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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(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: 0-28006
MICROCIDE PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-3186021
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
850 MAUDE AVENUE, MOUNTAIN VIEW, CA 94043
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (415) 428-1150
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 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the 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 the voting stock of the issuer held by
non-affiliates of the issuer on December 31, 1996 was approximately $50 million,
based upon the closing price of such stock on December 31, 1996.
As of March 1, 1997, 10,761,304 shares of Common Stock of the
registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Items 10, 11, 12 and 13 of Form 10-K is
incorporated by reference from the Registrant's Proxy Statement for the 1997
Annual Meeting of Stockholders, which will be filed with the Securities and
Exchange Commission within 120 days after the close of the Registrant's fiscal
year ended December 31, 1996.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Microcide is a biopharmaceutical company founded to discover, develop
and commercialize novel antibiotics for the treatment of serious bacterial
infections. The Company's discovery and development programs address the growing
problem of bacterial drug resistance through two principal themes: (i) Targeted
Antibiotics, which focuses on developing novel antibiotics and antibiotic
potentiators to directly address existing bacterial resistence problems, and
(ii) Targeted Genomics, which utilizes bacterial genetics to discover new
classes of antibiotics and other novel treatments for bacterial disease.
Microcide has also extended its functional genomics technology platform into a
program designed to discover improved systemic antifungal agents (the "Fungal
Genomics Program").
The Company believes that the antibiotics market provides an attractive
opportunity for its research and development activities because (i) it is the
third largest pharmaceutical market, with systemic antibiotics totaling $22.5
billion in worldwide sales, including $6.4 billion in the United States, for the
twelve months ended January 1997; (ii) there are significant unmet clinical
needs, caused by growing bacterial resistance problems, that require new
antibacterial therapies; and (iii) the pre-clinical and clinical development
process for antibiotics generally follows an efficient and well-defined path to
the market. The Company believes that the systemic antifungals market, totaling
approximately $2.2 billion in the twelve months ended January 1997, also
represents an attractive opportunity because there currently are relatively few
effective and non-toxic agents to treat the growing population of
immunocompromised patients with systemic fungal infections.
Microcide's Targeted Antibiotics programs seek to rapidly develop
clinically useful antibiotics tailored to treat specific bacterial infections,
as well as antibiotic potentiators, which will overcome resistance pathways and
restore usefulness to existing antibiotics that have been rendered ineffective.
The specific problematic bacteria being addressed by the Company (staphylococci,
enterococci, Pseudomonas aeruginosa and Streptococcus pneumoniae) are
responsible for 44% of the approximately two million hospital-acquired
infections occurring annually in the United States. These infections are
estimated to result in approximately eight million days of extended hospital
stay and account for more than $4.0 billion in additional health care costs each
year.
Microcide's Targeted Genomics programs seek to identify the
pharmaceutically relevant portion of bacterial genomes that are essential to
bacterial viability in vitro (the Essential Genes Program) or to bacterial
growth and virulence in vivo (the Pathogenesis Program). In the Essential Genes
Program, Microcide has identified approximately 90 essential gene targets,
which are being incorporated into the Company's high-throughput, multi-channel
screening system to discover new classes of antibiotics. In the Pathogenesis
Program, Microcide is developing and utilizing new molecular genetics
technologies to identify bacterial pathogenesis genes in order to discover and
develop novel therapeutic agents.
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During 1996, Microcide extended its genetic discovery technology
platform into fungal genetics for the discovery of new classes of improved
systemic antifungal agents. Microcide's Fungal Genomics Program seeks to
identify essential fungal gene targets which are conserved among pathogens and
distinct from human genes. To date, a library of over 500 essential gene mutants
has been constructed, a subset of which is selectively being incorporated into
the Company's high-throughput, whole-cell assay system to search for small
molecule antifungal agents.
The Company has entered into collaborative agreements with three major
pharmaceutical companies to enhance certain of its discovery and development
programs. As of December 31, 1996, the Company's collaborative partners have
provided the Company with $17.4 million of license fees, milestone payments and
research support payments and $10.0 million in equity investments. Assuming each
of the collaborative agreements continues until its scheduled expiration, the
Company will be entitled to receive an additional $29.1 million of research
support payments. The Company has retained full rights to products which may
result from its internal, self-funded programs in bacterial cell wall
inhibitors, bacterial pathogenesis genes, and fungal genomics.
J&J. Microcide is collaborating with Ortho-McNeil Pharmaceuticals and
the R.W. Johnson Pharmaceutical Research Institute (each Johnson & Johnson
affiliates, and collectively "J&J") to discover and develop novel beta-lactam
antibiotics, antibiotic potentiators and inhibitors of bacterial signal
transduction targeted at problematic Gram-positive bacteria, including
staphylococci and enterococci. The Company and J&J selected an initial
beta-lactam drug candidate for pre-clinical development in October 1996 and the
Company expects to enter into clinical trials with respect to such product
candidate within the next twelve months. If specified research and development
milestones are achieved, the Company will be entitled to receive up to $16.5
million for the initial product and up to $15.5 million for each subsequent
product developed within the collaboration.
Daiichi. Microcide is collaborating with Daiichi to discover and
develop bacterial efflux pump inhibitors to be used in combination with
Daiichi's quinolone antibiotics to target Gram-negative bacteria, including
pseudomonas. The Company expects to select with Daiichi its first quinolone
potentiation candidate in 1997 for subsequent pre-clinical development. If
specified research and development milestones are achieved, Microcide will be
entitled to receive up to $13.0 million for each product developed within the
collaboration.
Pfizer. Microcide is collaborating with Pfizer to implement its
essential gene and multi-channel screening system to discover novel classes of
antibiotics. If specified research and development milestones are achieved,
Microcide will be entitled to receive milestone payments of up to $32.5 million
for each product developed within the collaboration.
The information set forth in this Business Section contains
forward-looking statements, including but not limited to statements concerning
the use of the Company's discoveries and technology platform to identify
potential product candidates, expectations regarding the anticipated date of
selection of clinical development candidates, the commencement of clinical
trials, development time lines, the timing and likelihood of regulatory
approval, the continuation of the Company's collaborations with its partners,
the Company's future capital requirements and the expected time period during
which the Company's existing financial resources will meet such capital
requirements, and business conditions and growth in the biopharmaceutical
industry and general economy. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of the factors set forth in this Business Section, as well as those set
forth elsewhere in this Form 10-K.
The Company was founded in December 1992, has not commenced clinical
trials of any drugs and does not expect that any drugs resulting from its and
its collaborative partners' research and development efforts will be
commercially available for a significant number of years, if at all. Since
inception, the Company has focused its activities on the development of a gene
function-based technology platform and other proprietary information to identify
and commercialize novel antibiotics for the treatment of serious bacterial
infections. It is difficult to predict when, if ever, the Company will be able
to successfully discover novel lead compounds for potential development as
product candidates. All compounds discovered by the Company will require
extensive pre-clinical and clinical testing prior to submission of any
regulatory application for commercial use. Extensive pre-clinical and clinical
testing required to establish safety and efficacy will take a number of years,
and the time required to commercialize new drugs cannot be predicted with
accuracy. There can be no assurance that the Company's approach to drug
discovery, or the efforts of any collaborative partner of the Company, will
result in the development of any drugs, or that any drugs, if successfully
developed, will be proven to be safe and effective in clinical trials, meet
applicable regulatory standards, be capable of being manufactured in commercial
quantities at reasonable costs or be successfully commercialized. Product
development of new pharmaceuticals is highly uncertain, and unanticipated
developments, clinical or regulatory delays, unexpected adverse effects or
inadequate therapeutic efficacy would slow or prevent product development
efforts of the Company or its collaborative partners and have a material adverse
effect on the Company's operations. The Company will not receive revenues or
royalties from sales of drugs for a significant number of years, if at all.
Failure to receive significant revenues or achieve profitable operations could
impair the Company's ability to sustain operations, and there can be no
assurance that the Company will ever receive significant revenues or achieve
profitable operations.
INFECTIOUS DISEASE ENVIRONMENT
BACTERIAL INFECTIONS AND ANTIBIOTICS OVERVIEW
Bacterial infections are a significant and growing medical problem.
They occur when the body's immune system cannot prevent the invasion and
colonization of the body by disease-causing bacteria. These infections may
either be confined to a single organ or tissue, or disseminated throughout the
body by blood stream infections, and can cause many serious diseases, including
pneumonias, endocarditis, osteomyelitis, meningitis, deep-seated soft tissue
infections, bacteremia and complicated urinary tract infections.
According to estimates from the United States Centers for Disease
Control and Prevention (the "CDC") for the period 1980 to 1992, approximately
two million hospital-acquired infections occur annually in the United States,
accounting for more than eight million days of extended hospital stay and
causing more than $4.0 billion in additional health care costs each year. While
overall per capita mortality rates declined in the United States from 1980 to
1992, the per capita mortality rate due to infectious diseases increased 58%
over this period, making infectious diseases the
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third leading cause of death in the United States. The Company believes that
bacterial infections, especially infections caused by difficult-to-treat,
antibiotic-resistant bacteria, cause or contribute to a substantial majority of
these deaths.
Antibiotics are administered both to prevent bacterial infections and
to treat established bacterial diseases. When administered to prevent an
infection, antibiotics are given prophylactically, before definitive clinical
signs or symptoms of an infection are present. When administered to treat an
established infection, antibiotics are often chosen and administered
empirically, before diagnostic testing has established the causative bacterium
and its susceptibility to specific antibiotics.
Antibiotics work by interfering with a vital bacterial cell function at
a specific cellular target, either killing the bacteria or arresting their
multiplication, thereby allowing the patient's immune system to clear the
bacteria from the body. Currently available antibiotics work on relatively few
targets, through mechanisms such as inhibiting protein or cell wall synthesis.
These targets tend to be present in all bacteria and are highly similar in
structure and function, such that certain antibiotics kill or inhibit growth of
a broad range of bacterial species (i.e., broad-spectrum antibiotics).
Major structural classes of antibiotics include beta-lactams,
fluoro-quinolones, macrolides, tetracyclines, aminoglycosides, glycopeptides and
trimethoprim combinations. Penicillin, a member of the beta-lactam class (which
also includes extended-spectrum penicillins, cephalosporins and carbapenems),
was first developed in the 1940s. Nalidixic acid, the earliest member of the
quinolone class, was discovered in the 1960s. The creation of broad-spectrum
antibiotics began in the 1970s and 1980s, with major advances seen in the 1970s
with the development of newer beta-lactams, and in the 1980s with the
development of fluoro-quinolones. These antibiotics are still being used
extensively. No major new class of antibiotics has been discovered and
commercialized in the last 20 years.
ANTIBIOTICS MARKET
According to sales data compiled by IMS International, an independent
pharmaceutical industry research firm, the market for systemic (orally or
parenterally administered) antibiotics constitutes the third largest worldwide
pharmaceutical market, generating $22.5 billion in worldwide sales for the 12
months ended January 1997, including $6.4 billion in the United States. The
in-hospital antibiotic market, where bacterial resistance poses the most serious
threat, totaled $7.6 billion worldwide during this period, including $2.2
billion in the United States. Worldwide systemic antibiotic sales, aggregated by
major antibiotic class, are shown below, along with a listing of the top 20
systemic antibiotic products, shown in rank order of sales within each class.
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WORLDWIDE SALES OF SYSTEMIC ANTIBIOTICS
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Worldwide Top 20
DRUG CLASS Sales(1) Antibiotics
($ millions) (within class)
- -------------------------------------------------------------------------------
Beta-lactams--Cephalosporins.............. $ 7,862 Ceftriaxone
Cefaclor
Cefuroxime/axetil
Ceftazidime
Cephalexin
Cefixime
Cefazolin
Cefadroxil
Beta-lactams--Broad-spectrum Penicillins.. 3,877 Amoxicillin
Amoxicillin/clavulanate
Ampicillin/sulbactam
Macrolides................................ 3,458 Clarithromycin
Azithromycin
Erythromycin
Fluoro-quinolones......................... 3,115 Ciprofloxacin
Ofloxacin
Levofloxacin
Aminoglycosides........................... 667 (2)
Tetracyclines............................. 664 (2)
Beta-lactams--Medium/Narrow-spectrum
Penicillins............................ 582 (2)
Beta-lactams--Carbapenems................. 568 Imipenem
Glycopeptides............................. 528 Vancomycin
Trimethoprim Combinations................. 363 TMP/SMX
All Other Systemic Antibiotics............ 815 (2)
- -------------------------------------------------------------------------------
TOTAL............................... $22,499
- -------------------------------------------------------------------------------
(1) FOR THE 12-MONTH PERIOD ENDED JANUARY 1997.
(2) NO SINGLE ANTIBIOTIC IN THIS CLASS RANKS AMONG THE TOP 20 ANTIBIOTICS.
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ANTIBIOTIC RESISTANCE PROBLEMS
One of the key contributors to the increase in mortality and morbidity
due to bacterial infections is the increasing prevalence of drug-resistant
bacteria. Evidence of bacterial resistance to penicillin was first seen in the
1940s shortly after its introduction. Methicillin and subsequent
second-generation penicillins were developed to overcome these
penicillin-resistant organisms, but resistance to methicillin in turn began to
occur in the 1970s shortly after its release, and has continued to increase.
Similar resistance problems are now seen with a number of clinically important
bacteria targeted by the Company's initial products, including staphylococci,
enterococci, pseudomonas and pneumococci. Strains of these bacteria have become
resistant to all but a few antibiotics. According to estimates based on CDC
data, these four bacteria are responsible for 44% of all hospital-acquired
infections and for 63% of hospital-acquired blood stream infections in the
United States.
A number of factors are believed to contribute to the increased rate of
bacterial drug resistance: (i) physician reliance on broad-spectrum antibiotics
for empiric treatment of an infection before it is definitively diagnosed; (ii)
repeated exposure of bacteria to long-term antibiotic therapy, providing a
competitive advantage to bacteria harboring drug resistance; (iii) the
increasing number of immunosuppressed patients (from cancer chemotherapy, AIDS
and organ transplants); (iv) the growing number of institutionalized, often
elderly, patients receiving multiple courses of antibiotics; (v) the increased
frequency of invasive medical procedures; and (vi) societal and technological
changes, including air travel, that accelerate the spread of drug-resistant
bacteria.
One example of the seriousness of antibiotic resistance is
methicillin-resistant staphylococci ("MRS"), which have become resistant to
virtually all currently used antibiotics, except vancomycin. The heavy use of
vancomycin to treat MRS infections has in turn contributed to the emergence of
new strains of enterococci, the third most prevalent cause of bacterial
infection in hospitals in the United States, which are resistant to vancomycin.
Infections caused by these vancomycin-resistant enterococci ("VRE") frequently
do not respond to any current therapies, and in many cases prove fatal. The
transfer of vancomycin resistance from enterococci to staphylococci has been
demonstrated experimentally. If vancomycin resistance is transferred in the
clinical setting by VRE to staphylococci, the leading cause of hospital-acquired
bacterial infections, no effective antibiotic therapy will remain to treat MRS
infections.
As a result of increasing bacterial resistance to existing antibiotics,
numerous clinical infections occur that resist first-line therapy. When bacteria
develop resistance to established first-line antibiotics, it is often necessary
to use a combination of two drugs, or multiple antibiotic therapy of three or
more drugs, to treat these resistant infections. Such combination or multiple
antibiotic therapy is generally more costly, potentially less effective, and
potentially more toxic to the patient due to additive and sometimes synergistic
side effects. The table below outlines some of the major problematic
drug-resistant bacteria, the classes of antibiotics to which they already show
clinically significant levels of resistance, and the remaining recommended
treatments:
Problematic Drug-Resistant Bacteria
- -------------------------------------------------------------------------------
Bacteria Clinically Remaining
Significant Recommended Treatment
Resistance Problems
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Staphylococci Beta-lactams Vancomycin
(Staphylococcus aureus) Fluoro-quinolones Combination Therapy
(coagulase-negative Aminoglycosides
staphylococci) Macrolides
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Enterococci Beta-lactams Multiple Antibiotic Therapy
Aminoglycosides
Glycopeptides
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Pseudomonas aeruginosa Beta-lactams Combination Therapy
Fluoro-quinolones
Aminoglycosides
- -------------------------------------------------------------------------------
Streptococcus pneumoniae Beta-lactams Cephalosporin or Carbapenem
Macrolides Vancomycin
Tetracyclines
- -------------------------------------------------------------------------------
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STRATEGY
The Company believes that the antibiotics market provides an attractive
opportunity for its research and development activities because (i) there are
significant unmet clinical needs, caused by growing bacterial resistance
problems, that require new antibacterial therapies and (ii) the pre-clinical and
clinical development process for antibiotics typically follows an efficient and
well-defined path to the market, with early testing generally predictive of
later stage results. The Company believes these factors will lead to shorter
overall development timelines and higher approval rates for its products than
for products in most other therapeutic categories. Microcide's strategy is to
focus near-term pre-clinical research activities on drug resistance pathways and
to conduct longer-term drug discovery using novel antibacterial targets
identified through its Targeted Genomics programs. In addition, the Company has
extended its genetic discovery technology platform beyond bacteria to include
fungi. The Company's strategy is comprised of the following six key elements:
Develop Novel Antibiotics by Targeting Drug Resistance Pathways.
Microcide's near-term research programs focus on rapidly identifying and
optimizing proprietary compounds that are effective against problematic
antibiotic-resistant bacteria, notably MRS, VRE, beta-lactam-resistant
pneumococci and quinolone-resistant pseudomonas. Since antibiotic resistance
problems are often due to a single defined pathway, the Company believes that
targeting those pathways will enable it to rapidly develop novel antibiotics
tailored to specific resistant bacteria, as well as to develop antibiotic
potentiators that overcome resistance pathways and restore the usefulness of
established antibiotics that have been rendered ineffective. The Company's
Gram-Positive, Efflux Pump and Cell Wall Programs are focused in this area.
Accelerate the Discovery of New Antibiotic Classes through Targeted
Genomics. Microcide has developed a technology platform which utilizes bacterial
genetics to discover the genes which are essential for a bacterium's in vitro
survival or in vivo pathogenicity. Microcide is utilizing essential bacterial
genes discovered in its Essential Genes Program as the basis for identifying and
characterizing novel antibiotic targets. The Company has developed an innovative
methodology for parallel high-throughput screening of these targets against
molecular diversity libraries to identify a large number of active lead
compounds. The Company believes that this genetics technology platform will
enable it to rapidly identify drug candidates within new classes of antibiotics.
Extend Targeted Genomics to Bacterial Pathogenesis Genes, Creating
Novel Therapeutic Approaches. Microcide has extended its molecular genetics
technologies in targeted genomics to identify and characterize genes that are
critical to bacterial growth or virulence in vivo. The Company believes that
inhibitors of such targets have not been previously systematically sought in
antibiotic discovery programs, and that its bacterial Pathogenesis Program
utilizes novel methods to discover inhibitors of bacterial pathogenesis genes
for development as new treatment approaches for bacterial disease.
Apply Targeted Genomics to Fungal Pathogens. During 1996, Microcide
extended its genetic discovery technology platform into fungal genetics for the
discovery of new classes of improved systemic antifungal agents. Microcide's
Fungal Genomics Program seeks to identify essential fungal gene targets which
are functionally conserved among pathogens and are distinct from human genes,
and then utilize these genes simultaneously for antifungal drug discovery in its
proprietary multichannel screening system.
Enhance Research and Development and Reduce Capital Requirements
through Collaborative Agreements. The Company has entered into collaborations
with three major pharmaceutical companies to develop its initial products. Such
collaborations are expected to provide Microcide with funding, discovery
technologies, research staffing, access to molecular diversity, and development
and commercialization capabilities. By utilizing
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the resources of its collaborators, Microcide expects to lower its capital
requirements and reduce the time needed to commercialize its products worldwide.
Retain the Ability to Independently Develop and Market Certain
Products. Microcide's longer-term development strategy is to continue to utilize
strategic collaborations selectively to complement internal efforts. Microcide
plans to retain certain rights to products resulting from its unpartnered
programs, including the Company's Pathogenesis, Cell Wall and Fungal Genomics
Programs, and to enter into collaborative relationships at later stages of
product development and where appropriate for distribution and
commercialization.
MICROCIDE'S RESEARCH PROGRAMS
Microcide's research programs employ an interdisciplinary approach that
incorporates several drug discovery and research technologies, including
targeted genomics, synthetic and natural product diversity, high-throughput and
multi-channel screening, combinatorial and medicinal chemistry,
computer-assisted drug design and bioinformatics. The Company believes that its
interdisciplinary approach more effectively utilizes a broader range of novel
bacterial targets for new compound discovery than traditional biochemical
approaches. Microcide believes that drug resistance genes, essential genes and
pathogenesis genes can be developed into screens for selective inhibitors and
widely employed in the lead discovery process.
Access to molecular diversity libraries for screening against targets
is critical to drug discovery. In some instances, the Company's collaborative
partners are providing molecular diversity libraries to support the screening
process. However, the Company is committed to establishing a stand-alone
molecular diversity capability for its programs, and is actively building
libraries of structurally distinct synthetic compounds and natural product
extracts for this purpose. The Company's natural products program provides
access to broad-based molecular diversity not possible in synthetic compound
libraries alone. The Company believes that both of its libraries contain
significant structural diversity. These libraries provided more than 120,000
samples for high-throughput screening at the end of 1996, and the Company
expects to expand its libraries to more than 250,000 samples by the end of 1997.
The Company's discovery and pre-clinical research activities center on
two themes: Targeted Antibiotics and Targeted Genomics. The Company's Targeted
Antibiotics programs focus on overcoming bacterial drug resistance, either by
interfering with resistance pathways to potentiate existing antibiotics, or by
developing novel lead compounds which avoid such resistance pathways. The
Company's Targeted Genomics programs utilize bacterial genetics and genomics
approaches to discover inhibitors of novel drug targets for further development
as effective antibiotics or anti-pathogenesis therapeutics. In addition, this
approach is being utilized with fungal pathogens to discover small molecule
systemic antifungal agents.
MICROCIDE'S RESEARCH PROGRAMS
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Current
Program Program Goal Stage(1) Partner
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Targeted Antibiotics
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Gram-Positive Program
Novel Beta-lactams Novel antibiotics for treatment of Gram- Pre-clinical
positive bacteria, including resistant Candidate J&J
strains (MRS, VRE and beta-lactam-resistant
Streptococcus pneumoniae)
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Antibiotic
Potentiators Potentiators which restore efficacy to existing Drug Design J&J
classes of antibiotics through inhibition of
resistance mechanisms
- ---------------------------------------------------------------------------------------------------
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- ---------------------------------------------------------------------------------------------------
Signal Transduction Anti-virulence adjunct to existing Leads J&J
antibiotics for treatment of resistant and Identified
susceptible staphylococci
- ---------------------------------------------------------------------------------------------------
Efflux Pump Program Potentiators for use with existing Drug Daiichi
quinolones against resistant Gram-negative Design
bacteria, including Pseudomonas aeruginosa
- ---------------------------------------------------------------------------------------------------
Cell Wall Program
First Generation Narrow-spectrum antibiotics Drug Internal
Design
- ---------------------------------------------------------------------------------------------------
Second Generation Broad-spectrum antibiotics Drug Internal
Design
- ---------------------------------------------------------------------------------------------------
TARGETED GENOMICS
- ---------------------------------------------------------------------------------------------------
Essential Genes Program Novel classes of broad- and narrow-spectrum Screening Pfizer
antibiotics
- ---------------------------------------------------------------------------------------------------
Pathogenesis Program Novel anti-virulence or anti-pathogenesis Gene Internal
bacterial therapeutics Identification
- ---------------------------------------------------------------------------------------------------
Fungal Genomics Program Novel systemic antifungal agents Gene Internal
Identification/
Screening
- ---------------------------------------------------------------------------------------------------
- -----------------
(1) The company's pre-clinical research programs generally consist
of the following stages, listed chronologically: "Gene
Identification" -- development and implementation of methods
to identify appropriate gene targets to be used in screening.
"Screening" -- development and implementation of assay
technologies to identify selective target inhibitors
("leads"). "Leads Identified" -- lead compounds have been
identified whose in vitro and in vivo characteristics are
being evaluated in biochemical, microbiological,
pharmacological and toxicological tests for entry into drug
design programs. "Drug Design" -- structure-activity
relationships of selected compounds are being defined and such
compounds optimized through medicinal chemistry efforts.
"Candidate Selection" -- optimized leads are being scaled-up
and evaluated in key efficacy, toxicological and
pharmacological tests in advance of selection as pre-clinical
development candidates. "Pre-clinical Candidate" -- a lead
compound is undergoing extensive pre-clinical investigation
including pharmaceutical characterization, product
formulation, process scale-up for manufacturing, and animal
safety and tolerability studies, all of which are requisite
to entering into human clinical trials.
TARGETED ANTIBIOTICS
Microcide's Targeted Antibiotics programs involve two approaches: (i)
the development of novel antibiotic potentiators which overcome bacterial
resistance by interfering with resistance pathways to potentiate existing
antibiotics, and (ii) the development of novel antibiotic compounds which avoid
such resistance pathways. The Company's Targeted Antibiotics programs include
the Gram-Positive, Efflux Pump and Cell Wall programs.
GRAM-POSITIVE PROGRAM
Microcide's Gram-Positive Program is focused on discovering and
developing novel antibiotics and antibiotic potentiators for the treatment of
infections caused by drug-resistant Gram-positive bacteria, including MRS, VRE
and pneumococci. Gram-positive and Gram-negative bacteria have fundamentally
different surface characteristics. These surface properties greatly affect the
ability of an antibiotic to penetrate the bacterium and reach its target site.
As a result, antibiotics that are effective against Gram-positive bacteria are
often less effective against Gram-negative bacteria, and vice versa. The
problematic Gram-positive bacteria targeted by this program cause serious
infections, including endocarditis, osteomyelitis, meningitis, deep-seated soft
tissue infections, bacteremia, complicated urinary tract infections and
pneumonias.
The Gram-Positive Program is being conducted in collaboration with J&J
and consists of the following major areas: (i) discovery of beta-lactam
antibiotics with specific efficacy against resistant Gram-positive bacteria;
(ii) discovery of novel antibiotic potentiators of existing beta-lactams or
vancomycin for use against MRS and VRE, respectively; and (iii) discovery of
inhibitors of signal transduction in bacteria.
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Novel Beta-lactams
Traditional beta-lactam antibiotics work by inhibiting enzymes
(penicillin-binding proteins, or PBPs) that carry out crucial steps in the
synthesis of the bacterial cell wall. Resistance to beta-lactam antibiotics in
MRS is primarily caused by bacterial production of PBP2a, an enzyme capable of
conducting cell-wall synthesis in the presence of such antibiotics, as well as
by the production of beta-lactamases, which render beta-lactams ineffective.
Microcide's beta-lactam program seeks initially to develop a novel
beta-lactam antibiotic which is beta-lactamase-stable and inhibits PBPs,
including PBP2a, thereby gaining efficacy against MRS. Compounds emerging from
the Company's beta-lactam program are expected to be active against
staphylococci, including MRS, enterococci, including VRE, and possibly other
Gram-positive bacteria. The Company has prepared over 580 new synthetic analogs
and has made advances in drug design, resulting in several leads with desirable
in vitro potency, in vivo efficacy, favorable pharmacokinetics and solubility,
and low toxicity.
Antibiotics developed within this program are expected to be
parenterally administered in the institutional setting to prevent or treat
infections caused by Gram-positive bacteria, including those resistant to other
antibiotics. Such newly developed antibiotics could potentially be clinically
adopted for the following uses: as a single agent following treatment failure in
patients with a documented drug-resistant infection, or empirically as a single
agent or in combination with a broad-spectrum antibiotic to extend coverage to
resistant bacterial strains. The Company believes that the clinical adoption of
such antibiotics could be similar to that of vancomycin as a single agent, or
ceftazidime or an aminoglycoside in combination use for empiric therapy.
The Company, in collaboration with J&J, selected an initial beta-lactam
drug candidate for pre-clinical development in October 1996. This compound is
currently undergoing pharmaceutical characterization, product formulation and
process scale-up for manufacturing of sufficient bulk drug substance to conduct
requisite animal safety and tolerability studies and to complete Phase I
clinical trials. The Company expects to complete all pre-clinical activities and
to enter into human clinical trials within the next twelve months. However,
there can be no assurance that clinical trials will begin by such date, or ever.
The Company has filed patent applications in the United States and elsewhere
on nine series of lead structures discovered in this program, and two patents
out of these series have issued in 1997.
Antibiotic Potentiation
The loss of utility of an antibiotic class in the treatment of bacteria
is often due to a single, defined resistance pathway, as is the case in MRS and
VRE. The goal of the Company's antibiotic potentiation program is to discover
compounds that directly interfere with methicillin or vancomycin resistance
pathways in these organisms, in order to restore the effectiveness of
beta-lactams or glycopeptides in the treatment of MRS or VRE infections.
Microcide has developed novel screening technologies to discover inhibitors of
these pathways, and has discovered leads from these screens which show desirable
in vitro and in vivo characteristics. Several of the methicillin potentiator
leads, tested in combination with a number of currently marketed beta-lactams,
demonstrate control of MRS infection in animal models at doses where the
beta-lactams alone are ineffective.
Potentiators resulting from this program may be developed for use with
oral or parenteral antibiotics, with the goal of creating a combination product
which either targets a specific resistance problem (for example, in combination
with an anti-staphylococcal penicillin) or alternatively provides broad-spectrum
empiric coverage (such as in combination with imipenem). The Company believes
that the clinical adoption of such potential products could be similar to that
of vancomycin as a targeted narrow-spectrum potentiator, or
amoxicillin/clavulanate or imipenem as a broad-spectrum potentiator.
The Company, in collaboration with J&J, is designing compounds based on
methicillin potentiation leads, and expects to select its first product
candidate from this program in 1997 for subsequent pre-clinical development.
However, there can be
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no assurance that such selection will occur in 1997, or ever. The Company has
filed patent applications in the United States and elsewhere covering two series
of lead structures originating from this program.
Inhibitors of Bacterial Signal Transduction
Signal transduction is a mechanism by which a cell senses and responds
to changes in its external environment and which occurs when a sensor protein,
usually at the cell surface, receives and transmits a signal that results in the
expression of a specific set of genes. A wide range of bacteria use signal
transduction systems to regulate a variety of cellular functions. For example,
it is generally believed that disease-causing bacteria are able to use such
mechanisms to establish infections in different sites of the body. Signal
transduction systems are also utilized by staphylococci and enterococci to
express methicillin and vancomycin resistance. Elements of these regulatory
systems are conserved within bacteria and across bacterial species, but are
dissimilar to signal transduction mechanisms found in mammalian cells. For that
reason, the Company believes that bacterial-specific signal transduction
inhibitors can be developed into effective therapeutic agents.
Microcide is initially focused on a specific signal-transduction system
in staphylococci, which controls the expression of a large number of bacterial
toxins and surface proteins produced during infection. The Company has developed
screening and lead evaluation technologies and has identified compounds which
block signal transduction control in staphylococci. These compounds are
currently undergoing biochemical, microbiological and pharmacological testing in
vitro and in vivo.
Any products resulting from the bacterial signal transduction program
will represent a new therapeutic approach, in that they will be
anti-pathogenesis or anti-virulence agents. Potential initial products will be
targeted at Gram-positive bacteria, and are expected to be used independently or
in combination with antibiotics to enhance their antibacterial potency in
particularly difficult-to-treat clinical situations, such as deep-seated soft
tissue infections, endocarditis, osteomyelitis and meningitis.
The Company, in collaboration with J&J, has filed patent applications
in the United States and elsewhere covering the screening technology and 14
series of lead structures discovered to date in this program.
EFFLUX PUMP PROGRAM
The high intrinsic resistance of Pseudomonas aeruginosa to many
antibiotics, including quinolones, has generally been attributed to the
impermeable outer membrane of this Gram-negative bacterium. Recent information,
however, indicates that this intrinsic resistance is due to the combined effects
of low membrane permeability and the production of membrane proteins (efflux
pumps) which bind to antibiotics of many different types as they enter the
bacterial cell and eject (efflux) them from the bacterium.
The Company believes that the combination of bacterial efflux pump
inhibitors with existing antibiotics could increase the susceptibility of
Gram-negative bacteria like pseudomonas to such antibiotics and could increase
the activity of such antibiotics against bacteria expressing efflux
pump-mediated drug resistance ("MDR"). The Company has established a genetics
and molecular biology program which focuses on bacterial efflux systems, and has
developed novel screening and lead evaluation technologies which have resulted
in the discovery of lead compounds with the desired potency, specificity for
bacterial efflux pumps, and low toxicity in mammalian cells. Drug design efforts
are being pursued to identify metabolically stable and pharmacologically
suitable efflux pump inhibitors for selection as pre-clinical development
candidates. The Company expects that any products resulting from this effort
will be combined with Daiichi's oral and parenteral quinolone antibiotics to
increase their effectiveness against Gram-negative bacteria
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and to overcome efflux pump-mediated MDR in pseudomonas and other bacteria. The
Company believes that the clinical adoption of such antibiotic/inhibitor
combinations could be similar to that of Daiichi's levofloxacin and other
quinolones.
The Company, in collaboration with Daiichi, is designing compounds
based on efflux pump inhibitor leads and expects to select its first
product candidate from this program in 1997 for subsequent pre-clinical
development. However, there can be no assurance that such selection will occur
by such date, or ever. The Company has filed patent applications in the United
States and elsewhere related to the initial series of lead structures
originating from this program and is preparing patent applications relating to
four other series of lead structures.
CELL WALL PROGRAM
Enzymes involved in bacterial cell wall biosynthesis represent
attractive and proven targets for antibiotic development. Many inhibitors of
this process, which is essential and unique to bacteria, have been identified.
However, relatively few of these inhibitors have been developed into
commercially usable antibiotic classes. Microcide's Cell Wall Program is based
on unexploited structural classes of known inhibitors which fall outside
existing cell wall drug classes, and for that reason are not expected to be
subject to existing bacterial resistance mechanisms.
One class of inhibitors currently under research at Microcide shows
potent activity against Pseudomonas aeruginosa and certain other bacteria, and
is well tolerated and non-toxic in animal studies. The Company is working toward
the design of a first-generation drug candidate, to be administered orally or
parenterally, and to be targeted against specific, difficult-to-treat
infections. The Company believes that the clinical adoption of the Company's
potential first-generation product from this program could be similar to that of
existing narrow-spectrum antibiotics such as aztreonam, a Gram-negative
beta-lactam. The Company is also pursuing a second-generation antibiotic with an
expanded spectrum of activity which could include Gram-negative and possibly
Gram-positive bacteria.
The Company has retained all rights to this program and is self-funding
it. The Company expects to select the initial first-generation product
candidate from this program in 1997 for subsequent pre-clinical development.
However, there can be no assurance that such selection will occur by such date,
or ever. The Company has submitted a patent application in the United States on
a series of natural product structures and is preparing a patent application in
the United States related to another series of lead structures originating from
this program.
TARGETED GENOMICS
Microcide believes that it has developed a unique approach to
antibiotic research using bacterial genetics as a foundation for drug discovery.
The Company believes that this approach will yield a large number of relevant
novel drug targets that in turn are expected to lead to the development of new
classes of antibiotics. The Company's strategy is to target its gene discovery
efforts to the pharmaceutically relevant portion of bacterial genomes, by
identifying genes that are essential to bacterial viability in vitro (the
Essential Genes Program) or to bacterial pathogenicity in vivo (the Pathogenesis
Program). These target genes, once identified, are incorporated into the
Company's high-throughput screening systems to identify compounds for further
development. The Company has applied its targeted genomics approach to other
cellular systems, specifically fungi, and believes that broader application to
other microbial pathogens or mammalian cells may be possible. The Company
believes that this approach offers significant advantages over traditional
pharmaceutical company approaches, as well as the more recent bacterial genomic
sequencing approaches.
Traditional approaches to antibiotic drug discovery have centered on
biochemically defined targets. In such approaches, screening assays are
developed based on selectively chosen enzyme or receptor targets. Appropriately
designed assays can be highly effective but have several significant drawbacks.
First, such an approach is limited in its application since it requires
pre-existing data with respect to the function or mechanism of an identified
target, and
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only identifies inhibitors of that specific target. Since many targets lack such
information, the range of targets that can be employed to find inhibitors is
limited. Second, such target-specific assays have relatively long set-up times
and costs. Third, these techniques often employ an extracellular biochemical
approach which may identify compounds that are excellent inhibitors of essential
biochemical enzymes, but subsequently prove not to be good antibiotic candidates
because sufficient concentrations within the bacterium are not achieved at the
target site, or for other reasons.
Drug discovery efforts have recently employed whole-genome sequencing
approaches to antibiotic target identification. Although such approaches reveal
all of the genetic information in a bacterium, the Company believes that only an
estimated 5% to 10% of the total bacterial genetic material encodes proteins
that are pharmaceutically relevant as drug targets. Genome sequencing approaches
can only address gene function through sequence analysis and comparison, and do
not adequately address the issue of the relevance of a particular gene as a drug
target. Thus, while two complete bacterial genomes were sequenced and publicized
in the summer of 1995 and four additional bacterial genomes were completed in
1996, considerable research will be necessary to identify the pharmaceutically
relevant target genes from this information, and to develop screens for
potential inhibitors. Such screens will then face many of the same limitations
as traditional screening approaches.
ESSENTIAL GENES PROGRAM
In contrast, Microcide's Essential Genes Program utilizes a targeted
genomics approach to discover the pharmaceutically relevant genes present in
bacterial genomes, and focuses on several important and diverse pathogenic
bacteria. The Company has created unique molecular tools and approaches in
bacterial molecular genetics, which allow it to create and use gene mutants to
quickly and directly clone essential bacterial genes. These same mutants are
then used to characterize and prioritize drug targets. This targeted genomics
approach accelerates the entire discovery process by focusing on the
functionally important portions of the genome and thereby bypassing the task of
sequencing and characterizing irrelevant portions of the genome.
As of the end of 1996, Microcide has identified approximately 90 of
the estimated 150 to 200 essential genes in its bacterial genomic systems.
Because essential genes are generally common among different bacteria, the
Company believes that a number of the drug targets identified to date could lead
to the discovery of new classes of broad-spectrum antibiotics. The Company has
filed patent applications covering approximately 82 essential genes and related
screening methods in the United States.
The Company has also created a multi-channel screening process that it
believes will accelerate antibiotic discovery in several important ways.
Foremost is the ability to move directly and rapidly from gene identification to
drug screening using gene mutants. Using genetic assays, many targets can be
utilized simultaneously to evaluate compounds, as opposed to the traditional
screening approach which utilizes few targets in single assay format. This
multi-channel process creates a multi-dimensional profile or "phenoprint" of
each compound tested. Both multiple targets and multiple biological properties
of compounds can thus be simultaneously evaluated during primary screening.
Using defined testing algorithms and statistical analyses of resulting data,
many compounds are tested in high-throughput mode. Collectively, the resulting
compound phenoprints, along with other data on the properties of the genes and
the compounds, form a database of information correlating biological effects of
compounds and their structures to the various targets early in the development
process. This facilitates and enhances the selection of optimal hits and most
promising leads prior to commitment to drug design efforts.
[GRAPHIC SHOWING THE COMPANY'S TARGETED GENOMIC APPROACH AND
MULTI-CHANNEL SCREENING PROCESS.]
The Company's multi-channel screening method has the following
benefits: (i) it is broadly applicable to all of the pharmaceutically relevant
essential genes identified; (ii) it identifies compounds that can enter cells
and effect inhibitory action, given its whole-cell based nature; (iii) it
utilizes more sensitive assays than traditional whole-cell screens, allowing for
the identification of a broader range of potential drug candidates; and (iv) it
can be applied even
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before the novel genes or biochemical targets are fully characterized. The
database created by the Company's Essential Genes Program is expected to grow in
information content and ability to discriminate among compounds as each new gene
or compound is evaluated and added to the database. The Company believes this
database represents a significant competitive advantage in antibiotic discovery
and development.
The Company, in collaboration with Pfizer, is implementing its
essential gene and multi-channel screening systems to discover and develop
multiple new antibiotic drug classes. In addition, Microcide and Pfizer have
selected a number of essential gene targets of high interest for biochemical
screening. The molecular diversity libraries of the Company and Pfizer will be
selectively applied to these screening efforts. Potential products resulting
from the drug design efforts of this program are expected to constitute new
classes of broad-spectrum antibiotics. The Company believes that the clinical
adoption of such compounds could be similar to that of clarithromycin,
ciprofloxacin or imipenem. In addition to patent applications covering essential
genes, the Company has filed patent applications covering its multi-channel
screening technology in the United States and elsewhere.
PATHOGENESIS PROGRAM
Bacterial pathogenesis is a complex process by which bacteria enter the
host, locate and establish an appropriate growth niche, evade host defenses,
circumvent host clearing mechanisms, and amplify at the site of infection.
Specialized bacterial genes are required for survival in the host that are not
required for growth in the laboratory environment. Damage to the host arises
from bacterial products produced during growth, and from the bacterium's ability
to modify and destroy host tissue. The bacterial gene products causing this
damage contribute to bacterial virulence. The Company believes that cellular
functions underlying these processes of pathogenicity and virulence are
conserved among many disease-causing bacteria, and inhibitors of these cellular
functions may be broadly acting and detrimental to the bacterium and its
disease-causing ability.
Microcide's Pathogenesis Program focuses on the genetic determinants
underlying bacterial pathogenicity and virulence. The genetic basis of bacterial
pathogenicity is largely unknown and unexplored for drug targeting. The Company
is developing novel molecular and genetic methods to identify pathogenesis gene
targets in vitro and in animal models, and to genetically assess the effect of
target inhibition in vivo. These methods are being employed to create a library
of such genes for drug discovery research. As of the end of 1996, the Company
has identified 37 pathogenesis gene mutants, and cloned and sequenced at least
14 potential pathogenesis gene targets, which are being examined in vitro and in
animal systems for selection as screening targets. Specific screens will be
devised and implemented to identify inhibitors of the most attractive
pathogenesis gene targets, in which inhibition of the target function will
prevent the bacterium's proliferation or virulence in vivo. Inhibition of
genetic processes underlying pathogenesis is expected to constitute a novel
approach to the treatment of bacterial disease, and potentially offer
therapeutic advantages over traditional antibiotic therapy.
The Company has retained all rights to this program and is self-funding
it. The Company has filed patent applications in the United States covering
methods for discovery and characterization of pathogenesis genes.
FUNGAL GENOMICS PROGRAM
Systemic fungal infections are becoming an increasing medical problem,
especially among patients whose immune system is compromised due to cancer
chemotherapy, transplantation or AIDS. Despite the limitations of existing
therapeutics, systemic antifungal agents comprise a growing segment of the
anti-infective market with worldwide sales of approximately $2.2 billion in the
twelve months ended January 1997. Existing antifungals utilize essentially only
two targets: ergosterol (membrane) and cell well biosynthesis. Amphotericin B,
while fungicidal, has toxicity
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limitations in many patients. In contrast, the azole class of compounds is
limited by suboptimal efficacy in the treatment of deep seated fungal infections
in immunocompromised patients due to its fungistatic mode-of-action, and due to
emerging drug resistance.
During 1996, Microcide extended its genetic discovery technology
platform into fungal genetics for the discovery of new classes of improved
systemic antifungal agents. Microcide's Fungal Genomics Program seeks to
identify essential fungal gene targets which are functionally conserved among
pathogens and distinct from human genes. To date, a library of over 500 mutants
constituting several hundred essential genes has been constructed. A subset of
these mutants, representing pharmaceutically relevant targets, is being
incorporated into drug discovery screens. Initial screening efforts are focusing
on sets of approximately 20 genes within each of two genetic systems essential
for fungal growth and survival. The Company is expanding its gene mutant set in
order to screen against a large number of pharmaceutically relevant targets
through the development of a new screening methodology, which it terms
multiplexing, designed to achieve a 10-100 fold increase in throughput relative
to conventional high-throughput screening techniques.
The Company has retained all rights to this program and is self-funding
it. The Company has filed patent applications in the United States covering its
multiplex screening technology.
COLLABORATIVE AGREEMENTS
The Company's strategy is to enter into collaborations with major
pharmaceutical companies to develop its initial products. Such collaborations
are expected to provide the Company with funding, discovery technologies,
research staffing, access to molecular diversity, and development and
commercialization capabilities. To date the Company has entered into
Collaborative Agreements with three major pharmaceutical companies: J&J with
regard to the Gram-Positive Program; Daiichi with regard to the Efflux Pump
Program; and Pfizer with regard to the Essential Genes Program. The Company has
certain rights to co-promote in North America products developed pursuant to
these collaborations.
J&J -- GRAM-POSITIVE PROGRAM
In October 1995, Microcide and J&J entered into the J&J Agreements
pursuant to which they agreed to collaborate to discover and develop certain
antibiotics and antibiotic potentiators targeted at Gram-positive bacteria. The
term of the J&J Agreements is three years, subject to J&J's right to earlier
terminate the J&J Agreements on six months prior written notice, and with J&J
having an option to extend the term for an additional one-year period. J&J has
made a $3.0 million up-front license payment to the Company and an affiliate of
J&J has made a $5.0 million equity investment in the Company. J&J is obligated
to provide the Company with up to $3.5 million per year in
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research support payments throughout the term of the J&J Agreements. Microcide
may also receive from J&J milestone payments of up to $16.5 million for the
first product and $15.5 million for each subsequent product upon the achievement
of product development milestones and, in addition, royalties on the worldwide
sale of drugs resulting from the collaboration. The first milestone payment of
$1 million was received in October 1996 upon the selection of a beta-lactam
pre-clinical development candidate. The J&J Agreements provide J&J with
exclusive worldwide rights to products developed during the collaboration. The
development, manufacture and sale of drugs resulting from the collaboration will
be conducted by J&J, provided that Microcide has the right to undertake certain
co-promotion activity in North America subject to J&J's approval. There can be
no assurance that any potential products will be discovered during the
collaboration or that, if discovered, J&J will elect to proceed with the
development of such potential products. As a result, there can be no assurance
that any of the milestone or royalty payments contemplated by the J&J Agreements
will be made. See "Targeted Antibiotics -- Gram-Positive Program."
DAIICHI -- EFFLUX PUMP PROGRAM
In November 1995, Microcide and Daiichi entered into the Daiichi
Agreement pursuant to which they agreed to collaborate to discover and develop
antibiotics and antibiotic potentiators, acting through inhibition of the efflux
pump mechanism, primarily targeted at pseudomonas. The term of the research
program under the Daiichi Agreement is two years and nine months commencing as
of July 1, 1995 subject to Daiichi's right to earlier terminate the research
program under the Daiichi Agreement after July 1, 1997 upon six months prior
notice, and with Daiichi having an option to extend the term of the research
program under the Daiichi Agreement for an additional six months or one year.
Daiichi is obligated to provide research support funding to Microcide of $3.0
million for the first nine months and up to $3.5 million for each subsequent
year during the term of the research program. Daiichi has the right to enter
into a license agreement (the "Daiichi License Agreement") for exclusive
worldwide rights to products developed during the collaboration. Pursuant to the
Daiichi License Agreement, Microcide is entitled to receive from Daiichi
milestone payments of up to $13.0 million for each product developed during the
collaboration upon the achievement of certain drug development milestones and,
in addition, royalties on the worldwide sale of drugs resulting from the
collaboration. The development, manufacture and sale of drugs resulting from the
collaboration will be conducted by Daiichi subject to Microcide's right to
co-promote such drugs in North America, for which Microcide shall receive
reasonable compensation. There can be no assurance that any potential products
will be discovered during the collaboration or that, if discovered, Daiichi will
elect to proceed with the development of such potential products. As a result,
there can be no assurance that any of the milestone or royalty payments
contemplated by the Daiichi License Agreement will be made. See "Targeted
Antibiotics -- Efflux Pump Program."
PFIZER -- ESSENTIAL GENES PROGRAM
In March 1996, Microcide and Pfizer entered into the Pfizer Agreements
pursuant to which they agreed to collaborate to implement genetics-based
screening technology to identify and subsequently develop antibacterial
products. The term of the Pfizer Agreements is five years, subject to Pfizer's
right to earlier terminate after February 1999 with six months prior written
notice. Pfizer has made a $1.0 million up-front license payment to the Company
and a $5.0 million equity investment in the Company. Pfizer is obligated to
provide Microcide with up to $4.2 million per year in research support payments
during the term of the Pfizer Agreements. Microcide may also receive from Pfizer
milestone payments of up to $32.5 million for each product developed during the
collaboration upon the achievement of product development milestones and, in
addition, royalties on the worldwide sale of drugs resulting from the
collaboration. The first milestone payment of $1.0 million was received in
the first quarter of 1997 upon the identification, characterization and
sequencing of a specific number of essential genes. The Pfizer Agreements
provide Pfizer with exclusive worldwide rights to products developed during the
collaboration. The development, manufacture and sale of drugs resulting from the
collaboration will be conducted by Pfizer, subject to Microcide's right to
co-promote such products in North America. There can be no assurance that any
potential products will be discovered during the collaboration or that if
discovered, Pfizer will elect to proceed with the
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development of such potential product. As a result, there can be no assurance
that any of the milestone or royalty payments contemplated by the Pfizer
Agreements will be made. See "Targeted Genomics -- Essential Genes Program."
Under the Company's Collaborative Agreements, which cover three of the
Company's programs, each of J&J, Daiichi and Pfizer is responsible for (i)
selecting compounds discovered in its collaboration with the Company for
subsequent development, (ii) conducting pre-clinical testing, clinical trials
and obtaining required regulatory approvals of such drug candidates, and (iii)
manufacturing and commercializing resulting drugs. As a result, the Company's
receipt of revenues (whether in the form of continued research funding, product
development milestones or royalties on sales) under the Collaborative
Agreements is dependent upon the decisions made and activities undertaken by
its collaborative partners and upon the development, manufacturing and
marketing resources of its collaborative partners. The amount and timing of
resources dedicated by the Company's collaborative partners to their respective
collaborations with the Company is not within the Company's control. Moreover,
certain compounds discovered by the Company may be viewed by the Company's
collaborative partners as competitive with such partners' products or potential
products. Accordingly, there can be no assurance that the Company's
collaborators will elect to proceed with the development of compounds which the
Company believes to be promising, or that they will not pursue their existing
or alternative technologies in preference to such compounds. There can be no
assurance that the interests of the Company will continue to coincide with
those of its collaborative partners, that some of the Company's collaborative
partners will not develop independently or with third parties drugs that could
compete with drugs of the types covered by the collaborations, or that
disagreements over rights or technology or other proprietary interests will not
occur.
The Company is dependent on its collaborative partners to fund a
substantial portion of its activities over the next several years. However, J&J
can terminate its collaboration with the Company at any time upon six months'
prior written notice, Daiichi can terminate its collaboration with the Company
at any time after July 1, 1997 upon six months' prior written notice, and Pfizer
can terminate its collaboration with the Company at any time after February 1999
upon six months' prior written notice. If any of the Company's collaborative
partners terminates or breaches its Collaborative Agreement with the Company, or
fails to devote adequate resources to or to conduct in a timely manner its
collaborative activities, the research program under the applicable
Collaborative Agreement or the development and commercialization of drug
candidates subject to such collaboration would be materially adversely affected.
Further, there can be no assurance that the Company's collaborations with J&J,
Daiichi and Pfizer will be successful. Nor can there be any assurance that the
Company will be able to enter into acceptable collaborative or licensing
arrangements with other pharmaceutical companies in the future, or that, if
negotiated, such arrangements would be successful.
The Company intends to rely on its collaborative partners for the
manufacturing and marketing of any products which result from such
collaborations. In addition, as part of its business strategy, the Company plans
to retain rights to certain research programs not currently covered by the
Collaborative Agreements for internal product development. Outside North
America, the Company anticipates entering into collaborations with third parties
for distribution and commercialization of any products developed internally by
the Company. There can be no assurance that the Company will be able either to
successfully commercialize any internally developed products in North America
itself or to enter into any such collaborations for distribution and
commercialization of such products outside North America on acceptable terms, if
at all.
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MANUFACTURING AND MARKETING
The Company does not have any expertise in the manufacture of
commercial quantities of drugs, and its current facilities and staff are
inadequate for the commercial production or distribution of drugs. The Company
intends to rely on its collaborative partners for the manufacturing, marketing
and sale of any products which result from such collaborations. The Company
will be required to contract with third parties for the manufacture of other
products or to acquire or build production facilities before it can manufacture
any such products itself. There can be no assurance that the Company will be
able to enter into such contractual manufacturing arrangements with third
parties on acceptable terms, if at all, or acquire or build such production
facilities itself. To date the Company has no experience with sales, marketing
or distribution. Consequently, in order to market any of its products, the
Company will be required to develop marketing and sales capabilities, either on
its own or in conjunction with others. There can be no assurance that the
Company will be able to develop any of these capabilities.
There can be no assurance that any products successfully developed by
the Company or its collaborative partners, if approved for marketing, will
achieve market acceptance. The antibiotic products which the Company is
attempting to develop will compete with a number of well-established traditional
antibiotic drugs manufactured and marketed by major pharmaceutical companies.
The degree of market acceptance of any products developed by the Company will
depend on a number of factors, including the establishment and demonstration in
the medical community of the clinical efficacy and safety of the Company's
product candidates, their potential advantage over existing treatment methods,
and reimbursement policies of government and third-party payors. There is no
assurance that physicians, patients or the medical community in general will
accept and utilize any products that may be developed by the Company or its
collaborative partners.
The ability of the Company and its collaborative partners to receive
revenues and income with respect to drugs, if any, developed through the use of
the Company's technology will depend, in part, upon the extent to which
reimbursement for the cost of such drugs will be available from third-party
payors, such as government health administration authorities, private health
care insurers, health maintenance organizations, pharmacy benefits management
companies and other organizations. Third-party payors are increasingly
challenging the prices charged for pharmaceutical products. There can be no
assurance that third-party reimbursement will be available or sufficient to
allow profitable price levels to be maintained for drugs developed by the
Company or its collaborative partners. The inability to maintain profitable
price levels for such drugs could adversely affect the Company's business.
PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS
Protection of the Company's proprietary compounds and technology is
essential to the Company's business. The Company's policy is to seek, when
appropriate, protection for its lead compounds, gene discoveries, screening
technologies and certain other proprietary technology by filing patent
applications in the United States and other countries. The Company has filed
approximately 38 patent applications in the United States, in addition to
applications filed in other countries, covering its inventions. As of the end of
1996, the Company had not been issued any United States or foreign patents.
During the first quarter of 1997, two patents issued in the United States.
Patent law as it relates to inventions in the biotechnology field is
still evolving, and involves complex legal and factual questions for which legal
principles are not firmly established. Accordingly, there can be no assurance
that patents will be granted with respect to any of the Company's pending patent
applications or with respect to any patent applications filed by the Company in
the future. The patent position of biotechnology and pharmaceutical companies is
highly uncertain and involves many complex legal and technical issues. There can
be no assurance that patents will be granted with respect to any of the
Company's patent applications currently pending in the United States or in other
countries, or with respect to applications filed by the Company in the future.
The failure by the Company to obtain
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patents pursuant to the applications referred to herein and any future
applications could have a material adverse effect on the Company. Furthermore,
no assurance can be given that any patents which may be issued to the Company
will not be infringed, challenged, invalidated or circumvented by others, or
that the rights granted thereunder will provide competitive advantages to the
Company. In particular, it is difficult to enforce patents covering methods of
use of screening and other similar technologies. Litigation to establish the
validity of patents, to defend against patent infringement claims and to assert
infringement claims against others can be expensive and time-consuming, even if
the outcome is favorable to the Company. If the outcome of patent prosecution or
litigation is not favorable to the Company, the Company could be materially
adversely affected. Moreover, because patent applications in the United States
are maintained in secrecy until patents issue, because patent applications in
certain other countries generally are not published until more than eighteen
months after they are filed, because publication of technological developments
in the scientific or patent literature often lags behind the date of such
developments, and because searches of prior art may not reveal all relevant
prior inventions, the Company cannot be certain that it was the first to invent
the subject matter covered by its patent applications or that it was the first
to file patent applications for such inventions.
The commercial success of the Company will depend in part on not
infringing patents or proprietary rights of others. There can be no assurance
that the Company will be able to obtain a license to any third-party technology
it may require to conduct its business or that if obtainable, such technology
can be licensed at reasonable cost. Failure by the Company to obtain a license
to technology that it may require to utilize its technologies or commercialize
its products may have a material adverse effect on the Company. In some cases,
litigation or other proceedings may be necessary to defend against or assert
claims of infringement, to enforce patents issued to the Company, to protect
trade secrets, know-how or other intellectual property rights owned by the
Company, or to determine the scope and validity of the proprietary rights of
third parties. Any potential litigation could result in substantial costs to and
diversion of resources by the Company and could have a material adverse impact
on the Company. There can be no assurance that any of the Company's issued or
licensed patents would ultimately be held valid or that efforts to defend any of
its patents, trade secrets, know-how or other intellectual property rights would
be successful. An adverse outcome in any such litigation or proceeding could
subject the Company to significant liabilities, require the Company to cease
using the subject technology or require the Company to license the subject
technology from the third party, all of which could have a material adverse
effect on the Company's business.
In addition to patent protection, the Company relies upon trade
secrets, proprietary know-how and continuing technological advances to develop
and maintain its competitive position. To maintain the confidentiality of its
trade secrets and proprietary information, the Company requires its employees,
consultants and collaborative partners to execute confidentiality agreements
upon the commencement of their relationships with the Company. In the case of
employees, the agreements also provide that all inventions resulting from work
performed by them while in the employ of the Company will be the exclusive
property of the Company. There can be no assurance, however, that these
agreements will not be breached, that the Company would have adequate remedies
in the event of any such breach or that the Company's trade secrets or
proprietary information will not otherwise become known or developed
independently by others.
COMPETITION
The biotechnology and pharmaceutical industries are intensely
competitive. Many companies, including large, multinational pharmaceutical and
biotechnology companies, are actively engaged in activities similar to those of
the Company. Many of these companies may employ in such activities greater
financial and other resources, including larger research and development staffs
and more extensive marketing and manufacturing organizations, than the Company
or its collaborative partners. There are also academic institutions,
governmental agencies and other research organizations that are conducting
research in areas in which the Company is working. Competing technologies may
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be developed which would render the Company's technologies obsolete or
non-competitive. The Company is aware of many pharmaceutical and biotechnology
companies that are engaged in efforts to treat each of the infectious diseases
for which the Company is seeking to develop therapeutic products.
The Company also expects to encounter significant competition with
respect to the drugs that it and its collaborative partners plan to develop.
Companies that complete clinical trials, obtain required Regulatory Agency
approvals and commence commercial sale of their drugs before their competitors
may achieve a significant competitive advantage. In order to compete
successfully, the Company's goal is to obtain patent protection for its
potential products and to make those available selectively to pharmaceutical
companies through collaborative and licensing arrangements. There can be no
assurance that competitors of the Company will not develop competing drugs that
are more effective than those developed by the Company and its collaborative
partners or obtain regulatory approvals of their drugs more rapidly than the
Company and its collaborative partners, thereby rendering the Company's and its
collaborative partners' drugs obsolete or noncompetitive. Moreover, there can be
no assurance that the Company's competitors will not obtain patent protection or
other intellectual property rights that would limit the Company's or its
collaborative partners' ability to use the Company's technology or commercialize
its or their drugs.
GOVERNMENT REGULATION
The development, manufacture and marketing of drugs developed by the
Company or its collaborative partners are subject to regulation by numerous
governmental agencies in the United States and in other countries. The United
States Food and Drug Administration ("FDA") and comparable Regulatory Agencies
in other countries impose mandatory procedures and standards for the conduct of
certain pre-clinical testing and clinical trials and the production and
marketing of drugs for human therapeutic use. Product development and approval
of a new drug are likely to take a number of years and involve the expenditure
of substantial resources.
Any compound developed by the Company or its collaborative partners
must receive Regulatory Agency approval before it may be marketed as a drug in a
particular country. The regulatory process, which includes pre-clinical testing
and clinical trials of each compound in order to establish its safety and
efficacy, can take many years and requires the expenditure of substantial
resources. The steps required by the FDA before new drugs may be marketed in the
United States include: (i) pre-clinical studies; (ii) the submission to the FDA
of a request for authorization to conduct clinical trials on an investigational
new drug (an "IND"); (iii) adequate and well-controlled clinical trials to
establish the safety and efficacy of the drug for its intended use; (iv)
submission to the FDA of a new drug application (an "NDA"); and (v) review and
approval of the NDA by the FDA before the drug may be shipped or sold
commercially.
In the United States, pre-clinical testing includes both in vitro and
in vivo laboratory evaluation and characterization of the safety and efficacy
of a drug and its formulation. Laboratories involved in pre-clinical testing
must comply with FDA regulations regarding Good Laboratory Practices.
Preclinical testing results are submitted to the FDA as part of the IND and are
reviewed by the FDA prior to the commencement of human clinical trials. Unless
the FDA objects to an IND, the IND becomes effective 30 days following its
receipt by the FDA. There can be no assurance that submission of an IND will
result in the commencement of human clinical trials.
Clinical trials, which involve the administration of the
investigational drug to healthy volunteers or to patients under the supervision
of a qualified principal investigator, are typically conducted in three
sequential phases, although the phases may overlap with one another. Clinical
trials must be conducted in accordance with the FDA's Good Clinical Practices
under protocols that detail the objectives of the study, the parameters to be
used to monitor safety and the efficacy criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. Further, each
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clinical study must be conducted under the auspices of an independent
Institutional Review Board (the "IRB") at the institution where the study will
be conducted. The IRB will consider, among other things, ethical factors, the
safety of human subjects and the possible liability of the institution.
Compounds must be formulated according to the FDA's Good Manufacturing Practices
("GMP").
Phase I clinical trials represent the initial administration of the
investigational drug to a small group of healthy human subjects or, more rarely,
to a group of selected patients with the targeted disease or disorder. The goal
of Phase I clinical trials is typically to test for safety (adverse effects),
dose tolerance, absorption, biodistribution, metabolism, excretion and clinical
pharmacology and, if possible, to gain early evidence regarding efficacy.
Phase II clinical trials involve a small sample of the actual intended
patient population and seek to assess the efficacy of the drug for specific
targeted indications, to determine dose tolerance and the optimal dose range and
to gather additional information relating to safety and potential adverse
effects.
Once an investigational drug is found to have some efficacy and an
acceptable safety profile in the targeted patient population, Phase III clinical
trials are initiated to establish further clinical safety and efficacy of the
investigational drug in a broader sample of the general patient population at
geographically dispersed study sites in order to determine the overall
risk-benefit ratio of the drug and to provide an adequate basis for all
physician labeling. The results of the research and product development,
manufacturing, pre-clinical testing, clinical trials and related information are
submitted to the FDA in the form of an NDA for approval of the marketing and
shipment of the drug.
Data obtained from pre-clinical and clinical activities are susceptible
to varying interpretations which could delay, limit or prevent Regulatory Agency
approval. In addition, delays or rejections may be encountered based upon
changes in Regulatory Agency policy during the period of drug development and/or
the period of review of any application for Regulatory Agency approval for a
compound. Delays in obtaining Regulatory Agency approvals could adversely affect
the marketing of any drugs developed by the Company or its collaborative
partners, impose costly procedures upon the Company's and its collaborative
partners' activities, diminish any competitive advantages that the Company or
its collaborative partners may attain and adversely affect the Company's ability
to receive royalties. There can be no assurance that, even after such time and
expenditures, Regulatory Agency approvals will be obtained for any compounds
developed by or in collaboration with the Company. Moreover, if Regulatory
Agency approval for a drug is granted, such approval may entail limitations on
the indicated uses for which it may be marketed that could limit the potential
market for any such drug. Furthermore, approved drugs and their manufacturers
are subject to continual review, and discovery of previously unknown problems
with a drug or its manufacturer may result in restrictions on such drug or
manufacturer, including withdrawal of the drug from the market. In addition,
Regulatory Agency approval of prices is required in many countries and may be
required for the marketing of any drug developed by the Company or its
collaborative partners in such countries.
Timetables for the various phases of clinical trials and NDA approval
cannot be predicted with any certainty. The Company, its collaborative partners
or the FDA may suspend clinical trials at any time if it is believed that
individuals participating in such trials are being exposed to unacceptable
health risks. Even assuming that clinical trials are completed and that an NDA
is submitted to the FDA, there can be no assurance that the NDA will be reviewed
by the FDA in a timely manner or that once reviewed, the NDA will be approved.
The approval process is affected by a number of factors, including the severity
of the targeted indications, the availability of alternative treatments and the
risks and benefits demonstrated in clinical trials. The FDA may deny an NDA if
applicable regulatory criteria are not satisfied, or may require additional
testing or information with respect to the investigational drug. Even if initial
FDA approval is obtained, further studies, including post-market studies, may be
required in order to provide additional data on safety and will be required in
order to gain approval for the use of a product as a treatment for clinical
indications other than those for which the product was initially tested. The FDA
will also require
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post-market reporting and may require surveillance programs to monitor the side
effects of the drug. Results of post-marketing programs may limit or expand the
further marketing of the drug. Further, if there are any modifications to the
drug, including changes in indication, manufacturing process or labeling, an NDA
supplement may be required to be submitted to the FDA.
Each manufacturing establishment for new drugs is also required to
receive some form of approval by the FDA. Among the conditions for such approval
is the requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to GMP, which must be followed at all times. In
complying with standards set forth in these regulations, manufacturers must
continue to expend time, monies and effort in the area of production and quality
control to ensure full technical compliance. Manufacturing establishments, both
foreign and domestic, are also subject to inspections by or under the authority
of the FDA and may be subject to inspections by foreign and other federal, state
or local agencies.
There can be no assurance that the regulatory framework described above
will not change or that additional regulations will not arise that may affect
approval of or delay an IND or an NDA. Moreover, because the Company's present
collaborative partners are, and it is expected that the Company's future
collaborative partners may be, primarily responsible for pre-clinical testing,
clinical trials, regulatory approvals, manufacturing and commercialization of
drugs, the ability to obtain and the timing of regulatory approvals are not
within the control of the Company.
Prior to the commencement of marketing a product in other countries,
approval by the Regulatory Agencies in such countries is required, whether or
not FDA approval has been obtained for such product. The requirements governing
the conduct of clinical trials and product approvals vary widely from country to
country, and the time required for approval may be longer or shorter than the
time required for FDA approval. Although there are some procedures for unified
filings for certain European countries, in general, each country has its own
procedures and requirements.
The Company is also subject to regulation under other federal laws and
regulation under state and local laws, including laws relating to occupational
safety, laboratory practices, the use, handling and disposition of radioactive
materials, environmental protection and hazardous substance control. Although
the Company believes that its safety procedures for handling and disposing of
radioactive compounds and other hazardous materials used in its research and
development activities comply with the standards prescribed by federal, state
and local regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of any such accident,
the Company could be held liable for any damages that result and any such
liability could exceed the resources of the Company.
EMPLOYEES
As of December 31, 1996 the Company had 100 full-time, regular
employees, 37 of whom hold Ph.D. degrees. Of the Company's full-time employees,
approximately 84 are engaged in scientific research and 16 are engaged in
general and administrative functions. The Company believes that its future
success will depend, in part, on its continuing ability to attract, retain, and
motivate qualified scientific, technical and managerial personnel. The Company
faces intense competition in this regard from other companies, research and
academic institutions, government entities and other organizations. None of the
Company's employees is represented by a collective bargaining agreement, nor has
the Company experienced work stoppages. The Company considers its relations with
its employees to be good.
The Company is highly dependent on its management and scientific staff,
including James E. Rurka, its President and Chief Executive Officer, and Keith
A. Bostian, Ph.D., its Chief Operating Officer. Loss of services of any key
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individual could have an adverse effect on the Company. The Company does not
carry key-man life insurance on any of its executives. The Company believes that
its future success will depend, in part, on its ability to attract and retain
highly talented managerial and scientific personnel and consultants. The Company
faces intense competition for such personnel from, among others, biotechnology
and pharmaceutical companies, as well as academic and other research
institutions. There can be no assurance that the Company will be able to attract
and retain the personnel it requires on acceptable terms.
SCIENTIFIC CONSULTANTS
The Company has consulting arrangements with a number of leading
academic and industrial scientists and clinicians who serve as members of its
scientific advisory board ("SAB"), its genetics consulting board ("GCB"), its
drug development consulting board ("DCB") or as consultants to management.
Individuals on the SAB and GCB are experts in the fields of bacterial
pathogenesis, cellular biochemistry, microbial and mammalian genetics and
genomics, medicinal chemistry and clinical infectious disease. Individuals on
the DCB are experts in pharmaceutical research and development, chemical
engineering and development, and pre-clinical and clinical program management.
Together, the consultants bring unique insight into product selection, access
to leading academic research in molecular biology and microbial pathogenesis,
and significant experience in clinical trial design and patient care.
Advisory board members attend periodic meetings as well as certain
project meetings on an ad hoc basis and are frequently contacted by the
Company's scientific staff and management for advice. Members of the Company's
advisory boards generally provide between 5 and 10 days of consulting
services per year and are paid fixed fees on a quarterly basis and per diem fees
and travel expenses for their attendance at meetings. Other scientific
consultants are paid fixed fees for their services on a monthly or quarterly
basis.
Many of the Company's consultants, including several of those
identified below, have purchased shares of Common Stock and have written
contracts with the Company pursuant to which they are required to provide to the
Company a minimum number of days per year of consulting services, typically 8 -
10 days. In 1996, the Company paid its consultants approximately $340,000 in the
aggregate. In 1995, such payments aggregated approximately $300,000.
None of the consultants is an employee of the Company. Most of the
consultants have other commitments to, or consulting or advisory contracts with,
their employers and other institutions.
SCIENTIFIC ADVISORY BOARD
The Company's scientific advisory board advises the Company broadly
on all of its scientific programs, and includes the following individuals:
Burton G. Christensen, Ph.D., was formerly Senior Vice President,
Chemistry, of the Merck Research Laboratories. Dr. Christensen holds over 180
issued United States patents. Dr. Christensen received the Thomas Alva Edison
Patent Award for his discovery of cefoxitin (Mefoxin), and was an inventor of
imipenem (Primaxin). He is a recipient of the Chemical Pioneer Award by the
American Institute of Chemistry for his development of novel synthetic
methodology in beta-lactam chemistry, and led programs at Merck responsible for
the discovery of ivermectin (Ivomec), an animal health product, PedVaxHIB, a
conjugate vaccine for the prevention of H. influenza, and finasteride (Proscar),
for the treatment of benign prostatic hypertrophy.
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Patrice Courvalin, M.D., is a Professor at the Pasteur Institute, where
he directs the French National Reference Center for Antibiotics and is the head
of the Antibacterial Agents Unit. He is an internationally recognized expert in
the genetics and biochemistry of antibiotic resistance. His work has defined the
molecular mechanisms of the evolution, dissemination and function of antibiotic
resistance genes, which has led to a revision of the dogma on natural
dissemination of antibiotic resistance. Dr. Courvalin has received numerous
awards and honors including the Jacques Monod Award of the Foundation de France,
the Louis Garrod award of the British Society for Antimicrobial Chemotherapy and
the Hamao Umezawa award of the International Society for Chemotherapy for his
work on antibiotic resistance.
Julian Davies, Ph.D., F.R.S., is Professor and the Head of the
Department of Microbiology and Immunology at the University of British Columbia
and is Chief Executive Officer of TerraGen Diversity, Inc. He has been actively
engaged in studies of antibiotic mode-of-action and resistance mechanisms for
more than 25 years. He received the Hoechst-Roussel Prize for studies of
antimicrobial agents and numerous other awards for his work in this field. He
was the first to identify the mechanism-of-action and resistance of the
aminoglycosides. Dr. Davies was formerly Head of the Microbial Engineering Unit
at the Pasteur Institute in Paris, and President and Research Director of
Biogen.
Robert C. Moellering, Jr., M.D., is the Shields Warren-Mallinckrodt
Professor of Medical Research at Harvard Medical School and Associate
Physician-in-Chief at the Beth Israel Deaconess Medical Center, where he serves
as Vice-Chairman of the Department of Medicine and is Chief Executive Officer of
the Harvard Medical Faculty Physicians at the Beth Israel Deaconess Medical
Center. Dr. Moellering is an internationally recognized expert in clinical
infectious diseases and in research on the mechanism-of-action and resistance to
antimicrobial agents. Dr. Moellering is the recipient of the Garrod Medal from
the British Society for Antimicrobial Chemotherapy, the Hoechst-Roussel Award
from the American Academy of Microbiology and the Feldman Award from the
Infectious Diseases Society of America for which he is a past President. He is
Editor-in-Chief Emeritus of Antimicrobial Agents and Chemotherapy, Editor of
Infectious Disease Clinics of North America and Editor of the European Journal
of Clinical Microbiology and Infectious Diseases.
Hiroshi Nikaido, M.D., Ph.D., is Professor of Biochemistry and
Molecular Biology at University of California, Berkeley. Dr. Nikaido is
internationally recognized for his pioneering work on the structure, function
and biosynthesis of macromolecules that comprise the surface of the bacterial
cell. His studies have dealt mainly with the outer membrane of Gram-negative
bacteria; studies of channel-forming proteins ("porins"); studies of numerous
specific transport channels; and the unusual barrier properties of the lipid
bilayer in the membrane conferred by the presence of lipopolysaccharides. Dr.
Nikaido was awarded the Paul Ehrlich Prize of West Germany for his work on the
biosynthesis of lipopolysaccharides and the Hoechst-Roussel Award of the
American Society for Microbiology for his work on the role of the outer membrane
in antibiotic resistance.
Staffan Normark, M.D., Ph.D., is Professor of Bacteriology at
Karolinska Institute and Head of the Bacteriology Unit at the Swedish Institute
for Infectious Disease Control. Dr. Normark is internationally known for his
work on the molecular mechanisms of microbial attachment to host cells and
antibiotic resistance. He is a member of the Swedish Royal Academy of Sciences,
the Nobel Assembly and the Nobel Committee for Medicine or Physiology. Dr.
Normark has received the Femstrom's Award to Young Scientists (for studies on
gene amplification), the Svedberg's Award in Biochemistry (for studies on
bacterial adhesions), the Axel Hirsch's Award in Bacteriology and the Domagk
Award (for studies on beta-lactams and beta-lactamases), the Goran Gustavsson
Award in Medicine and Jean-Pierre Lecoqc Award in Molecular Medicine. He is a
member of the editorial boards of Molecular Microbiology and Science.
David Relman, M.D., is Assistant Professor of Medicine (Infectious
Diseases and Geographic Medicine) and of Microbiology and Immunology at Stanford
University School of Medicine, and is a staff physician at the Veterans
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Affairs Palo Alto Health Care System. Dr. Relman's expertise is in the molecular
mechanisms of bacterial pathogenesis. He discovered two previously
uncharacterized, uncultivated bacterial pathogens, agents of bacillary
angiomatosis and Whipple's disease. Dr. Relman is a recipient of a Biomedical
Scholar Award from the Lucille P. Markey Charitable Trust and the Baxter
Diagnostics MicroScan Young Investigator Award from the American Society for
Microbiology. He serves as an advisor to the U.S. Department of Defense on the
development of countermeasures against biological agents.
Merle Sande, M.D., is Professor and Chair of Internal Medicine at the
University of Utah in Salt Lake City. Dr. Sande is recognized internationally as
a clinical infectious disease expert, is actively involved in the medical
community and has served on a variety of AIDS and infectious disease advisory
boards at the state and national level. He serves on several editorial boards
including AIDS, Antimicrobial Agents and Chemotherapy, Infectious Disease in
Clinical Practice, Journal of Acquired Immune Deficiency Syndromes and Journal
of Infectious Diseases. He is editor of the premier AIDS textbook and co-editor
of the Sanford Guide to Antimicrobial Therapy. He holds numerous professional
society memberships and honors, including the American Society for Clinical
Investigation, American Association of Physicians, and is past President of the
Infectious Disease Society of America.
Robert M. Williams, Ph.D., is Professor of Chemistry at Colorado State
University. Dr. Williams is an expert in organic and biological chemistry. He
developed a general method for synthesis of non-proteinogenic amino acids widely
used by industry. He has designed and synthesized numerous antibiotics and
anti-tumor agents, and has advanced synthetic chemistry to probe and discover
molecular mechanisms of small molecule drug interactions with biomacromolecular
targets. Dr. Williams serves on the Editorial Advisory Board of Chemistry and
Biology and is Editor-in-Chief of Amino Acids. His honors and awards include an
Eli Lilly Young Investigator award, a Merck Academic Development Award and an
NIH Research Career Development Award.
GENETICS CONSULTING BOARD
The Company has recently formed a genetics consulting board to advise
the Company specifically with respect to its various genetics-based research
programs and extensions of the Company's technology platform. The members of
this consulting board include:
Sydney Brenner, Ph.D., is the Director of The Molecular Sciences
Institute, Inc. in La Jolla, California. He is known for his research in
molecular genetics and particularly for his work on the genetic code and on the
transfer of information from DNA to proteins. In the 1960's, he was one of the
pioneers in the area of the molecular biology of multicellular organisms,
establishing the nematode worm, Caenorhabditis elegans, as a model for the
genetic and cellular basis of development and behavior. Dr. Brenner was
formerly Director of the Laboratory of Molecular Biology in Cambridge, and an
Honorary Professor of Genetic Medicine in the Department of Medicine at the
University of Cambridge Clinical School.
Philip Hieter, Ph.D., is Professor of Molecular Biology and Genetics at
the Johns Hopkins University School of Medicine. Dr. Hieter is recognized for
his work on structural and regulatory proteins that ensure faithful segregation
of chromosomes during cell division. His work has also demonstrated the utility
of researching fundamental questions in several species simultaneously and has
created a systematic cross-reference of yeast genetics and human biology. Dr.
Hieter was the recipient of the Council of Graduate Schools/University
Microfilms International Dissertation Prize in 1981. He was a Pew Scholar in
the Biomedical Sciences from 1986-1990 and recipient of an American Cancer
Society Faculty Research Award in 1991. He was an Instructor of the Yeast
Genetics Course at Cold Spring Harbor Laboratories from 1988-90 and has been an
Instructor of the Short Course in Medical and Experimental Genetics at Jackson
Laboratories from 1991-present. In 1994, Dr. Hieter was elected to the Board of
Directors of the Genetics Society of America. Dr. Hieter has served on the
editorial boards of Chromosoma, Human Molecular Genetics, and Genome Research.
He serves on the advisory boards of OMIM (Online Mendelian Inheritance in Man),
GDB (Genome Database), SGD (Saccharomyces Genome Database), and the GRRC (Genome
Research Review Council, NCHGR).
Michael A. Resnick, Ph.D., is a Research Geneticist at the National
Institute of Environmental Health Sciences, NIH, where he heads the Genome
Stability Group. Dr. Resnick is also an Adjunct Professor in the Biology
Department of the University of North Carolina and an Adjunct Professor in
Genetics Curriculum at Duke University. He is recognized internationally for
his genetic research related to genome stability in yeast and for his
development of systems for cloning of human genes. While at NIH, Dr. Resnick
has been the recipient of several national and international research grants.
He holds several patents relating to genome stability and isolation of human
genes. Dr. Resnick formerly held faculty appointments at the University of
Rochester and the Medical Research Council, Mill Hill, in England.
Rodney Rothstein, Ph.D., is Associate Professor of Genetics and
Development at Columbia University College of Physicians and Surgeons. Dr.
Rothstein is recognized internationally for his research related to genome
manipulation and to the molecular mechanisms of genetic recombination. Dr.
Rothstein has served on the editorial boards of Current Genetics, Molecular and
Cellular Biology, and Genome Research. Dr. Rothstein served on the National
Advisory Council for Human Genome Research at NIH. Dr. Rothstein formerly held
a faculty appointment at the New Jersey Medical School and was Visiting
Professor at the University of Paris VI and a Visiting Scientist at the
Institut Pasteur.
Kenneth S. Zaret, Ph.D., is a Professor in the Department of Molecular
Biology, Cell Biology, and Biochemistry in the Division of Biology and Medicine
at Brown University. Dr. Zaret is recognized internationally for his research
related to liver cell differentiation, gene regulation, and chromosome
structure. Dr. Zaret has received a Jane Coffin Childs fellowship and a Searle
Scholar faculty award. He has served as an editor of the journals Molecular
and Cellular Biology and Methods: A Companion to Methods in Enzymology. Dr.
Zaret has served on various grant review panels and currently is a member of
the Molecular Biology Study Section of the National Institutes of Health.
DRUG DEVELOPMENT CONSULTING BOARD
The Company has also recently formed a drug development consulting
board to advise the Company specifically with respect to pre-clinical and
clinical development issues. The members of this consulting board include:
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Burton G. Christensen, Ph.D. Dr. Christensen's background is summarized
above under the description of the Company's scientific advisory board.
Kenneth R. Heimlich, Ph.D., began his career with Smith Kline and
French Laboratories where he developed controlled release formulations. Dr.
Heimlich recently retired from Merck and Co. as Executive Director,
Pharmaceutical Research and Development. Dr. Heimlich's career has been devoted
to the application of physical chemical principles to the development of
pharmaceuticals. Dr. Heimlich led the formulation development of Merck's human
and animal health dosage forms from 1973 to 1993. Dr. Heimlich presently
consults in the area of pharmaceuticals and serves as the NSF Evaluator of the
Purdue University Center in Pharmaceutical Processing Research. Dr. Heimlich is
a past-President of the Academy of Pharmaceutical Sciences and was awarded an
honorary D.Sci. degree from Purdue University.
Seemon H. Pines, Ph.D., retired as Vice President, Process Research and
Development of the Merck Sharp & Dohme Research Laboratories in 1991. Over the
prior 40 years, Dr. Pines' primary focus was the design and development of
commercial manufacturing processes for pharmaceuticals which were produced
either by chemical synthesis or were isolated from natural sources; notable
contributions were made in the areas of steroids, antiinflammatories, and
antibiotics. The Merck Board of Directors awarded Dr. Pines the Directors'
Scientific Award for his benchmark contributions to the commercialization
of imipenem (Primaxin).
ITEM 2. PROPERTIES
The Company has one facility consisting of approximately 35,500 square
feet of leased laboratory and office space in Mountain View, California under a
lease agreement with an initial term expiring on September 30, 2000. The Company
intends to exercise its option to extend the term of this lease for five
additional years. The Company has a second facility, also in Mountain View,
California, consisting of approximately 31,000 square feet of leased laboratory
and office space, of which approximately 18,000 square feet has been built out
and is being utilized. The Company intends to build out the remainder of this
building during 1997. The lease agreement covering this building has an initial
term expiring in 2005. From the Company's inception through December 31, 1996,
the Company has made capital expenditures aggregating approximately $7.3 million
in constructing and equipping its Mountain View facilities. The Company believes
that its facilities are sufficient to accommodate the anticipated research and
administrative needs of the Company through 1997. Thereafter, the Company
believes that it will be able to secure adequate additional facilities for its
continued operations.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market
System under the symbol MCDE. The following table sets forth for the periods
indicated the high and low sale price for the Common Stock.
The Company's stock was first publicly traded on May 15, 1996.
HIGH LOW
---- ---
FISCAL YEAR 1996
4th Quarter.................................................................... $ 12.50 $ 9.25
3rd Quarter.................................................................... $ 13.25 $ 8.75
2nd Quarter (since May 15, 1996)............................................... $ 20.50 $12.50
As of March 1, 1997, there were 131 holders of record of Common Stock.
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DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since
its inception and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The information presented below should be read in conjunction with the
Company's Consolidated Financial Statements, Notes to the Consolidated Financial
Statements and discussions of the historical financial data included elsewhere
in this Form 10-K. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Period from
Inception
(December 11,
YEARS ENDED DECEMBER 31, 1992) to
-------------------------------- December 31,
1996 1995 1994 1993
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
REVENUES:
License Fees ............................. $ 2,000 $ 3,000 $ -- $ --
Research revenue ......................... 9,273 1,985 $ -- $ --
-------- -------- -------- -------
Total revenues ....................... 11,273 4,985 -- --
OPERATING EXPENSES:
Research and development ................. 10,717 6,400 5,180 1,685
General and administrative ............... 2,889 2,080 1,823 1,251
-------- -------- -------- -------
Total operating expenses ............. 13,606 8,480 7,003 2,936
-------- -------- -------- -------
Loss from operations ......................... (2,333) (3,495) (7,003) (2,936)
Interest income .............................. 1,899 257 218 32
Interest expense ............................. (236) (278) (249) 13
-------- -------- -------- -------
Net loss ................................. $ (670) $ (3,516) $ (7,034) $(2,917)
======== ======== ======== =======
Net loss per share(1) ........................ $ (0.09)
========
Shares used in computing net loss per share(1) 7,401
========
Pro forma net loss per share(1) .............. $