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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K
For Annual and Transition Reports Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-27066
PHARMACYCLICS, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 94-3148201
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
995 E. Arques Avenue, Sunnyvale, CA 94086-4521
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 774-0330
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of Form 10-K or any amendments
to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant as of July 31, 1998, was approximately $236,592,372 based on the
closing price of the Common Stock of the Registrant as reported on the NASDAQ
National Market on such date. The number of outstanding shares of the
Registrant's Common Stock as of July 31, 1998 was 12,334,283.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference into
Part III of this Form 10-K: the Proxy Statement for the Registrant's 1998 Annual
Meeting of Stockholders scheduled to be held on December 11, 1998.
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business .............................................................................. 2
Item 2. Properties ............................................................................ 31
Item 3. Legal Proceedings ..................................................................... 31
Item 4. Submission of Matters to a Vote of Security-Holders ................................... 31
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ................. 32
Item 6. Selected Financial Data ............................................................... 33
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 34
Item 8. Financial Statements and Supplementary Data ........................................... 38
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure... 56
PART III
Item 10. Directors and Executive Officers of the Registrant ................................... 57
Item 11. Executive Compensation ............................................................... 57
Item 12. Security Ownership of Certain Beneficial Owners and Management ....................... 57
Item 13. Certain Relationships and Related Transactions ....................................... 57
PART IV
Item 14. Exhibits, Financial Statement Schedule 5 and Reports on Form 8-K .................... 58
PHARMACYCLICS(R), the Pentadentate Logo [LOGO] (R) and GADOLITE(R) are
registered U.S. trademarks; ANTRIN(TM), LUTRIN(TM), and OPTRIN(TM) are
trademarks of Pharmacyclics, Inc. Other trademarks, trade names or service
marks used herein are the property of their respective owners.
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PART I
ITEM 1. BUSINESS
Pharmacyclics, Inc. ("Pharmacyclics" or the "Company") is a pharmaceutical
company developing energy-potentiating drugs to improve radiation therapy and
chemotherapy of cancer, and to enable or improve the photodynamic therapy of
certain cancers, atherosclerotic cardiovascular disease and retinal diseases.
The Company's products are ring-shaped small molecules, called "texaphyrins,"
which are patented agents derived from Pharmacyclics' versatile technology
platform for designing and synthesizing energy-potentiating drugs. These
texaphyrins localize in cancer cells and atherosclerotic plaque, where they can
be activated by forms of energy, including X-ray, chemical and light, to
selectively eliminate diseased tissue. The Company's lead texaphyrin-based
product candidates are Gd-Tex, a gadolinium texaphyrin molecule being developed
for use as a radiation sensitizer (initially in the treatment of brain
metastases) and chemosensitizer; LUTRIN(TM) photosensitizer, a lutetium
texaphyrin molecule being developed as a photosensitizer for use in photodynamic
therapy of cancer; ANTRIN(TM) photosensitizer, a lutetium texaphyrin molecule
being developed as a photosensitizer for use in the photoangioplasty of
atherosclerosis; and OPTRIN(TM) photosensitizer, a lutetium texaphyrin molecule
being developed as a photosensitizer for use in photodynamic therapy of age
related macular degeneration (ARMD).
Gd-Tex is in a multicenter Phase III clinical trial to improve the
efficacy of radiation therapy of brain metastases resulting from a variety of
cancers, including those of the lung and breast. At the May 1998 annual meeting
of the American Society of Clinical Oncology (ASCO), the Company reported
interim results of its Phase Ib/II clinical trial of Gd-Tex in cancer patients
receiving radiation therapy for treatment of brain metastases. Although not a
prospectively randomized trial, the 60 patients evaluated on the trial were
found to have improved tumor response rate and survival compared to case matched
historical controls.
The National Cancer Institute ("NCI") intends to sponsor nine clinical
trials of Gd-Tex for additional cancer indications, including primary cancers of
the brain, head and neck region, lung, pancreas and prostate. The first two NCI
sponsored trials have begun at the University of California at Los Angeles
Medical Center. These studies are enrolling patients with newly diagnosed
primary brain tumors. Other studies are scheduled to begin during 1998 and 1999.
Radiation therapy is administered to more than 700,000 patients annually in the
United States and currently there are no approved radiation sensitizers.
ANTRIN is in a Phase I clinical trial to evaluate its safety and efficacy
for photo-angioplasty treatment of patients with atherosclerotic peripheral
arterial disease. At a recent meeting of the American Society for Photobiology
in July 1998, interim data was reported indicating that ANTRIN photoangioplasty
was well tolerated. In this dose escalation trial primarily designed to evaluate
safety, investigators reported that a dose level had been achieved that resulted
in a reduction in atherosclerotic plaque and improvement in lumen diameter.
There are currently more than 600,000 angioplasty procedures performed annually
in the United States for patients with atherosclerosis.
LUTRIN is in multicenter Phase II clinical trials to evaluate its safety
and efficacy for use in the treatment of recurrent breast cancers to the chest
wall, which are accessible to illumination by externally-applied light. The NCI
has announced its intention to fund additional clinical trials of LUTRIN for
other cancer indications, including primary cancers of the cervix, esophagus,
head and neck region, lung, pancreas, intraperitoneal region, and prostate,
which the Company expects to begin in late 1998 and 1999.
The Company has conducted preclinical studies with OPTRIN for use in
certain ophthalmic diseases, such as ARMD, a leading cause of blindness that
affects approximately 200,000 patients per year in the United States.
Pharmacyclics is providing OPTRIN to Alcon Pharmaceuticals, Ltd. ("Alcon") under
an evaluation and license agreement pursuant to which Alcon is conducting Phase
I studies in patients with ARMD.
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The Company has retained worldwide marketing rights for its Gd-Tex and
ANTRIN products, as well as U.S., Canadian and Japanese marketing rights for
LUTRIN. Pharmacyclics is leveraging its core technology and products by
establishing relationships with third parties intended to augment its research
and development activities and to provide manufacturing capacity and sales and
marketing capabilities. In October 1997, the Company entered into a
collaborative agreement with Nycomed Imaging AS ("Nycomed") to sell and market
LUTRIN for cancer therapy outside the United States, Canada and Japan. In
December 1997, the Company entered into an evaluation and license agreement with
Alcon, pursuant to which Alcon has obtained the right to conduct worldwide
development, marketing and sales of OPTRIN for ophthalmology indications.
MARKET OVERVIEW
Cancer
Cancer results from the uncontrolled proliferation of cells which invade
and interfere with the normal function of tissues and organs. Frequently, cancer
cells become dislodged from their primary site and spread, or metastasize, to
other anatomic sites. As of 1994, over seven million people in the United States
had been diagnosed with cancer, with approximately 1.4 million new cases each
year. The appropriate cancer therapy for each patient depends on histology and
careful assessment of the size, location and existence of metastases of the
tumor using diagnostic imaging procedures. Therapy typically includes some
combination of surgery, radiation therapy or chemotherapy.
Chemotherapy and radiation therapy tend to destroy both healthy and
diseased cells and cause serious side effects because their cytotoxic effects
are not adequately selective. As a result, substantial cancer research has been
directed toward improving the efficacy of existing therapy while reducing
toxicity. These approaches seek to identify drugs, generally known as
sensitizers, which are capable of localizing in the tumor and making the cancer
cells more sensitive to radiation therapy or chemotherapy, thereby increasing
the efficacy of such therapy.
Radiation Therapy. Radiation therapy is currently administered to more
than 700,000 patients annually in the United States by approximately 3,000
physicians specializing in radiation oncology. The radiation is applied to the
area of the body where the tumor is located and is generally administered
several times per week over a period of two to six weeks. While adjacent normal
tissues are shielded to minimize radiation toxicity, radiation therapy often has
toxic effects on healthy tissue surrounding the tumor because the energy cannot
be adequately targeted. An estimated 50% of newly diagnosed cancer patients,
including those with cancers of the lung, breast, prostate, or head and neck
region, will be treated with radiation therapy as part of their initial disease
management. In addition, patients with persistent or recurrent disease also will
receive radiation therapy for palliation of symptoms. Depending on the
complexity and duration of treatment, a course of radiation therapy for cancer
can cost between $10,000 and $25,000. Radiation sensitizers are agents that
increase the cytotoxic effects of radiation. While there currently are no U.S.
Food and Drug Administration ("FDA") approved radiation sensitizers, certain
chemotherapy agents are frequently used off-label to increase the effectiveness
of radiation therapy. Optimally, a radiation sensitizer should be safe, simple
to administer and potentiate the effect of radiation at the tumor site and not
the adjacent normal tissue.
Cytotoxic Chemotherapy. Cytotoxic chemotherapy is administered to more
than 350,000 patients each year in the United States for treatment of many types
of cancer. The effectiveness of chemotherapy agents usually is limited by their
serious or life threatening side effects, many of which are due to the drugs'
lack of selectivity. Chemotherapy drugs distribute throughout the body in normal
tissues as well as in the tumor. The cytotoxic effect to normal tissues is
dose-limiting for most of these drugs, resulting in a very narrow therapeutic
margin. Chemosensitizers are drugs which potentiate the anti-tumor activity of
cancer chemotherapy agents. No chemosensitizer has been approved for use by the
FDA to date, although several are being tested clinically. Ideally, such an
agent should be safe, simple to administer and should potentiate cell killing in
the cancerous tissue but not in adjacent normal tissue.
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Photodynamic Therapy. Photodynamic therapy is an emerging cancer treatment
based on the use of light energy to activate a photosensitizing drug. In this
procedure, a photosensitizing agent, ideally one that selectively accumulates in
tumors, is injected into the patient. The tumor site is then illuminated with
visible light of a particular energy and wavelength that is absorbed by the
photosensitizer, creating excited-state oxygen molecules in those tissues in
which the drug has localized. These molecules are highly reactive with cellular
components and cause tumor cell death. The first photosensitizing agent was
approved by the FDA in early 1996 for the treatment of obstructing cancers of
the esophagus and more recently for the treatment of certain types of lung
cancer. To date, use of the approved agent and other experimental agents has
been restricted to treatment of superficial or small lesions because light of
the wavelength required to energize such photosensitizers is incapable of
penetrating deeply into tissues. Other limitations of photosensitizers have
included unfavorable biolocalization, prolonged retention in the body, skin
phototoxicity and insolubility in water, complicating intravenous
administration. In addition, some tumors, including malignant melanoma, contain
pigments that have not allowed adequate penetration of light for photodynamic
therapy. Optimally, a photosensitizer should accumulate selectively in tumors
and be capable of activation by a wavelength of light that is able to penetrate
through tissue, blood and darkly pigmented skin in order to treat larger or more
deeply situated tumors. Ideally, the treatment should be safe, lack skin
phototoxicity and be simple to administer.
Atherosclerosis
Atherosclerosis is a progressive and degenerative vascular disease in
which cholesterol and other fatty materials are deposited in the walls of blood
vessels, forming a build-up known as plaque. The accumulation of plaque narrows
the interior of the blood vessels, thereby reducing blood flow. Atherosclerosis
in the coronary arteries can lead to heart attack and death. In peripheral
arteries, atherosclerosis can lead to decreased mobility, loss of function, loss
of limbs and other complications such as stroke. Current treatments for
atherosclerosis include surgery and other techniques aimed at removing or
relieving the plaque. Procedures utilizing intravascular devices to mechanically
compress or remove the obstructing lesion include balloon angioplasty and
atherectomy. These procedures are currently performed in more than 600,000
patients per year in the United States. They require the use of anticoagulant
drugs and, frequently, the use of stents to reduce the incidence of restenosis,
which results from traumatic damage to the vessel wall. Generally, these
techniques have been limited to treating only localized sections of the diseased
vessel.
The optimal interventional treatment for atherosclerosis should
effectively eliminate atherosclerotic plaque without the need for anticoagulant
drugs or stent placement to prevent restenosis. Because atherosclerosis is a
diffuse disease, therapies that can be used over long segments of the affected
vessel offer significant advantages over treatments limited to localized
sections of the vessel.
Age-Related Macular Degeneration
ARMD is the major cause of severe visual loss in the elderly, accounting
for up to 90% of legally blind eyes in the United States and approximately
200,000 new cases of ARMD are diagnosed annually in the United States. Patients
with ARMD develop blurred vision and distortion, decreased vision and scotoma or
blind spot, which occurs in the center of the visual field. The disease is
caused by a degeneration of the retina and proliferation of abnormal
capillaries. Although laser photocoagulation can slow progression of disease in
some patients, its lack of selectivity and limited efficacy fail to prevent
progression of the disease, which ultimately leads to blindness. Ideally,
therapy for this disease should be selective for the diseased vessels, minimize
collateral damage and be capable of complete elimination of the diseased
vessels.
THE COMPANY'S TECHNOLOGY PLATFORM
The Company's technology utilizes its expertise in biometallic and
expanded porphyrin chemistry to develop energy-potentiating synthetic molecules.
In nature, molecules called porphyrins, such as heme or chlorophyll, bind
metals, transport ions and transform energy. Porphyrins are localized in tissues
or organs
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responsible for energy production, metabolism or transport functions. The
Company's synthetic porphyrins are designed to take advantage of two key
characteristics of naturally-occurring porphyrins: energy potentiation and
selective localization.
Pharmacyclics and its collaborators have designed and patented synthetic
porphyrins, called "texaphyrins," to perform specific functions in a number of
medical applications. Texaphyrins are capable of binding larger metal atoms and
of capturing, focusing and transforming X-ray, chemical or light energy into
other energy forms capable of producing localized destruction of diseased
tissues. These molecules have a larger central binding ring, which makes it
possible to stably bind a variety of lanthanide metals, such as gadolinium,
lutetium, europium or dysprosium. The binding of metal ions by texaphyrins is
unique in that the metal is held near or within the plane of what is otherwise a
flat or plate-shaped molecule. This type of binding allows the metal to interact
act freely with adjacent molecules while still being retained within the
texaphyrin structure. The physical and chemical characteristic of the
texaphyrin, as well as its product applications, are determined by the type of
metal inserted and the form of energy applied.
Once properly localized, which generally occurs in minutes to a few hours
following administration, texaphyrins can be excited with the appropriate energy
form to activate their therapeutic effects. Texaphyrins are water soluble,
thereby increasing safety and simplifying administration to patients.
PHARMACYCLICS' BUSINESS STRATEGY
The key elements of the Company's business strategy include:
Develop therapeutic products that address large markets for cancers and
atherosclerosis. The Company possesses a versatile technology platform that it
believes will lead to diverse product opportunities. The Company has focused its
internal resources on the development of therapeutic products that address large
markets, such as cancer and atherosclerosis. The Company's initial product focus
is on the treatment of life threatening cancers in which accelerated regulatory
approval and favorable pricing may be possible.
Develop products that enhance existing medical procedures. The Company's
products are designed primarily to be used in conjunction with standard medical
treatments to enhance their safety and efficacy. By facilitating and improving
current treatments, the Company believes its products have the potential to be
rapidly adopted by physicians.
Create diverse products based upon patented texaphyrin technology. The
Company has created several product candidates based on its patented texaphyrin
molecule. This technology platform enables the development of products with
similar chemical synthesis, manufacturing and product development activities
while addressing a variety of indications such as cancer, atherosclerosis and
macular degeneration.
Retain rights to cancer products in the United States. The Company has
retained worldwide rights to its Gd-Tex radiation sensitizer and ANTRIN
photosensitizer and U.S., Canadian and Japanese rights to its LUTRIN
photosensitizer for cancer treatment. The Company believes it can build a U.S.
sales force for its oncology products due to the specialized nature of the
oncology market. The target customer base for the Company's Gd-Tex radiation
sensitizer is approximately 3,000 physicians specializing in radiation oncology.
Leverage resources through collaborations. The Company has leveraged its
resources by focusing on research and clinical development and has established
relationships with third parties for process development, manufacturing and
marketing of its products. The Company has established a relationship with the
NCI to expand clinical development of both its Gd-Tex radiation sensitizer and
LUTRIN photosensitizer products. The Company believes that this collaboration
will expand the potential indications for its cancer products. The Company's
collaborations expand its access to foreign markets, such as the collaboration
with Nycomed for LUTRIN outside the United States, Canada and Japan, and to new
therapeutic indications, such as the collaboration with Alcon for ophthalmic
indications.
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PRODUCTS UNDER DEVELOPMENT
The table below summarizes the Company's product candidates and their
stage of development:
Product Indication Regulatory Status(1) Marketing Rights
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C A N C E R T H E R A P Y
Gd-Tex Brain metastases Phase III Pharmacyclics
Radiation Sensitizer
Primary brain tumor NCI, Phase I, two trials
Lung cancer NCI, Phase I
Head and neck cancer expected
Pancreatic cancer 1998-1999(2)
Prostate cancer
Pediatric brain tumor
Gd-Tex A variety Preclinical Pharmacyclics
Chemosensitizer of cancers
LUTRIN Breast cancer Phase II Pharmacyclics in the
Photosensitizer US, Canada and Japan,
Cervical cancer NCI, Phase I Nycomed in the rest of
Esophageal cancer expected world
Head and neck cancer 1998-1999(3)
Intraperitoneal cancer
Lung cancer
Pancreatic cancer
Prostate cancer
A T H E R O S C L E R O S I S T H E R A P Y
ANTRIN Peripheral arterial disease Phase I Pharmacyclics
Photosensitizer Coronary disease Preclinical
M A C U L A R D E G E N E R A T I O N
OPTRIN Age-related Phase I Alcon
Photosensitizer macular
degeneration
D I A G N O S T I C I M A G I N G
GADOLITE Oral MRI contrast agent FDA approvable letter E-Z-EM in Europe and
for abdomen and received North America,
pelvis December 1996 Pharmacyclics in the
rest of world
(1) As used above, "Preclinical" means testing on animal models for
indications of safety and efficacy prior to the initiation of human
clinical trials. "Phase I" means initial human clinical trials designed to
establish the safety, dose tolerance and sometimes pharmacokinetics of a
compound. "Phase II" means human clinical trials designed to establish
safety, optimal dosage and preliminary activity of a compound. "Phase III"
means human clinical trials designed to lead to accumulation of data
sufficient to support an NDA, including data as to efficacy. "FDA
approvable letter" means that the FDA has deemed the drug capable of
registration for commercial use provided that certain issues relating to
product formulation, stability and manufacturing can be resolved to the
agency's satisfaction.
(2) The NCI intends to sponsor seven clinical trials for these cancer
indications, which the Company expects to be initiated in 1998 and 1999.
(3) The NCI intends to sponsor at least eight clinical trials for these cancer
indications, which the Company expects to be initiated in late 1998 and
1999.
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CANCER THERAPY
Gd-Tex for Radiation Sensitization
Radiation therapy of cancer is based upon the destruction of cancer cells
through exposure to relatively high dosages of externally applied radiation.
While cancer cells are somewhat more sensitive to radiation exposure than
healthy tissues, radiation therapy will have toxic effects on healthy tissue
surrounding the tumor because the energy cannot be adequately targeted. The
ability to preferentially target and destroy cancerous regions is largely
limited to shielding, using lead blocks, on regions adjacent to the tumor. The
Company's preclinical studies indicate that Gd-Tex both localizes preferentially
in tumors and increases the local destructive effect of radiation therapy in
those targeted tissues. Gd-Tex uptake in tumors occurs within minutes of
administration and persists for hours, effectively localizing the effect of the
drug to the tumor. Once localized, Gd-Tex absorbs free electrons generated
during irradiation, effectively prolonging and magnifying the destructive action
of highly reactive hydroxyl free radicals. These free radicals are cytotoxic and
destroy the surrounding cancerous tissue. In preclinical studies, animals
receiving Gd-Tex in conjunction with radiation therapy had enhanced tumor
response rates as compared to the control group receiving equivalent doses of
radiation therapy alone. Preclinical studies further indicate that Gd-Tex
increases the effect of radiation therapy at the tumor site, with no increased
damage to surrounding healthy tissues. An additional feature of Gd-Tex is that
it is detectable by magnetic resonance imaging ("MRI") scanning, providing a
method for monitoring its biolocalization in patients.
The Company initially intends to seek FDA approval of Gd-Tex for treatment
of patients with brain metastases who are receiving radiation therapy. Brain
metastases occur in approximately 15% to 20% of all cancer patients, often in
patients with primary lung or breast cancer, and are usually treated with
radiation therapy delivered to the whole brain. The median survival of patients
with brain metastases is about four months. Patients with brain metastases
develop devastating complications, including headache, seizures, paralysis,
blindness and impaired cognitive function. Radiation therapy for treatment of
brain metastases is performed on approximately 170,000 patients per year in the
United States and is intended to prevent or reduce these complications. The
Company believes that Gd-Tex could eventually be used in many other tumor types
and clinical situations requiring radiation therapy.
Clinical Status. The Company has completed a Phase I clinical trial of
Gd-Tex in 41 patients with advanced cancer who received radiation therapy. This
trial was designed to determine the maximally-tolerated single dose of the drug,
with reversible renal toxicity being the dose-limiting toxicity. Biolocalization
of Gd-Tex in lung cancer, breast cancer and other tumors was confirmed using
MRI. The Company completed a Phase Ib/II clinical trial to evaluate the safety
and efficacy of Gd-Tex in patients with brain metastases receiving 10 daily
intravenous injections of Gd-Tex, each followed by whole-brain radiation
therapy. Preliminary results of this 61 patient trial were reported in May 1998
at the meeting of the American Society of Clinical Oncology. Thirty-nine
patients were entered into the dose escalation Phase Ib portion of the study
designed to determine the dose limiting toxicity. The dose limiting toxicity was
reversible elevation of liver enzymes. There were no significant
infusion-related toxicities. MRI scans showed selective accumulation of Gd-Tex
in brain metastases but not in normal brain tissue. Twenty-two patients were
entered into the Phase II portion of the study and received optimized doses of
Gd-Tex. Three doses were evaluated based on safety and achievement of adequate
plasma levels of the drug. The response rate (defined as greater than 50%
decrease in tumor volume) was 73%. An intent to treat survival analysis was
performed on 60 patients with adequate follow-up. Although not a prospective
randomized trial, a comparison to a historical control database was performed in
order to obtain additional information regarding efficacy. The Gd-Tex treated
patients were compared to the historical controls using a case-matching
statistical technique. Case matching was done to improve comparability between
groups with respect to clinical prognostic features. Gd-Tex treated patients
were found to have statistically significant higher response rate and prolonged
survival compared to case matched controls. In a separate multivariate analysis,
Gd-Tex treatment was found to be one of the most important prognostic features
predictive of survival.
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Based on these results, the Company has initiated a multicenter
prospectively randomized Phase III trial in patients with brain metastases that
is intended to enroll approximately 425 patients. The primary clinical endpoint
of the study is survival. Secondary endpoints include tumor response,
neurocognitive function and quality of life. Patient eligibility requirements in
the study are designed to enroll those patients most likely to die from
uncontrolled progression of tumor in the brain. The study will be monitored by
an independent Data Safety Monitoring Board who will perform an interim analysis
of the data two-thirds into the study for possible early termination in the
event of significant efficacy or unacceptable toxicity.
In parallel with the Company's studies in brain metastases, the NCI
intends to sponsor additional clinical trials of Gd-Tex for other indications.
The first two studies have begun at UCLA Medical Center in primary brain tumor.
Other studies will begin later in 1998 and 1999.
Indication Institutions
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Primary Brain Tumor UCLA Medical Center
University of Southern California, Norris Comprehensive Cancer Center
Cooper House Systems, Robert Wood Johnson Medical School
Primary Brain Tumor NABTT (New Approaches to Brain Tumor Therapy Consortium,
comprised of ten centers)
Primary Brain Tumor University of Chicago
Lung Cancer University of Pennsylvania, University of Maryland
Head and Neck Cancer Johns Hopkins University Oncology Center
Pancreatic Cancer University of Pittsburgh
Pancreatic Cancer Johns Hopkins University Oncology Center
Prostate Cancer Joint Center for Radiation Therapy, Harvard Medical School
Pediatric Brain Stem Glioma Childrens Cancer Study Group
Gd-Tex for Chemosensitization of Cancer
The Company is conducting preclinical studies with Gd-Tex as a
chemosensitizer for use in conjunction with certain cytotoxic chemotherapy
agents. Cytotoxic chemotherapy destroys cancer cells by interfering with their
metabolism, protein synthesis or cell division. Because these agents are not
tissue-selective, cancer chemotherapy agents produce serious or life-threatening
side effects that compromise quality of life and increase the cost of management
of patients with cancer. Preclinical studies conducted by the Company and its
collaborators indicate that Gd-Tex increases the activity of certain
chemotherapy agents in tumors. This effect is believed to be related to Gd-Tex's
ability to stabilize cytotoxic free radicals produced by certain chemotherapy
agents, such as bleomycin and doxorubicin. Gd-Tex's selectivity potentiates the
activity of cancer chemotherapy agents in tumor cells where Gd-Tex is taken up,
but not in normal tissues where the drug does not penetrate, thereby increasing
the therapeutic margin of these agents. In preclinical studies, animals
receiving Gd-Tex and chemotherapy with either bleomycin or doxorubicin had
enhanced tumor responses and survival rates as compared to control groups
receiving equivalent doses of chemotherapy alone.
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LUTRIN for Photodynamic Therapy of Cancer
Photodynamic therapy is a minimally invasive treatment in which a
photosensitizing drug that localizes to diseased tissue is injected into the
body and then activated with light energy. To date, photodynamic therapy has
been approved for the treatment of superficial or small lesions because existing
photosensitizers have been unable to absorb light capable of penetrating deeply
into tissues. LUTRIN, the Company's lutetium texaphyrin drug, is activated by
light of 720-760 nanometers, wavelengths that are optimal for penetrating
through tissue, blood and skin pigmentation such as melanin. After absorbing
light of this wavelength, LUTRIN becomes activated to a higher energy state
generating singlet oxygen, a highly cytotoxic molecule. Preclinical studies
indicate that LUTRIN selectively localizes in a variety of cancers. LUTRIN is a
synthetic, well-characterized molecule that is water soluble and is relatively
rapidly cleared from the body, reducing potential toxicity.
The Company's LUTRIN program is focused on drug development and relies on
third parties for manufacture and supply of light sources and delivery devices.
In October 1997, the Company entered into an agreement with Nycomed, which
acquired sales and marketing rights to LUTRIN for cancer indications outside the
United States, Canada and Japan. In return for these rights, the Company
received an up front licensing fee and is to receive future payments based on
achievement of regulatory milestones and royalties on Nycomed's LUTRIN sales.
The Company intends initially to seek FDA approval for the use of LUTRIN
in photodynamic therapy for patients with invasive surface cancers that are
accessible to externally applied light, such as recurrent breast cancer
(involving the skin or subcutaneous tissue). Additional potential indications
for the use of LUTRIN include internal cancers such as cancer of the cervix,
lung, esophagus, pancreas, head and neck region and prostate.
Clinical Status. The Company presented results from its completed Phase I
clinical trial of LUTRIN for the photodynamic treatment of advanced local or
metastatic cancer accessible to externally applied light at the ASCO meeting in
May 1997. Of the 35 patients enrolled in this dose escalation study, 16 had
breast cancer, seven had melanoma and 12 had other types of tumors. Patients
received a rapid intravenous injection of LUTRIN, followed three to eight hours
later by illumination of the tumors with light. Within the treated group, 73
breast cancer lesions were evaluated, with a total per lesion response rate of
64%, comprised of a 46% complete response (defined as complete disappearance of
the tumor) and 18% partial response (defined as greater than 50% reduction in
tumor size) in this early-stage trial which was not designed to measure
efficacy. A drug dose response effect was observed. Nineteen lesions were
evaluated in six patients treated at the maximally-tolerated single dose
("MTD"). Fifteen of the lesions underwent a complete response and two achieved a
partial response. Of the six patients treated at the maximum tolerated dose, all
of whom had breast cancer, four had a complete response and one had a partial
response. The overall clinical response rates, determined by evaluating the
response of all the treated lesions in each patient, were 50% with 17% complete
and 33% partial responses. In breast cancer, the corresponding overall clinical
response rates were 60%, with 27% complete and 33% partial responses. The
dose-limiting toxicity was pain at the treatment site during light illumination,
which occurred at the highest doses administered. At the highest dosage level,
some patients experienced dysesthesia (burning or numbness) in areas exposed to
light, such as the fingertips. There were no systemic toxicities and no
significant skin phototoxicities.
The Company commenced a multicenter Phase II clinical trial in recurrent
breast cancer to the chest wall in patients who have failed radiation therapy.
This trial is designed to optimize drug dose and light dose and provide
indications of efficacy and safety. In patients entered into the trial with
large tumors, pain at the treatment site has been observed. Pain appears to be
related to the size of the area being treated and has been controlled by
narcotics and sedation. The drug dose limiting toxicity has been found to be
tissue necrosis within the treatment site. The Company is evaluating various
treatment regimens aimed at optimizing efficacy and reducing treatment related
side effects. In parallel with the Company's clinical studies in recurrent
breast cancer to the chest wall, the NCI intends to sponsor clinical trials of
LUTRIN for additional indications including cancer of the cervix, esophagus,
head and neck region, intraperitoneal region, lung, pancreas and prostate. These
studies are expected to begin in late 1998 and 1999.
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ATHEROSCLEROSIS THERAPY
ANTRIN for Photoangioplasty of Atherosclerosis
Preclinical studies conducted by the Company and its collaborators have
demonstrated that texaphyrins also localize to atherosclerotic plaque.
Preclinical studies have also indicated that following intravenous
administration of ANTRIN, intravascular exposure of atherosclerotic plaque to
732-nanometer light delivered by means of a fiber optic cylindrical diffuser
resulted in elimination of the plaque without damage to the endothelium using a
technique which the Company refers to as photoangioplasty. The Company believes
that these results suggest that photoangioplasty of atherosclerosis with ANTRIN
has the potential to eliminate or reduce plaque without complications such as
thrombosis and restenosis. Additional preclinical studies further indicated that
photoangioplasty of atherosclerosis with ANTRIN could be used to treat diffuse
atherosclerosis over long segments of blood vessels, which is not possible with
other currently available techniques. ANTRIN's selective localization in plaque
and relatively rapid clearance from blood may provide advantages for its
application in the treatment of atherosclerosis. The Company also believes that
photoangioplasty with ANTRIN has potential use in peripheral arterial disease,
coronary artery disease and in the treatment or prevention of restenosis. The
Company initiated a Phase I clinical trial at Stanford University Medical Center
for the use of ANTRIN in the photoangioplasty of lower extremity peripheral
arterial disease. Interim data from this trial was presented at the July 1998
meeting of the American Society of Photobiology. Successive cohorts of patients
received single increasing intravenous doses of ANTRIN, followed 24 hours later
by intravascular delivery of light. Photoangioplasty is administered in a
standard cath lab and patients were followed 2-4 weeks later by repeat angiogram
and intravascular ultrasound (IVUS). Although primarily a safety study, a dose
of ANTRIN has been achieved which the Company believes produces reduction in
plaque and increase in lumen diameter assessed by both angiography and IVUS.
This study has now been expanded to include patients with atherosclerosis
involving the arteries up to the level of the aortic bifurcation.
AGE-RELATED MACULAR DEGENERATION THERAPY
The Company and its collaborators have conducted preclinical studies with
OPTRIN in ARMD. These studies have indicated that OPTRIN selectively damages
abnormal retinal capillaries following activation by light of an appropriate
wavelength. The Company entered into a development agreement with Alcon, a
leading ophthalmic products company, whereby OPTRIN is provided to Alcon for the
conduct of further preclinical and clinical development, and ultimately,
regulatory submissions, sales and marketing for the treatment of ARMD. Phase I
studies in ARMD are in progress.
DIAGNOSTIC IMAGING AGENT
The Company's oral MRI contrast agent, GADOLITE, is not a texaphyrin, but
is based on a patented compound and is used for imaging the gastrointestinal
tract in patients undergoing MRI procedures of the abdomen or the pelvis.
GADOLITE contains gadolinium sodium aluminosilicate suspended in an aqueous,
orange-flavored oral formulation designed to fill the bowel uniformly.
The Company submitted a new drug application ("NDA") for GADOLITE in
September 1995, based upon two multicenter controlled Phase III studies in
patients receiving MRI scans for known or suspected diseases of the abdomen or
pelvis. The Company received an approvable letter from the FDA in December 1996
requiring the Company to conduct additional product manufacturing and product
stability studies. The Company is in the process of addressing these issues,
which also require resolution of current manufacturing uncertainties relating to
GADOLITE. There can be no assurance that the FDA will decide that the NDA
satisfies the criteria for approval. In 1996, the Company received approval from
the Medicines Control Agency to market GADOLITE in the United Kingdom. In April
1998, the Company received approval from the Health Protection Branch of Health
Canada to market GADOLITE in Canada. GADOLITE will not be marketed in Europe or
Canada until product manufacturing and product stability issues are resolved.
Although the process for regulatory approval in Western Europe is similar to
that in the United States, there are numerous and sometimes unique risks
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associated with the approval of a marketing authorization in Europe. There can
be no assurance that authorization to market GADOLITE in other member states
would be granted under the European Union's mutual recognition procedure.
Data obtained from preclinical studies and clinical trials of the
Company's products under development are not necessarily indicative of results
that will be obtained from subsequent studies or clinical trials, and such data
are susceptible to varying interpretations which could delay, limit or prevent
further development or regulatory approval.
RESEARCH, CLINICAL DEVELOPMENT AND MARKETING COLLABORATIONS
The Company relies on relationships with third parties to augment certain
research, clinical development, process development, manufacturing, sales and
marketing functions. In the photodynamic therapy field, the Company has used
outside collaborations for development of light sources and delivery devices for
use in preclinical studies and clinical trials while focusing on development of
its proprietary photosensitizing products. The Company retains marketing rights
to Gd-Tex and ANTRIN worldwide and to LUTRIN in the United States, Canada and
Japan.
Nycomed Collaboration. In October 1997, the Company entered into an
agreement with Nycomed, which acquired exclusive sales and marketing rights to
LUTRIN for cancer indications in all markets excluding the United States, Canada
and Japan. In exchange for these rights, Nycomed has agreed to pay the Company
up to approximately $14.0 million in license fees and cost reimbursement (based
upon an agreed budget), milestone payments and development cost subsidies
related to the initial cancer indications for LUTRIN to be developed by the
Company and Nycomed, in each case subject to attainment of certain development,
clinical or commercialization milestones. Approximately $14.0 million in
additional milestone payments and cost reimbursement (assuming similar costs and
agreement upon a similar budget) may be paid by Nycomed during the course of
development for subsequent cancer indications, if such indications are
successfully completed. Nycomed has agreed to bear a portion of the device and
clinical development costs required for regulatory submission for product
approval in the United States, which information will then be used as a basis
for approvals in Europe. Each company will make regulatory submissions in its
own marketing territories. Pharmacyclics is required to supply bulk drug
substance and Nycomed is required to produce finished product for its and
Pharmacyclics' use.
Alcon Collaboration. In December 1997, the Company entered into an
evaluation and license agreement with Alcon Pharmaceuticals, Ltd. under which
Alcon acquired worldwide marketing rights to OPTRIN for ophthalmology
indications. Alcon, a wholly-owned subsidiary of Nestle S.A., is a global leader
in the research, development manufacturing and marketing of ophthalmic products.
Under the terms of the agreement, the Company received an upfront fee to
evaluate OPTRIN for ophthalmology indications for a specified time period (which
contemplates completion of a Phase I clinical trial), and if the evaluation is
successful, the Company will receive an additional license fee, payments upon
completion of certain milestones and royalty payments on Alcon's product sales.
Alcon will conduct and bear all costs for world-wide development and
commercialization of OPTRIN for ophthalmology indications, as well as costs for
regulatory submissions, until the termination of the agreement. Pharmacyclics is
required to supply bulk drug substance and Alcon will be responsible for
formulation and packaging.
National Cancer Institute Collaboration. In April 1997, the Decision
Network Committee of' the NCI Division of Cancer Treatment, Diagnosis and
Centers voted unanimously to sponsor and fund clinical development of both
Gd-Tex as a radiation sensitizer and LUTRIN as a photosensitizer for cancer
treatment. This cooperative research and development agreement provides for the
NCI and the Company to jointly select clinical trials that will be conducted at
leading medical centers for various types of cancer. For Gd-Tex, nine separate
clinical trials are planned for treatment of brain tumors, head and neck
cancers, and cancers involving the lung, pancreas and prostate. For LUTRIN, the
NCI intends to sponsor a minimum of eight Phase I clinical trials, and to date,
has requested Phase I proposals from potential clinical sites for the treatment
of' cervical, esophageal, head and neck, intraperitoneal region, lung,
pancreatic, and prostate cancers. The Company
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believes that these NCI-sponsored trials will supplement its own clinical
development efforts for both Gd-Tex and LUTRIN. Although the trials will be
conducted by third parties, the Company will need to provide clinical supplies
of its drug and it intends to monitor the progression and results of these
trials.
The University of Texas Agreements. The Company collaborates with and
sponsors research and development programs at UT Austin, through a group under
the direction of Jonathan Sessler, Ph.D., Professor of Chemistry at UT, to
extend its research capabilities in the field of expanded porphyrin chemistry.
The Company has entered into two license agreements with UT that grant the
Company the worldwide, exclusive right to patents or patent applications that
relate to or result from (i) research conducted at UT Austin on the use,
development and syntheses of expanded porphyrin molecules, and (ii) research
conducted at UT Dallas on the incorporation of paramagnetic metals into zeolites
for use as MRI contrast agents. These agreements require the Company to pay
royalties as a percentage of' net sales to UT for products incorporating the
licensed technology, including each of' the Company's current product
candidates. In addition, the Company and UT have entered into sponsored research
agreements which expand the products, inventions and discoveries developed by UT
to which the Company's license rights apply. In connection with the UT license
agreements, the Company also entered into a license agreement with an individual
co-inventor of GADOLITE, pursuant to which the Company has been granted an
exclusive royalty-bearing license to manufacture, use and sell certain products
that fall within the scope of the UT Dallas license agreement.
E-Z-EM Marketing, Sales and Distribution Arrangement. In August 1995, the
Company entered into an agreement with E-Z-EM, Inc., a leading manufacturer and
worldwide distributor of oral contrast agents and other products for use in
gastrointestinal radiology, for the exclusive marketing and sale of GADOLITE in
North America. During fiscal 1997, an additional agreement was signed with
E-Z-EM's affiliate, E-Z-EM, Ltd., (together "E-Z-EM") for marketing, sales and
distribution in Europe and certain other countries. The Company and E-Z-EM will
share equally in the operating profits from the sale of GADOLITE in these
regions, and the Company may also receive premium payments based upon product
sales if certain unit sales levels are achieved. During the term of the
agreement, E-Z-EM is prohibited from distributing products that are directly
competitive with GADOLITE, except for products that had been or were being
developed by E-Z-EM as of the date of the Company's agreement with E-Z-EM and
that contain certain specified chemical compounds. The agreement may be
terminated by E-Z-EM at any time upon six months' notice. As of June 30, 1998,
there have been no sales of GADOLITE in any territory.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company believes its success depends upon, among other things, the
Company's ability to protect its intellectual property position. The Company,
therefore, aggressively pursues, prosecutes, protects, and defends its patent
applications, issued patents, trade secrets, and licensed patent and trade
secret rights covering, e.g., compositions of matter, methods of use and
synthetic methodology relating to its products under development.
As of June 30, 1998, the Company owned or has licensed various rights to
patents and pending applications in the United States, Europe, Japan and
elsewhere throughout the world. The issued U.S. patents expire between 2006 and
2016. There can be no assurance that the Company will have continued success in
prosecuting its patent applications or that patents will issue in respect of
those patent applications. Even if patents are issued and maintained, there can
be no assurance that the patents are or will be of' adequate scope to benefit
the Company, or that any such patents would be upheld as valid and enforceable
with respect to third parties.
Because there are a number of third party patents issued and third party
patent applications filed relating to biometallic and expanded porphyrin
chemistries, the Company believes there is some risk that current and potential
competitors and other third parties have filed or in the future will file
applications for, or have received or in the future will receive, patents and
will obtain additional proprietary rights relating to similar or even the same
compositions, methods, or designs of' the Company or its products. It is
pertinent, however, that patents and patent applications owned or licensed by
the Company cover various aspects, ranging from base compositions, to methods of
manufacture, to processes for use and related applications, of the biometallic
and expanded porphyrin chemistries peculiar to the Company's products. In any
event, if any third party patents
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include claims that are alleged to be infringed and are upheld as valid and
enforceable, the Company could be prevented from practicing the subject matter
claimed in such patents, or would be required to obtain licenses from the patent
owners of each of such patents or to redesign its products or processes to avoid
infringement. There can be no assurance that any such licenses would be
available or, if available, would be on terms acceptable to the Company, or that
the Company would be successful in any attempt to redesign its products or
processes to avoid infringement. Litigation or other legal proceedings may be
necessary to defend against claims of infringement, to enforce patents of the
Company, or to protect trade secrets, and could result in substantial cost to,
and diversion of efforts by, the Company.
The Company is aware of several U.S. patents owned or licensed to Schering
AG ("Schering") that relate to the use of agents that enhance MRI scans. The
Company has obtained opinions of special patent counsel that the technologies
employed by the Company for its imaging product under development and its
therapeutic agent that is detectable by MRI do not infringe the claims of such
patents; however, there can be no assurances that Schering would not allege
infringement of one or more of those patents. If infringement were alleged, a
legal determination of the infringement of any such patents by any Company
product could have a material adverse affect on the Company's business. Further,
any allegation by Schering of infringement of patent rights by the Company
would likely result in significant legal costs and require substantial
management resources. Schering has sent communications to the Company suggesting
that GADOLITE may infringe certain of such Schering patents. The Company is
aware that Schering has asserted patent rights against at least one other
company in the contrast agent imaging market and that a number of companies
have entered into licensing arrangements with Schering with respect to one or
more of such patents. There can be no assurance that the Company would be able
to obtain a license from Schering, if required. Even if a license could be
obtained, there can be no assurance that the Company would receive commercially
reasonable terms.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. It is the Company's policy to require its employees, consultants and
advisors to execute appropriate confidentiality and assignment-of-inventions
agreements in connection with their employment, consulting or advisory
relationships with the Company. These agreements provide that all confidential
information developed by or made known to the individual during the course of
the individual's relationship with the Company is to be kept confidential and
not disclosed to third parties except in specific circumstances. The agreements
also provide that all inventions conceived by an employee (or consultant or
advisor to the extent appropriate for the services provided) during the course
of the relationship shall be the exclusive property of the Company, other than
inventions unrelated to the Company and developed entirely with the individual's
own time and resources. There can be no assurance that these agreements will not
be breached, and, in some instances, there may not be any appropriate remedy
available to the Company for breach of the agreements. Furthermore, no assurance
can be given that competitors will not independently develop substantially
equivalent proprietary information and techniques, reverse engineer such
information and techniques, or otherwise gain access to the Company's
proprietary technology, or that the Company can meaningfully protect the rights
in unpatented proprietary technology.
MANUFACTURING AND SUPPLIERS
Pharmacyclics currently uses third party manufacturers for producing
various components of the products being developed by the Company. Gd-Tex,
LUTRIN, ANTRIN and OPTRIN bulk drug substances are the subject of a
manufacturing and supply agreement with Celanese (as discussed below). The
Company does not have its own manufacturing facilities. Supply agreements are
being negotiated with additional manufacturers who have the ability to
manufacture, fill, label and package such additional necessary materials prior
to commercial introduction of its products. There can be no assurance that the
Company will be able to enter into additional supply agreements on commercially
acceptable terms or with manufacturers who will be able to deliver supplies in
appropriate quantity and quality to meet commercial demand or that third party
manufacturers will perform their contractual obligations. Any interruption of
supply could have a material adverse effect on the Company's ability to
manufacture its products and thus on the ability to commercialize products.
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Hoechst Celanese Agreement. In September 1996, the Company entered into an
agreement with Hoechst Celanese Corporation (HCC), a manufacturer of chemicals
and pharmaceutical intermediates, for the process optimization, scale-up and
supply of its texaphyrin-based products. In October 1997, the Agreement was
assigned to Celanese, Ltd. ("Celanese"), in connection with HCC's corporate
restructuring. The Agreement presently grants Celanese exclusive worldwide
manufacturing rights and requires Celanese to supply all of Pharmacyclics'
requirements of Gd-Tex and lutetium texaphyrin drug substance for late-stage
clinical and commercial use. During the fourth quarter of fiscal 1998, the
Company received indications from Celanese, that due to a change in its business
focus, Celanese wishes to reduce the scope of its obligations under the
Agreement. The Company and Celanese then initiated discussions aimed at possible
modifications to the Agreement to allow the Company to purchase commercial
material from additional sources while relieving Celanese of certain obligations
under the agreement. The Company believes it is in its best interest to have
multiple sources of drug substance and has commenced efforts to identify
multiple additional sources of bulk drug substance. Such efforts are likely to
consume time and expense and there can be no assurance that the Company will be
successful in obtaining additional supplies of drug substance. Until such
situation is resolved, the Company will be subject to uncertainties regarding
the willingness or ability of Celanese or such additional suppliers to deliver
bulk-drug substance for these products on a timely or commercially attractive
basis.
Photodynamic Therapy Light Production and Delivery Devices. In connection
with its development of LUTRIN and ANTRIN as photosynthesizers, the Company has
also engaged in the development of certain light sources and delivery methods,
such as lasers and light emitting diodes ("LEDs"). The Company has collaborated
with Coherent, Inc., and Laserscope, Inc., for the development of lasers that
produce 732 nanometer light for use in photodynamic therapy studies. These
lasers and light delivery devices were acquired and are still being used in
ongoing studies. The Company has purchased from Quantum Devices, Inc. LED
devices capable of producing the required wavelength of light for use in
photodynamic therapy with LUTRIN. The Company has used LED devices in
preclinical animal studies, Phase I and Phase II trials. In addition, the
Company has acquired from Rare Earth Medical ("REM") cylindrically diffusing
light fibers for animal studies and for use in Phase I studies in cardiovascular
disease. In October 1997, the Company entered into a development agreement with
Diomed under which Pharmacyclics engaged Diomed to develop a diode laser system
for use in photodynamic therapy. This effort is intended to provide a basis for
the development of a laser diode medical system, which will supplant the more
complex and costly dye laser systems currently used in photodynamic therapy
programs. The Company has taken delivery of the initial units from Diomed, Inc.
("Diomed") and plans to begin using Diomed lasers in clinical trials in 1998. In
addition, the Company is seeking other suppliers of light delivery devices,
although there can be no assurance that any agreements will be reached with such
suppliers on terms commercially reasonable to the Company, if at all. There also
can be no assurance that these devices will be available for commercial use or
that regulatory approval for such devices will be obtained.
GADOLITE Manufacturing. The Company had entered into a supply agreement
with Glaxo-Wellcome Co. ("Glaxo") under which Glaxo manufactured clinical
quantities of GADOLITE. This agreement has been terminated because of delays in
FDA approval and Glaxo's sale of the facility in which the drug had been
manufactured. The Company has commenced efforts to identify alternative sources
for the manufacture of commercial quantities of GADOLITE and has identified a
subsidiary of E-Z-EM as an alternative supplier of GADOLITE. There can be no
assurance that such a manufacturing change can be effected without a material
adverse effect on the Company's approval and commercialization plans for
GADOLITE.
Abbott Laboratories Development and Supply Agreement. In June 1998, the
Company entered into a development and supply agreement with Abbott under which
Abbott agreed to undertake the development of the drug formulation and packaging
for Gd-Tex. Abbott will receive cost reimbursements related to the development
work and the Company has agreed to purchase Gd-Tex drug product exclusively from
Abbott for the sale in the United States and Canada for a period of five years
from the date of FDA marketing approval. There can be no assurance that the
development of the drug formulation and packaging will be successful or that
Abbott will deliver commercial quantities of Gd-Tex drug product to meet the
Company's requirements.
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COMPETITION
The development of therapeutic and diagnostic agents for human diseases is
intensely competitive. Many different approaches are being developed or have
already been adopted into routine use for the management of diseases targeted by
the Company.
Although there are currently no FDA-approved radiation sensitizers or
chemosensitizers, the Company expects significant competition in these fields,
as the Company believes that one or more companies are developing and testing
products that compete directly with the products being developed by the Company.
There can be no assurance that these companies will not succeed in developing
technologies and products that are more effective than Gd-Tex or that would
render the Company's products or technologies obsolete. Moreover, certain
existing chemotherapy agents also are used as radiation sensitizers.
PHOTOFRIN(R), a photosensitizer developed by QLT Phototherapeutics, Inc.
("QLT"), has been approved by the FDA for treatment of obstructive cancer of the
esophagus and certain types of lung cancer. PHOTOFRIN has also received
marketing approval in Japan, Canada and certain European countries for various
disease indications. The Company is aware of several other photosensitizers in
various stages of development for a number of indications. In addition to QLT,
other companies are developing products in this area. Some companies developing
photodynamic therapy products are developing specialized light delivery devices
for such products, which, when integrated with their product offering, may
afford them a competitive advantage relative to the Company's strategy of
sourcing such devices from third parties.
Competition in the treatment of atherosclerosis is also intense and
currently includes the use of pharmaceutical agents and interventional devices.
Various drugs also have been shown to reduce or prevent atherosclerosis by
reduction of lipids. Balloon angioplasty is a widely-used and generally accepted
technique to reduce the narrowing of vessels by atherosclerosis. Restenosis
following angioplasty has been reduced through the use of intravascular stents.
The Company believes that photoangioplasty with ANTRIN may provide advantages
over these techniques but there can be no assurance that there will be greater
acceptance of photoangioplasty over other approaches. Other photosensitizers
under development by other companies may prove to be superior to ANTRIN.
Competition in the treatment of ARMD is substantial and includes the
current use of laser photocoagulation. Several other approaches to treatment are
being investigated, including the use of other photosensitizers, drugs and
biologicals, including anti-angiogenesis agents.
The Company expects competition in the development of improved oral MRI
contrast agents to increase substantially. Gastromark(tm), an iron particle-
based oral contrast agent developed by Advanced NMR Systems, Inc. and licensed
to Mallinckrodt, Inc., has received approval for commercial sale from the FDA.
In addition, there are several oral MRI contrast agents in various phases of
human testing in the United States. Although the Company believes that GADOLITE
may offer advantages over competing oral MRI contrast agents, there can be no
assurance that there will be greater acceptance of GADOLITE over other agents.
In addition, to the extent that other diagnostic modalities such as computed
tomography "CT" and X-ray may be perceived as providing greater value than MRI,
any corresponding decrease in the use of MRI would have an adverse effect on the
demand for GADOLITE.
Competition in the industry from pharmaceutical companies, universities,
governmental entities and others diversifying into the field is intense and is
expected to increase. Many of these entities have significantly greater research
and development capabilities than the Company, as well as substantial marketing,
manufacturing, financial and managerial resources, and represent significant
competition for the Company. Acquisitions of, or investments in, competing
pharmaceutical companies by large collaborating partners could increase such
competitors' financial, marketing, manufacturing and other resources. There can
be no assurance that developments by others will not render the Company's
products or technologies noncompetitive or obsolete, or that the Company will be
able to keep pace with technological developments or other market factors.
Competitors may be developing products that have an entirely different approach
or means of accomplishing similar diagnostic, imaging and/or therapeutic effects
than products being developed by the
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Company. These competing products may be safer, more effective and less costly
than the products developed by the Company and, therefore, may represent a
serious competitive threat to the Company's product offerings.
GOVERNMENT REGULATION
FDA Regulation and Product Approval
The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements upon the
manufacturing and marketing of pharmaceutical products. These agencies and other
federal, state and local entities regulate, among other things, research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of the Company's products.
The process required by the FDA before the Company's products may be
marketed in the U.S. generally involves the following: (i) preclinical
laboratory and animal tests; (ii) submission of an Investigational New Drug
("IND") application which must become effective before clinical trials may
begin; (iii) adequate and well-controlled human clinical trials to establish the
safety and efficacy of the proposed pharmaceutical in its intended indication;
and (iv) FDA approval of an NDA. If the pharmaceutical or compound utilized in
the product has been previously approved for use in another dosage form, then
the approval process is similar, except that certain preclinical toxicity tests
normally required for the IND may be avoidable. The testing and approval process
requires substantial time, effort, and financial resources and there can be no
assurance that any approval will be granted on a timely basis, if at all.
Preclinical tests include laboratory evaluation of the product, its
chemistry, formulation and stability, as well as animal studies to assess the
potential safety and efficacy of the product. The results of the preclinical
tests, together with manufacturing information and analytical data, are
submitted to the FDA as part of an IND, which must become effective before human
clinical trials may commenced. The IND will automatically become effective 30
days after receipt by the FDA, unless the FDA before that time raises concerns
or questions about the conduct of the trials as outlined in the IND. In such a
case, the IND sponsor and the FDA must resolve any outstanding concerns before
clinical trials can proceed. There can be no assurance that submission of an IND
will result in FDA authorization to commence clinical trials. Further, each
clinical study must be reviewed and approved by an independent Institutional
Review Board at the medical center proposing to conduct the clinical trials.
Human clinical trials are typically conducted in three sequential phases
which may overlap. Phase I involves the initial introduction of the
pharmaceutical into healthy human subjects or patients where the product is
tested for safety, dosage tolerance, absorption, metabolism, distribution and
excretion. Phase II involves studies in a limited patient population to (i)
identify possible adverse effects and safety risks, (ii) determine the efficacy
of the product for specific, targeted indications, and (iii) determine dosage
tolerance and optimal dosage. When Phase II evaluations demonstrate that the
product is effective and has an acceptable safety profile, Phase III trials are
undertaken to further evaluate dosage, clinical efficacy and to further test for
safety in an expanded patient population at geographically dispersed clinical
study sites.
In the case of products for severe or life-threatening diseases such as
cancer, the initial human testing is often conducted in patients rather than in
healthy volunteers. Since these patients are already afflicted with the target
disease, it is possible that such studies may provide evidence of efficacy
traditionally obtained in Phase II trials. These trials are frequently referred
to as "Phase I/II" trials. There can be no assurance that Phase I, Phase II or
Phase III testing will be completed successfully within any specific time
period, if at all, with respect to any of the Company's product candidates.
Furthermore, the FDA, or the sponsor, may suspend clinical trials at any time on
various grounds, including a finding that the subjects or patients are being
exposed to an unacceptable health risk.
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The results of product development, preclinical studies and clinical
studies are submitted to the FDA as part of an NDA for approval of the marketing
and commercial shipment of the product. The FDA may deny an NDA if applicable
regulatory criteria are not satisfied, or may require additional clinical data.
Even if such data is submitted, the FDA may ultimately decide that the NDA does
not satisfy the criteria for approval. Once issued, a product approval may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. In addition, the FDA may
require testing and surveillance programs to monitor the effect of approved
products which have been commercialized, and the agency has the power to prevent
or limit further marketing of a product based on the results of these post-
marketing programs.
On November 21, 1997, President Clinton signed into law The Food and Drug
Administration Modernization Act of 1997. That act codified FDA's policy that
allowed for "Fast Track" approval for cancer therapies and other therapies
intended to treat severe or life-threatening diseases. Previously, cancer
therapies had been approved primarily on the basis of data regarding patient
survival rates and/or improved quality of life. Evidence of partial tumor
shrinkage, while often part of the data relied on for approval, was considered
insufficient by itself to warrant approval of a cancer therapy, except in
limited situations. Under the FDA's new policy, which became effective on
February 19, 1998, the FDA has broadened authority to consider evidence of
partial tumor shrinkage or other clinical outcomes for approval. This is
intended to make it easier to study cancer therapies and shorten the total time
for marketing approvals; however, it is too early to tell what effect these
provisions may actually have on product approvals.
In addition to the drug approval requirements applicable to the Company's
LUTRIN, ANTRIN and OPTRIN photosensitizer products for photodynamic therapy of
certain cancers, atherosclerosis and ARMD, the Company or its collaborators will
also need to obtain FDA approval for the laser and associated light delivery
devices used in such treatments. Such device approval requires additional
submissions both by the Company or its collaborators and by the manufacturers of
such devices, must include clinical data obtained from the use of such devices
with LUTRIN or ANTRIN, and may result in additional delays or difficulties in
obtaining approval for the use of these photosensitizers. Manufacturers of such
light delivery devices currently are under no obligation to the Company to file
or pursue such applications.
Satisfaction of the above FDA requirements, or similar requirements of
state, local, and foreign regulatory agencies, typically takes several years and
the time needed to satisfy them may vary substantially, based upon the type,
complexity and novelty of the pharmaceutical product. The effect of government
regulation may be to delay or to prevent marketing of potential products for a
considerable period of time and to impose costly procedures upon the Company's
activities. There can be no assurance that the FDA or any other regulatory
agency will grant approval for any products being developed by the Company on a
timely basis, if at all. Success in preclinical or early stage clinical trials
does not assure success in later stage clinical trials. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. If regulatory approval
of a product is granted, such approval may impose limitations on the indicated
uses for which a product may be marketed. Further, even if regulatory approval
is obtained, later discovery of previously unknown problems with a product may
result in restrictions on the product, including withdrawal of the product from
the market. Delay in obtaining, or failure to obtain, regulatory approvals would
have a material adverse effect on the Company's business. Marketing the
Company's products abroad will require similar regulatory approvals and is
subject to similar risks. In addition, the Company is unable to predict the
extent of adverse government regulations that might arise from future U.S. or
foreign governmental action.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including record-keeping requirements and reporting of adverse
experiences with the drug. Drug manufacturers and their subcontractors are
required to register their establishments with the FDA and certain state
agencies, and are subject to periodic inspections by the FDA and certain state
agencies for compliance with good manufacturing practice ("GMP"), which impose
certain procedural and documentation requirements upon the Company and its third
party manufacturers.
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Drug labeling and promotion activities are subject to scrutiny by the FDA
and, in certain instances, the Federal Trade Commission. The FDA has actively
enforced regulations prohibiting the marketing of products for unapproved uses.
Under the new FDA Modernization Act of 1997 promoting a drug for an unapproved
indication is permitted in certain circumstances, but is subject to very
stringent requirements. The Company and its products are also subject to a
variety of state laws and regulations in those states or localities where its
products are or will be marketed. Any applicable state or local regulations may
hinder the Company's ability to market its products in those states or
localities. The Company is also subject to numerous federal, state and local
laws relating to such matters as safe working conditions, manufacturing
practices, environmental protection, fire hazard control, and disposal of
hazardous or potentially hazardous substances. There can be no assurance that
the Company will not be required to incur significant costs to comply with such
laws and regulations now or in the future.
The FDA's policies may change and additional government regulations may be
promulgated which could prevent or delay regulatory approval of the Company's
potential products. Moreover, increased attention to the containment of health
care costs in the U.S. and in foreign markets could result in new government
regulations which could have a material adverse effect on the Company's
business. The Company is unable to predict the likelihood, nature or extent of
adverse governmental regulation which might arise from future legislative or
administrative action, either in the U.S. or abroad.
Manufacturers of drugs also are required to comply with the applicable GMP
regulations, which include requirements relating to quality control and quality
assurance as well as the corresponding maintenance of records and documentation.
Manufacturing facilities are subject to inspection by the FDA, including
unannounced inspection, and must be licensed before they can be used in
commercial manufacturing of the Company's products. There can be no assurance
that the Company or its present or future suppliers will be able to comply with
the applicable GMP regulations and other FDA regulatory requirements.
The Company may elect to seek approval of Gd-Tex and LUTRIN under the
"Fast Track" provisions of the FDA Modernization Act of 1997. Significant
uncertainty exists as to the extent to which such provisions will result in
accelerated review and approval. Further, the FDA has not made available any
information with respect to the "Fast Track" provisions and retains considerable
discretion to determine eligibility for "Fast Track" review and approval.
Accordingly, the FDA could employ such discretion to deny eligibility of Gd-Tex
or LUTRIN as a candidate for "Fast Track" review or to require additional
clinical trials or other information before approving either product. A
determination that Gd-Tex or LUTRIN is not eligible for "Fast Track" review or
delays and additional expenses associated with generating a response to any such
request for additional trials could have a material adverse effect on the
Company.
The Company submitted an NDA for GADOLITE in September 1995 and received
an "approvable" letter in December 1996 that included a number of issues that
must be addressed by the Company. The Company is in the process of addressing
these issues, which also require resolution of current manufacturing
uncertainties relating to GADOLITE. There can be no assurance that the FDA will
decide that the NDA satisfies the criteria for approval. In 1996, the Company
received approval from the Medicines Control Agency to market GADOLITE in the
United Kingdom. In April 1998, the Company received approval from the Health
Protection Branch of Health Canada to market GADOLITE in Canada. GADOLITE will
not be marketed in Europe or Canada until product manufacturing and product
stability issues are resolved.
Although the process for regulatory approval in Western Europe is similar
to that in the United States, there are numerous and sometimes unique risks
associated with the approval of a marketing authorization in Europe. There can
be no assurance that authorization to market GADOLITE in other member states
would be granted under the European Union's mutual recognition procedure.
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International Regulation
In order for Pharmacyclics to market its products abroad, the Company must
obtain required regulatory approvals and clearances and otherwise comply with
extensive regulations regarding safety and manufacturing processes and quality.
These regulations, including the requirements for approvals or clearance to
market and the time required for regulatory review, vary from country to
country. There can be no assurance that the Company will obtain regulatory
approvals in foreign countries or that it will not be required to incur
significant costs in obtaining or maintaining its foreign regulatory approvals.
Delays in receipt of approvals to market the Company's products, failure to
receive these approvals or the future loss of previously received approvals
could have a material adverse effect on the Company's business, financial
condition, and results of operations. The time required to obtain approval for
sale in foreign countries may be longer or shorter than that required for FDA
approval and the requirements may differ.
The European Community has promulgated rules requiring that medical device
products receive by mid-1998 the right to affix the "CE" mark, an international
symbol of adherence to quality assurance standards and compliance with
applicable European medical device directives. In order to market a laser or
other light delivery device for the Company's LUTRIN or ANTRIN products in
Europe, such CE mark must be obtained, and there can be no assurance that the
Company or its suppliers will be successful in meeting the certification
requirements.
EMPLOYEES
As of June 30, 1998, the Company had 63 employees, two of whom are
part-time. Fifty-three of its employees are dedicated to research, development,
manufacturing, quality assurance and quality control, regulatory affairs, or
preclinical testing and clinical trials. Fifteen of the Company's employees have
an M.D. or Ph.D. degree.
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FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Form 10-K contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in this section as well as those discussed
elsewhere in this Form 10-K.
UNCERTAINTIES RELATED TO CLINICAL TRIALS AND PRODUCT DEVELOPMENT
All of the Company's product candidates are in development and have not
generated product sales revenue to date, and there can be no assurance that any
of the Company's products under development will be commercialized or will
generate product sales revenue in the future. To achieve profitable operations,
the Company, alone or with collaborative partners, must successfully research,
develop, obtain regulatory approval for, manufacture, introduce, market and
distribute its products under development. The time frame necessary to achieve
these goals for any individual product is long and uncertain. Most of the
Company's product candidates are generally in early stages of development and
will require significant additional research and development, preclinical and
clinical testing and regulatory approval prior to commercialization. A number of
factors will impact the timing and ability of the Company to successfully
complete clinical trials for its products under development.
Before obtaining regulatory clearance for the commercial sale of any of
its products under development, the Company must demonstrate through preclinical
studies and clinical trials that the potential product is safe and efficacious
for use in humans for each target indication. Pharmacyclics has conducted and
plans to continue extensive and costly clinical trials to assess the safety and
efficacy of its potential products. There can be no assurance that the Company
will be permitted to undertake or continue its intended clinical trials for any
of its potential products or, if permitted, that such products will be
demonstrated to be safe and efficacious.
The rate of completion of the Company's clinical trials is dependent upon,
among other factors, the rate of patient enrollment. Patient enrollment is a
function of many factors, including the nature of the Company's clinical trial
protocols, existence of competing protocols, size and longevity of the target
patient population, proximity of patients to clinical sites and eligibility
criteria for the trials. There can be no assurance that the Company will obtain
adequate levels of patient enrollment in its clinical trials. Delays in planned
patient enrollment may result in increased costs, delays or termination of
clinical trials, which could have a material adverse affect on the Company. In
addition, the FDA may suspend clinical trials at any time if, among other
reasons, it concludes that patients participating in such trials are being
exposed to unacceptable health risks.
The Company also relies on third parties to assist the Company in
conducting, overseeing and monitoring its clinical trials. If such third parties
fail to perform under their agreements with the Company or fail to meet
regulatory standards in the performance of their obligations under such
agreements, such clinical trials may be delayed or halted. The Company's
reliance on assistance from third parties with respect to its clinical trials is
likely to increase as the Company expands the number and scope of its clinical
trials.
Additionally, demands on the Company's clinical staff have been increasing
and are expected to continue to increase as a result of later-stage clinical
trials of its products in development and its monitoring of additional Phase I
clinical trials of Gd-Tex and LUTRIN for various indications which are being
funded by the NCI. There can be no assurance that the Company will be able to
effectively oversee and monitor these multiple clinical trials. The Company's
inability to effectively manage multiple concurrent clinical trials would result
in increased costs or delays of the Company's clinical trials. There can be no
assurance that the Company will be able to complete the necessary data and
submit a NDA as scheduled even if clinical trials are completed or that such
application will be reviewed and cleared by the FDA in a timely manner, if at
all.
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Data obtained from preclinical studies and clinical trials of the products
under development by the Company are not necessarily indicative of results that
will be obtained from subsequent or more extensive preclinical studies and
clinical trials. Moreover, such data is susceptible to varying interpretations
which could delay, limit or prevent regulatory approval. In advanced clinical
development, numerous factors may be involved that may lead to different results
in larger, later-stage trials from those obtained in earlier-stage trials. A
number of companies in the pharmaceutical industry, including biotechnology
companies, have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials. The failure to adequately demonstrate
the safety and efficacy of a product under development could delay or prevent
regulatory clearance of the potential product and would have a material adverse
effect on the Company. There can be no assurance that the Company's clinical
trials will demonstrate the sufficient levels of safety and efficacy necessary
to obtain the requisite regulatory approval or will result in marketable
products.
NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that, if approved for marketing, any of the
Company's products under development will achieve market acceptance. The degree
of market acceptance will depend upon a number of factors, including the receipt
of regulatory approvals, the establishment and demonstration in the medical
community of the clinical efficacy and safety of the Company's product
candidates and their potential advantages over existing therapeutic products,
diagnostic and/or imaging techniques, and pricing and reimbursement policies of
government and third-party payers. There can be no assurance that physicians,
patients, payers or the medical community in general will accept and utilize any
products that may be developed by the Company.
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred significant operating losses since its inception
in April 1991 and, as of June 30, 1998, had an accumulated deficit of
approximately $47.9 million. The Company expects to continue to incur
significant operating losses over the next several years as it continues to
incur increasing costs of research and development, in addition to increasing
costs related to later stage clinical trials and manufacturing activities. The
Company's ability to achieve profitability is dependent upon its ability, alone
or with others, to successfully complete the development of its proposed
products, obtain the required regulatory clearances and manufacture and market
its proposed products. To date, the Company has not generated revenue from the
commercial sale of its products and does not expect to receive any such revenue
in the near future. All revenues to date have resulted primarily from
non-refundable license, contract research and development and milestone payments
and, to a lesser extent, funding from one government research grant.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVALS
The manufacture and marketing of the Company's products and its research
and development activities are subject to extensive regulation for safety,
efficacy and quality by numerous government authorities in the United States and
abroad. Before receiving FDA clearance to market a product, the Company will
have to demonstrate that the product is safe and effective on the patient
population that will be treated. Clinical trials, manufacturing and marketing of
products are subject to the rigorous testing and approval process of the FDA and
equivalent foreign regulatory authorities. The Federal Food, Drug and Cosmetic
Act and other federal and state statutes and regulations govern and influence
the testing, manufacture, labeling, advertising, distribution and promotion of
drugs and medical devices. As a result, clinical trials and regulatory approval
can take a number of years to accomplish and require the expenditure of
substantial resources. Data obtained from clinical trials are susceptible to
varying interpretations which could delay, limit or prevent regulatory
clearances. In addition, delays or rejections may be encountered based upon
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. Similar delays also may be
encountered in foreign countries. There can be no assurance that requisite FDA
approvals or those of foreign regulatory authorities will be obtained on a
timely basis, if at all, or that any approvals granted will cover the clinical
indications for which the Company may seek approval. Marketing or promoting a
drug for an unapproved indication is subject to very strict controls under The
Food and Drug Administration Modernization Act of 1997 (the "1997 FDA
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Act"). Furthermore, clearance may entail ongoing requirements for postmarketing
studies. The manufacture and marketing of drugs are subject to continuing FDA
and foreign regulatory review and later discovery of previously unknown issues
with a product, manufacturer or facility may result in restrictions, including
withdrawal of the product from the market. Failure to obtain or maintain
requisite governmental approvals, failure to obtain approvals of the clinically
intended uses or the identification of adverse side effects of the Company's
products under development could delay or preclude the Company from further
developing a particular product or from marketing its products, or could limit
the commercial use of its products, any of which would have a material adverse
effect on the Company's business, financial condition and results of operations.
Manufacturers of drugs also are required to comply with the applicable FDA
GMP regulations, which include requirements relating to quality control and
quality assurance as well as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to inspection by the FDA,
including unannounced inspection, and must be licensed before they can be used
in commercial manufacturing of the Company's products. There can be no assurance
that the Company or its present or future suppliers will be able to comply with
the applicable GMP regulations and other FDA regulatory requirements.
The Company may elect to seek approval of Gd-Tex and LUTRIN under the fast
track ("Fast Track") provisions codified in the 1997 FDA Act. Significant
uncertainty exists as to the extent to which such changes will result in
accelerated review and approval. Further, the FDA has not made available
comprehensive information with respect to the 1997 FDA Act and retains
considerable discretion to determine eligibility for Fast Track review and
approval. Accordingly, the FDA could employ such discretion to deny eligibility
of Gd-Tex or LUTRIN as a candidate for Fast Track review or to require
additional clinical trials or other information before approving either product.
A determination that Gd-Tex or LUTRIN is not eligible for accelerated review or
delays and additional expenses associated with generating a response to any such
request for additional trials could have a material adverse effect on the
Company.
In addition to the drug approval requirements applicable to the Company's
LUTRIN, ANTRIN and OPTRIN photosensitizer products for photodynamic therapy of
certain cancers, atherosclerosis and ARMD, the Company or its collaborators will
also need to obtain the approval of the FDA and other foreign regulatory
authorities for the laser, LEDs or associated light delivery devices used in
such treatments. Such device approval requires additional regulatory submissions
both by the Company or its collaborators and by the manufacturers of such
devices, which must include clinical data obtained from the use of such light
delivery devices, and may result in additional delays or difficulties in
obtaining approval for the use of LUTRIN, ANTRIN or OPTRIN as photosensitizers.
Manufacturers of such light delivery devices currently are under no obligation
to the Company to file or pursue such applications and any delay or refusal on
their part to do so could have a material adverse affect on the Company.
The Company submitted an NDA for GADOLITE in September 1995 and received
an "approvable" letter in December 1996 which included a number of issues that
must be addressed by the Company. The Company is in the process of addressing
these issues, which also require resolution of current manufacturing
uncertainties relating to GADOLITE. There can be no assurance that the FDA will
decide that the NDA satisfies the criteria for approval. In 1996, the Company
received approval from the Medicines Control Agency to market GADOLITE in the
United Kingdom. In April 1998, the Company received approval from the Health
Protection Branch of Health Canada to market GADOLITE in Canada. GADOLITE will
not be marketed in Europe or Canada until product manufacturing and product
stability issues are resolved. Although the process for regulatory approval in
Western Europe is similar to that in the United States, there are numerous and
sometimes unique risks associated with the approval of a marketing authorization
in Europe. There can be no assurance that authorization to market GADOLITE in
other member states would be granted under the European Union's mutual
recognition procedure.
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UNCERTAINTIES REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company believes its success depends upon, among other things, the
Company's ability to protect its intellectual property position. The Company,
therefore, aggressively pursues, prosecutes, protects and defends its patent
applications, issued patents, trade secrets, and licensed patent and trade
secret rights covering, e.g., compositions of matter, methods of use and
synthetic methodology relating to its products under development. As of June 30,
1998, the Company owns or has licensed various rights to patents and pending
applications in the U.S., Europe, Japan and elsewhere throughout the world. The
issued U.S. patents expire between 2006 and 2016. There can be no assurance that
the Company will have continued success in prosecuting its patent applications
or that patents will issue in respect of those patent applications. Even if
patents are issued and maintained, there can be no assurance that the patents
are or will be of adequate scope to benefit the Company, or that any such
patents would be upheld as valid and enforceable with respect to third parties.
Because there are a number of third-party patents issued and third-party
patent applications filed relating to biometallic and expanded porphyrin
chemistries, the Company believes there is some risk that current and potential
competitors and other third parties have filed or in the future will file
applications for, or have received or in the future will receive, patents and
will obtain additional proprietary rights relating to similar or even the same
compositions, methods, or designs of the Company or its products. It is
pertinent, however, that patents and patent applications owned or licensed by
the Company cover various aspects, ranging from base compositions, to methods of
manufacture, to processes for use and related applications, of the biometallic
and expanded porphyrin chemistries peculiar to the Company's products. In any
event, if any third-party patents include claims that are alleged to be
infringed and are upheld as valid and enforceable, the Company could nonetheless
be prevented from practicing the subject matter claimed in such patents, or
would be required to obtain licenses from the patent owners of each of such
patents or to redesign its products or processes to avoid infringement. There
can be no assurance that any such licenses would be available or, if available,
would be on terms acceptable to the Company, or that the Company would be
successful in any attempt to redesign its products or processes to avoid
infringement. Litigation or other legal proceedings may be necessary to defend
against claims of infringement, to enforce patents of the Company, or to protect
trade secrets, and could result in substantial cost to, and diversion of efforts
by, the Company.
The Company is aware of several U.S. patents owned or licensed to Schering
AG that relate to the use of agents that enhance MRI scans. The Company has
obtained opinions of special patent counsel that the technologies employed by
the Company for its imaging product under development and its therapeutic agent
that is detectable by MRI do not infringe the claims of such patents; however,
there can be no assurances that Schering would not allege infringement of one or
more of those patents. If infringement were alleged, a legal determination of
the infringement of any such patents by any Company product could have a
material adverse affect on the Company's business. Further, any allegation by
Schering of infringement of patent rights by the Company would likely result in
significant legal costs and require substantial management resources. Schering
has sent communications to the Company suggesting that GADOLITE may infringe
certain of such Schering patents. The Company is aware that Schering has
asserted patent rights against at least one other company in the contrast agent
imaging market and that a number of companies have entered into licensing
arrangements with Schering with respect to one or more of such patents. There
can be no assurance that the Company would be able to obtain a license from
Schering, if required. Even if a license could be obtained, there can be no
assurance that the Company would receive commercially reasonable terms.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. It is the Company's policy to require its employees, consultants and
advisors to execute appropriate confidentiality and assignment-of-inventions
agreements in connection with their employment, consulting or advisory
relationships with the Company. These agreements provide that all confidential
information developed by or made known to the individual during the course of
the individual's relationship with the Company is to be kept confidential and
not disclosed to third parties except in specific circumstances. The agreements
also provide that all inventions conceived by an employee (or consultant or
advisor to the extent appropriate for the services provided) during the course
of the relationship shall be the exclusive property of the Company, other than
inventions unrelated to the Company and developed entirely with the individual's
own time and resources. There can be no assurance that these agreements will not
be breached, and, in some instances, there may not be any appropriate remedy
available to the Company for breach of the
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agreements. Furthermore, no assurance can be given that competitors will not
independently develop substantially equivalent proprietary information and
techniques, reverse engineer such information and techniques, or otherwise gain
access to the Company's proprietary technology, or that the Company can
meaningfully protect the rights in unpatented proprietary technology.
DEPENDENCE UPON THIRD PARTIES
The Company is dependent upon third parties for support in product
development, manufacturing, marketing and distribution. Pursuant to its
collaboration with Nycomed, the Company is dependent upon Nycomed for a portion
of its LUTRIN development costs in the form of milestone payments, and for the
commercialization, when and if LUTRIN is approved, of this product outside the
United States, Canada and Japan. In the field of macular degeneration, the
Company is dependent upon Alcon for preclinical and clinical studies, regulatory
filings and sales and marketing of OPTRIN for ophthalmology indications
worldwide. The Company has entered into agreements with E-Z-EM, Ltd. and E-Z-EM,
Inc. for sales, marketing and distribution of GADOLITE in Europe and North
America. These agreements may be terminated by E-Z-EM, Alcon or Nycomed,
respectively, at their election. There can be no assurance that any of these
parties will fulfill their obligations in a manner that maximizes revenues for
the Company. The failure by the Company to receive milestone payments or any
reduction or discontinuance of efforts by the Company's partners or the
termination of these alliances could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is also dependent upon the NCI for the sponsoring and funding
of certain of the clinical trials of the Company's Gd-Tex radiation sensitizer
and LUTRIN photosensitizer products in development. There can be no assurance
that the NCI will enlist support for all such trials or that it will continue
its funding. If such trials are not supported by the NCI, the Company may be
required to fund its own continuation of such trials or reduce the number of
indications for which it would pursue clinical trials.
There can be no assurance that the Company will be successful in entering
into additional strategic alliances for the development or commercialization of
other product candidates, nor that any such alliances, if entered into, will be
on terms favorable to the Company or that they will ultimately be successful.
The Company has no expertise in the development of light sources and
associated light delivery devices required for the Company's photoangioplasty
and photodynamic therapy products under development. Successful development,
manufacturing, approval and distribution of the Company's photosensitization
products will require third party participation for the required light sources,
associated light delivery devices and other equipment. The Company currently
obtains lasers from Coherent Inc., Laserscope, Inc. and Diomed, Inc.; LEDs from
Quantum Devices, Inc.; and cylindrically diffusing light fibers from Rare Earth
Medical on a purchase order basis, and such entities are under no obligation to
continue to deliver light devices on an ongoing basis. Failure to maintain such
relationships may require the Company to develop additional supply sources which
may require additional regulatory approvals and could materially delay
commercialization of the Company's LUTRIN and ANTRIN products under development.
There can be no assurance that the Company will be able to establish or maintain
relationships with other supply sources on a commercially reasonable basis, if
at all, or that the enabling devices will receive regulatory approval for use in
photoangioplasty or photodynamic therapy.
LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE UPON CONTRACT MANUFACTURERS
The Company must manufacture its products in commercial quantities either
directly or through third parties, in compliance with regulatory requirements
and at an acceptable cost. Gd-Tex, LUTRIN, ANTRIN and OPTRIN bulk drug
substances are the subject of a manufacturing and supply agreement with
Celanese. The Company does not have its own manufacturing facilities. Supply
agreements are being negotiated with additional manufacturers who have the
ability to manufacture, fill, label and package such additional necessary
materials prior to commercial introduction of its products. There can be no
assurance that the Company will be able to enter into additional supply
agreements on commercially acceptable terms or with manufacturers who will be
able to deliver supplies in appropriate quantity and quality to meet commercial
demand or that third party manufacturers will perform their contractural
obligations. Any failure by these third parties to supply the Company's or the
NCI's requirements for clinical trial materials would have a material adverse
effect upon the completion of such trials and could therefore have a material
adverse effect on the Company.
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In September 1996, the Company entered into an agreement with
Hoechst Celanese Corporation, a manufacturer of chemicals and pharmaceutical
intermediates, for the process optimization, scale-up and supply of its
texaphyrin-based products. In October 1997, the Agreement was assigned to
Celanese, Ltd., in connection with HCC's corporate restructuring. The agreement
presently grants Celanese exclusive worldwide manufacturing rights and requires
Celanese to supply all of Pharmacyclics' requirements of Gd-Tex and lutetium
texaphyrin drug substance for late-stage clinical and commercial use. During the
fourth quarter of fiscal 1998, the Company received indications from Celanese,
that due to a change in its business focus, Celanese wishes to reduce the scope
of its obligations under the agreement. The Company and Celanese then initiated
discussions aimed at possible modifications to the Agreement to allow the
Company to purchase commercial material from additional sources while relieving
Celanese of certain obligations under the agreement. The Company believes it is
in its best interest to have multiple sources of drug substance and has
commenced efforts to identify multiple additional sources of bulk drug
substance. Such efforts are likely to consume time and expense and there can be
no assurance that the Company will be successful in obtaining additional
supplies of drug substance. Until such situation is resolved, the Company will
be subject to uncertainties regarding the willingness or ability of Celanese or
such additional suppliers to deliver bulk-drug substance for these products on a
timely or commercially attractive basis. The Company is engaged in preliminary
discussions with a number of manufacturers of parenteral products regarding
process development and validation, filling, labeling and packaging of the
finished dosage form of LUTRIN, ANTRIN and OPTRIN. A failure to successfully
complete any such agreement could, if the Company could not locate alternate
manufacturing capabilities, have a material adverse impact on the Company's
business, financial condition and results of operations. Prior to regulatory
approval of the Company's products under development, the Company intends to
negotiate supply agreements with manufacturers who will have the ability to
manufacture, fill, label and package such materials prior to commercial
introduction of such products. There are, however, only a limited number of
contract manufacturers that operate under current federal and state GMP
regulations and are capable of manufacturing the Company's products.
Accordingly, there can be no assurance that the Company will be able to enter
into supply agreements on commercially acceptable terms with manufacturers or
that the Company will enter into supply agreements with manufacturers who will
be able to deliver supplies in appropriate quantity and quality to develop and
commercialize its products. Any interruption of supply of its products could
have a material adverse effect on the Company's business, financial condition
and results of operations.
LACK OF MARKETING AND SALES EXPERIENCE
The Company currently does not have marketing, sales or distribution
experience. Therefore, to service markets in which it has retained sales and
marketing rights and in the event any of the above agreements is terminated, the
Company must develop a sales force with technical expertise. The Company does
not have any experience in developing, training or managing a sales force. The
Company will incur substantial additional expenses in developing, training and
managing such an organization. There can be no assurance that the Company will
be able to build such a sales force, that the cost of establishing such a sales
force will not exceed any product revenues, or that the Company's direct
marketing and sales efforts will be successful. In addition, the Company
competes with many other companies that currently have extensive and well-funded
marketing and sales operations. There can be no assurance that the Company's
marketing and sales efforts will compete successfully against such other
companies.
RAPID TECHNOLOGICAL CHANGE AND INTENSE COMPETITION
The pharmaceutical industry is subject to rapid and substantial
technological change. Technological competition in the industry from
pharmaceutical and biotechnology companies, universities, governmental entities
and others diversifying into the field is intense and is expected to increase.
Many of these entities have significantly greater research and development
capabilities than the Company, as well as substantially more marketing,
manufacturing, financial and managerial resources. These entities represent
significant competition for the Company. Acquisitions of, or investments in,
competing pharmaceutical or biotechnology companies by large corporations could
increase such competitors' financial, marketing, manufacturing and other
resources. The Company is a relatively new enterprise and is engaged in the
development of novel therapeutic
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technologies. As a result its resources are limited and it may experience
technical challenges inherent in such novel technologies. There can be no
assurance that developments of others will not render the Company's products
under development or technologies noncompetitive or obsolete, or that the
Company will be able to keep pace with technological developments or other
market factors Competitors have developed or are in the process of developing
technologies that are, or in the future may be, the basis for competitive
products. Some of these products may have an entirely different approach or
means of accomplishing similar therapeutic, diagnostic and/or imaging effects
than products being developed by the Company. The Company is aware that one of
its competitors in the market for photodynamic therapy drugs has received
marketing approval of a product for certain indications in the United States and
other countries. There can be no assurance that the Company's competitors will
not develop products that are safer, more effective or less costly than the
products developed by the Company and, therefore, present a serious competitive
threat to the Company's product offerings.
The medical indications for which the Company is developing its
therapeutic products can also be treated, in the case of cancer, by surgery,
radiation and chemotherapy, in the case of atherosclerosis, by surgery (e.g.,
bypass), angioplasty, atherectomy, the use of stents and drug therapy and in the
case of ARMD by laser photocoagulation. These treatments are widely accepted in
the medical community and have a long history of use. In addition, technological
advances with other therapies for cancer, atherosclerosis and ARMD could make
such other therapies more efficacious or cost-effective than Gd-Tex, LUTRIN,
ANTRIN or OPTRIN and could render the Company's technology noncompetitive or
obsolete. Also, there can be no assurance that physicians will use Gd-Tex as a
radiation sensitizer or chemosensitizer in cancer treatment, LUTRIN as a
photosensitizer in cancer treatment, ANTRIN as a photosensitizer in
photoangioplasty of atherosclerosis or OPTRIN as a photosensitizer in ARMD to
replace or supplement established treatments for such diseases or that the
therapeutic products the Company is developing will become competitive with
current or future treatments. Further, some companies developing photodynamic
therapy products are developing specialized light delivery devices for such
products, which, when integrated with their product offering, may afford them a
competitive advantage relative to the Company's strategy of sourcing such
devices from third parties.
FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ACCESS TO CAPITAL MARKETS
The Company has expended and will continue to expend substantial funds