt
new cost containment policies that will limit marketing opportunities in the EU.
The passage of a product through the approval system is likely to take a
considerable period of time. However, it is hoped that the new authorization
system will limit the length of time the review process will take. Generally
under the scheme the review process is intended to take a maximum of 210 days
after the receipt of a valid application.
It should also be noted that each national regulatory authority has the
power to suspend or revoke a marketing authorization any time if it is no longer
satisfied as to the product's safety, quality and efficacy. Increasing
harmonization of decision-making by national authorities through the CPMP and/or
the new European Agency, and the existence of a mechanism by which any EU
distribution could compel a Member State to act in accordance with a CPMP
opinion, should result in more efficiency and importantly, future market
authorization process.
EU law requires that companies manufacturing products must hold a
manufacturer's authorization and must comply with EU requirements as to GMP.
These standards are enforced by inspection. Primary responsibility for ensuring
that manufacturing procedures conform to marketing authorizations and good
manufacturing practice requirements will rest with the authorities in the Member
States where the product is manufactured or first imported into the EU.
A procedure for abridged applications for generic products also exists in
the EU. The general effect of the abridged application procedure is to give
scope for the emergence of generic competition once patent protection has
expired and the original product has been on the market for at least six years
or ten years. Independent of any patent protection, under the abridged
procedure, new products benefit in principle from a basic six-year period of
protection (commencing with the data of first authorization in the EU) from
abridged applications for a marketing authorization. Abridged applications can
be made principally for medicinal products which are essentially similar to
medicinal products which have been authorized for either six or ten years. Under
the abridged application procedure, the applicant is not required to provide the
results of pharmacological and toxicological tests or the results of clinical
trials. For such abridged applications, all data concerning manufacturing,
quality and bioavailability are required. The applicant submitting the abridged
application generally must provide evidence or information that the drug product
subject to this application is essentially similar to that of the listed drug
product: (1) it has the same qualitative and quantitative composition with
respect to the active ingredient; (2) the dosage form; and (3) similarity in
bioavailability between the new drug product and the reference listed drug. This
period of protection is extended to ten years in respect of products derived
from certain biotechnological processes or other high-technology medicinal
products viewed by the competent authorities as representing a significant
innovation. Further, each Member State may have a discretion to extend the basic
six-year period of protection to a ten-year period, to all products marketed in
its territory. Most Member States have exercised such discretion. This
protection does not prevent another Company from making a full application
supported by all necessary pharmacological, toxicological and clinical data
within the period of protection. The application of the rules of marketing
exclusivity to various product situations remains uncertain, and divergent views
are taken by some of the EU regulatory authorities on the availability of the
period of protection where new products are different from existing products
only in terms of, for instance, strength or dosage form.
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European Regulations--Monitoring Products
The Commission of the European Communities proposed a draft of new
directives to govern approvals of in vitro diagnostic medical devices in late
1995, amending the existing Directive. Future approvals of the Company's
monitoring products may therefore be dependent on meeting the conditions of the
proposed Directive. The compliance with this proposed Directive must be in place
no later than April 1, 1998. The Company's monitoring products will likely have
to meet the essential requirements of the Directive. Once deemed acceptable such
monitoring products will have CE markings of conformity.
Environmental Regulation
In connection with its research and development activities and its
manufacturing materials and products, the Company is subject to federal, state
and local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials, biological specimens, and wastes. Although the Company
believes that it has complied with these laws, regulations and policies in all
material respects and has not been required to take any action to correct any
noncompliance, there can be no assurance that the Company will not be required
to incur significant costs to comply with environmental and health and safety
regulations in the future. The Company's research and development involves the
controlled use of hazardous materials, including but not limited to certain
hazardous chemicals and infectious biological specimens. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by state and federal regulations, the risk
of accidental contamination or injury from these materials cannot be eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could exceed the resources of the
Company.
SCIENTIFIC, MEDICAL, PHARMACY AND REGULATORY ADVISORY BOARDS
The Company's Scientific, Medical, Pharmacy and Regulatory Advisory Boards
consist of individuals with recognized expertise in immunology, transplantation
or regulatory affairs. The Scientific, Medical, Pharmacy and Regulatory Advisory
Boards' members advise the Company about present and long-term scientific
planning, research and development. Members meet individually or as a group with
the management of the Company from time to time. Each member of the Scientific,
Medical, Pharmacy and Regulatory Advisory Boards has entered into a consulting
agreement with the Company.
The following persons are members of one or more of the Company's
Scientific, Medical, Pharmacy and Regulatory Advisory Boards:
RITA ALLOWAY, PHARM.D., is an Associate Professor in the Department of
Clinical Pharmacy at the University of Tennessee, Memphis, Tennessee. Dr.
Alloway is a Board Certified Pharmacotherapy Specialist practicing at the UT
William F. Bowld Hospital. Her current research is focused on individualizing
and optimizing immune suppressive regimes for the transplant recipient. Dr.
Alloway is the Past President of the Mid South College of Clinical Pharmacy.
CAROL CLAYBERGER, PH.D., is an Assistant Professor of Immunology in the
Department of Cardiothoracic Surgery of Stanford University School of Medicine,
Stanford, California. Dr. Clayberger's current research is centered on an
understanding of the effect of synthetic peptides on the immune response and the
development of novel immunomodulatory agents. Dr. Clayberger holds a Ph.D. in
Cell Biology from Yale University.
JEAN DAUSSET, M.D., received a Nobel Prize in Medicine in 1980 for work
that led to the discovery of HLA. In 1984, he founded and is currently serving
as President of the Human Polymorphism Study Center (CEPH) which is currently
engaged in research directed toward mapping the human genome. Professor Dausset
is a member of the French Academy of Sciences, a foreign member of the American
Academy of Arts and Sciences and of the National Academy of Sciences.
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ROY FIRST, M.D., is a Professor of Internal Medicine at the University of
Cincinnati Medical Center, and Director of the Section of Transplantation in the
Division of Nephrology and Hypertension. He is a Past President of the American
Society of Transplant Physicians (ASTP), and is current Chairman of the Ad Hoc
Committee for Organ Donation of the United Network for Organ Sharing (UNOS). Dr.
First obtained his medical degree at the University of Witwatersrand in
Johannesburg, South Africa in 1966.
A. OSAMA GABER, M.D., is Associate Professor, Department of Surgery,
University of Tennessee and President of the Medical Staff at UT William F.
Bowld Hospital. He was President of the Tennessee Transplant Society and is
Co-Chair SEOPF Pancreas Transplant Committee.
F. CARL GRUMET, M.D., is a Professor of Pathology at Stanford University,
Stanford, California. He is the Director of both the Transfusion Service and the
Histocompatibility Laboratory at Stanford University Medical Center, the
Director of the Stanford Specialized Center for Research in Transfusion Medicine
and Associate Medical Director of the Stanford University Medical School Blood
Center.
RONALD D. GUTTMANN, M.D., FRCPC, is Director of the McGill Center for
Clinical Immunobiology and Transplantation, and a Professor of Medicine at the
McGill University Faculty of Medicine, Montreal, Quebec, Canada. Dr. Guttmann
was previously affiliated with the Peter Bent Brigham Hospital and Harvard
Medical School.
ANDREW J. PERLMAN, M.D., PH.D., has been the Vice President of Medical
Research at Tularik, Inc., a private biotechnology company, since January 1993.
From 1987 to 1993, Dr. Perlman served in various positions at Genentech, Inc.,
most recently as Senior Director, Clinical Research. Dr. Perlman has a M.D. and
a Ph.D. in Physiology from New York University.
ROGER RATOUIS, PH.D., is a consultant for regulatory affairs. From 1959 to
1990, Dr. Ratouis was employed by Roussel Uclaf where he held various positions,
first in research, then in pharmaceutical development, before heading the
Regulatory Affairs and Planning Department in the Health Care Division.
JEAN-PAUL SOULILLOU, M.D., is a Professor of Immunology at the University
of Nantes, Nantes, France. He is the Director of the kidney transplant program,
which in 1992 performed the largest number of kidney transplants in France and
is one of the largest programs in Europe. He is the Director of INSERM-U211
research laboratory and the founder and scientific director of Fondation
Transvie, a non-profit research organization for xenotransplantation. Dr.
Soulillou is also on the editorial boards of Transplantation and The New England
Journal of Medicine.
EMPLOYEES
As of December 31, 1996, the Company employed 75 people. Of these
employees, 58 were dedicated to research, development, manufacturing, quality
assurance and quality control, regulatory affairs or preclinical testing. In
addition, 13 people comprised the Company's staff for sales of its monitoring
products in the United States, Canada and Europe and sale of THYMOGLOBULIN in
Canada. The Company is the beneficiary of key person life insurance policy
covering Dr. Pouletty in the amount of $1,000,000. None of the Company's current
employees is represented by a labor union or is the subject of a collective
bargaining agreement. The Company believes that it maintains good relations with
its employees.
ITEM 2. PROPERTIES
The Company headquarters are located in Menlo Park, California. Floor space
in California is approximately 19,500 square feet, including offices, laboratory
space, manufacturing space, storage area and specialized areas for pilot
production and preclinical testing. The Menlo Park facility serves as the
principal site for preclinical research, clinical trial management, process
development, monitoring product manufacturing, quality assurance and quality
control, and regulatory affairs. The lease for this
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building space expires in 1999 and may be renewed for subsequent years. The
Company believes that this facility is sufficient to meet the Company's
manufacturing needs with respect to its monitoring products for the foreseeable
future.
In addition, the Company leases approximately 1,500 square feet in Menlo
Park for its central mail order pharmacy. This facility's lease contains an
option to lease another 1,500 square feet.
The Company also leases approximately 2,500 square feet from the Center of
Transplantation in Nantes, France, which is the primary site for preclinical
development of therapeutics. This lease expires in December 1998 and the Company
has the option to renew its lease for use of these facilities for additional
five-year periods.
The Company believes that its current facilities are suitable and adequate
to meet its needs for the foreseeable future and anticipates that it will be
able to expand its facilities to nearby locations as the need develops.
The Company leases approximately 2,000 square feet in Missassauga, Ontario,
Canada. The lease for this facility expires in August 1999, and the Company has
the option to renew its lease for subsequent five-year periods. This site is
used as headquarters for marketing and sales activities of SangStat Canada, Ltd.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock commenced trading publicly on the Nasdaq
National Market on December 14, 1993 and is traded under the symbol SANG. The
following table sets forth for the periods indicated the high and low daily
closing prices for the Common Stock:
HIGH LOW
------- -------
FISCAL YEAR ENDED DECEMBER 31, 1995
First Quarter.................................................... $ 7.125 $ 4.500
Second Quarter................................................... 6.375 4.375
Third Quarter.................................................... 8.875 5.125
Fourth Quarter................................................... 10.750 6.875
FISCAL YEAR ENDED DECEMBER 31, 1996
First Quarter.................................................... 19.125 10.250
Second Quarter................................................... 21.250 15.750
Third Quarter.................................................... 26.750 10.500
Fourth Quarter................................................... 30.750 20.375
FISCAL YEAR ENDED DECEMBER 31, 1997
First Quarter (through March 10, 1997)........................... 35.750 25.380
On March 10, 1997 the closing sale price of the Common Stock as reported on
the Nasdaq National Market was $33.813 per share. As of March 10, 1997 there
were approximately 110 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends since its
inception. The Company currently intends to retain all earnings, if any, for use
in the expansion of its business and therefore does not anticipate paying any
dividends in the foreseeable future.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
the Company's statements of operations for each of the three years in the period
ended December 31, 1996, and with respect to the balance sheets as of December
31, 1995 and 1996, are derived from the Consolidated Financial Statements of the
Company which are included elsewhere in this Annual Report on Form 10-K. The
statement of operations data for the years ended December 31, 1992 and 1993 and
the balance sheet data as of December 31, 1992, 1993 and 1994, are derived from
audited consolidated financial statements not included herein. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of the Company and the Notes thereto included elsewhere in
this Annual Report on Form 10-K.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Net product sales.................. $ 445 $ 518 $ 674 $ 2,698 $ 2,399
Collaborative agreement............ -- 2,625 3,000 1,125 --
Government grants.................. 90 51 -- -- --
------- ------- ------- ------- -------
Total revenues................ 535 3,194 3,674 3,823 2,399
------- ------- ------- ------- -------
Operating expenses:
Cost of sales and manufacturing.... 1,047 955 1,503 2,753 2,846
Research and development........... 2,303 3,679 4,845 6,647 8,330
Selling, general and
administrative................... 2,116 2,202 3,157 3,773 6,120
------- ------- ------- ------- -------
Total operating expenses...... 5,466 6,836 9,505 13,173 17,296
------- ------- ------- ------- -------
Loss from operations.................... (4,931) (3,642) (5,831) (9,350) (14,897)
Other income (expense)--net............. 2 (78) 284 672 2,123
------- ------- ------- ------- -------
Net loss...................... $(4,929) $(3,720) $(5,547) $(8,678) $(12,774)
======= ======= ======= ======= =======
Net loss per common share(1)............ $ (0.79) $ (0.92) $ (1.03)
======= ======= =======
Pro forma net loss per common and
equivalent share(1)................... $ (1.00) $ (0.70)
======= =======
Shares used in per share
computations(1)....................... 4,950 5,309 7,049 9,385 12,405
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- --------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments........................... $ 622 $10,641 $12,378 $ 9,222 $ 41,321
Working capital......................... 305 9,859 11,367 8,451 40,724
Total assets............................ 1,502 12,499 14,450 11,560 44,750
Long-term obligations, excluding current
portion............................... 1,522 1,346 1,153 1,091 1,100
Foreign subsidiary capital converted to
capital stock in 1993................. 363 -- -- -- --
Accumulated deficit..................... (10,107) (13,827) (19,374) (28,052) (40,826)
Total stockholders' equity.............. (1,125) 9,497 11,328 8,281 40,955
- ------------------------------
(1) For a description of the computation of net loss per common share see Note 1
of Notes to Consolidated Financial Statements. Pro forma net loss per common
and equivalent share includes convertible preferred stock as well as common
shares issued and options and warrants to purchase shares of common or
preferred stock granted by the Company at less than the initial public
offering (IPO) price during the twelve months preceding the IPO.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this ANNUAL REPORT ON FORM
10-K. Except for the historical information contained herein, the discussion in
this ANNUAL REPORT ON FORM 10-K contains certain forward-looking statements that
involve risks and uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
ANNUAL REPORT ON FORM 10-K should be read as being applicable to all related
forward-looking statements wherever they appear in this ANNUAL REPORT ON FORM
10-K. The Company's actual results could differ materially from those discussed
here. Factors that could cause or contribute to such differences include those
discussed in "Risk Factors," as well as those discussed elsewhere herein.
OVERVIEW
Since its inception in 1988, SangStat has focused on the development of
products to improve the outcome of organ transplantation. The Company's revenue
is primarily derived from the distribution of the Company's therapeutic
transplantation product candidate, THYMOGLOBULIN in Canada and from sales of its
pre-transplant monitoring products PRA-STAT and CROSS-STAT (the "Monitoring
Products") in the United States, Canada and Europe. Sales of these organ
transplantation products comprised 46%, 78% and 88% of the Company's net product
sales in 1994, 1995 and 1996, respectively.
The Company has also from time to time sold other monitoring products for
laboratory research and investigational use and various devices and services.
These other revenue sources comprised 54%, 22% and 12% of total product revenues
in 1994, 1995 and 1996, respectively. These other revenue sources are not
central to the Company's current or future strategy or operating objectives.
The Company's accumulated deficit from inception through December 31, 1996
was $40,826,000. The Company expects losses to continue for the next several
years due to the expansion of clinical trials, research and development programs
and sales and marketing activities. The Company's operating loss has increased
each year since inception and losses are expected to continue in the future may
as a result of a number of factors including the uncertainty in the timing and
the amount of revenue to be earned upon product sales, expenses required for
product development, clinical trials and marketing operations. In addition, the
Company's business is subject to significant risks, including but not limited
to, the success of its research and development efforts, litigation by third
parties regarding intellectual property, in particular, potential litigation
with Novartis regarding the Company's CYCLOSPORINE product candidate, obtaining
and enforcing patents important to the Company's business, the lengthy and
expensive regulatory approval process, reliance on third parties to manufacture
products or product candidates, competition from other products and
uncertainties associated with health care reform measures. Even if the Company's
products appear promising at various stages of development, they may not reach
the market for a number of reasons. Such reasons include, but are not limited
to, the possibilities that the product candidates will be found to be
ineffective or unsafe to manufacture on a large scale, be uneconomical to
market, be precluded from commercialization by proprietary rights of third
parties or be unacceptable to providers, payors or patients. Additional
expenses, delays and losses of opportunities that may arise out of these and
other risks could have a material adverse impact on the Company's business,
financial condition, cash flows and results of operations.
RESULTS OF OPERATIONS
Net loss. Net loss increased from $5,547,000 in 1994 to $8,678,000 in 1995
and further to $12,774,000 in 1996, primarily reflecting increases in research
and development, including clinical trials and regulatory affairs, and selling,
general and administrative expenses.
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Total revenues. Net product sales increased by $2,024,000 or 300% from
$674,000 in 1994 to $2,698,000 in 1995 and decreased by $299,000 or 11% to
$2,399,000 in 1996. The increase in sales from 1994 to 1995 resulted
substantially from the commencement of distribution of the Company's first
therapeutic product, THYMOGLOBULIN, in Canada in January 1995 under that
country's Emergency Drug Release ("EDR") program, and to a lesser extent,
increased sales of Monitoring Products. The decrease in sales from 1995 to 1996
was substantially due to a 19% decline in revenues for THYMOGLOBULIN due to a
decrease in the number of compassionate use cases which qualified for
THYMOGLOBULIN under Canada's EDR program. The decrease in THYMOGLOBULIN sales
was partially offset by a 25% increase sales of Monitoring Products and the
commencement of THE TRANSPLANT PHARMACY sales.
As expected, no collaborative agreement milestone payments were received
from Baxter in 1996, reflecting completion of the final milestones for PRA-STAT
and CROSS-STAT in 1995. The final payments of $1,125,000 in the first six months
of 1995 represented the completion of $10.0 million received by SangStat for
milestones, license fees and equity in 1993 through 1995 under its collaborative
agreement with Baxter. The Company reacquired commercial rights for Monitoring
Products from Baxter in July 1996, and now directly markets such products
through its own sales and marketing staff in the United States and Europe to
directly market its Monitoring Products.
Cost of sales and manufacturing. Cost of sales and manufacturing expenses
increased by $1,250,000 or 83% from $1,503,000 in 1994 to $2,753,000 in 1995 and
increased further by $93,000 or 3% to $2,846,000 in 1996. The increase from