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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Mark One
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File No. 0-19529
ALTEON INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3304550
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(State or other jurisdiction of incorporation or organization) ( I.R.S. Employer Identification No.)
170 Williams Drive, Ramsey, New Jersey 07446
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(Address of principal executive offices) (zip code)
(201) 934-5000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the equity stock held by
non-affiliates of the Registrant: $86,882,085 at March 17, 2000 based on the
last sales price on that date: $4.50.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of March 17, 2000:
Class Number of Shares
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Common Stock, $.01 par value 19,314,130
Documents incorporated by reference
The Proxy Statement to be filed with respect to the Annual Meeting of
Stockholders to be held on June 12, 2000 is incorporated by reference into Part
III.
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ITEM 1. BUSINESS.
OVERVIEW
Alteon is engaged in the discovery and development of new
pharmaceutical products for the treatment of cardiovascular and renal diseases
and other disorders of diabetes and aging. Alteon's proprietary technology
focuses on Advanced Glycosylation End-products, or A.G.E.s, which are abnormal
glucose/protein complexes that form as a result of circulating blood glucose
reacting with proteins.
A.G.E. complexes form continuously over time at a rate dependent upon
glucose levels, and subsequently cross-link to other proteins and ultimately
accumulate in various tissues, blood vessels, nerves and organs. As the rate of
accumulation increases, A.G.E. cross-linked proteins become rigid and
aggregated. It is this process which results in progressive loss of function in
these sites in the body. In healthy individuals this process occurs naturally,
though slowly, as the body ages. In diabetic patients, the rate of A.G.E.
accumulation and the extent of protein cross-linking is accelerated. The Company
believes that this is a major factor contributing to diabetic complications. The
Diabetes Control and Complications Trial ("DCCT"), a multi-center investigation
conducted under the auspices of the National Institutes of Health, demonstrated
that elevated blood glucose levels significantly increase the rate of
progression of eye, kidney, blood vessel and nerve complications from diabetes.
More than 50% of people with diabetes in the United States develop diabetic
complications that range from mild to severe.
Studies conducted in animal models at numerous independent institutions
worldwide suggest that A.G.E.s are responsible for diabetic complications
including kidney disease (nephrology), eye disease (retinopathy), nerve disease
(neuropathy) and hardening of the arteries (atherosclerosis). Moreover, a recent
Phase II/III human clinical study conducted by Alteon confirms that inhibiting
the progression of A.G.E.s in diabetic patients can have a significant impact on
proteinuria, cholesterol, triglycerides and retinopathy. Alteon believes that
certain complications, such as atherosclerosis, hypertension and the progressive
decline in renal function that eventually occur in non-diabetics, may also be
A.G.E.-related, as this pathological process is cumulative in effect over the
lifetime of any individual. Pre-clinical studies have also implicated A.G.E.s in
age-related disorders such as cardiovascular disease and Alzheimer's disease.
Alteon's current research and drug development focused on A.G.E.
technology takes three directions: the prevention or inhibition of A.G.E.
formation, the breaking of A.G.E. cross-links between proteins in order to
prevent or reverse damage, and the reduction of the A.G.E. burden through a
novel class of anti-hyperglycemic agents.
ALT-711 is Alteon's lead agent in a class of proprietary compounds
known as A.G.E. Crosslink Breakers. ALT-711 offers the possibility of the first
therapeutic approach to remove A.G.E. cross-links, and the potential to impact
or even reverse tissue damage caused by diabetes and aging. ALT-711 initially is
being developed for cardiovascular indications, but also has potential in a
number of other medical conditions. Alteon has completed a series of Phase I
safety testing of ALT-711, which is expected to enter Phase II trials by
mid-year 2000. Additional A.G.E. Crosslink Breaker compounds for a number of
other indications are under development. Alteon is exploring potential corporate
partnerships for this program. While Alteon plans to fund the Phase II trials,
additional funding will be required for additional trials and development of
ALT-711.
Alteon's lead A.G.E.-Formation Inhibitor, pimagedine, has completed a
Phase II trial in dyslipidemia and a Phase II/III pivotal "ACTION" (A Clinical
Trial In Overt Nephropathy) trial in Type 1 diabetic patients with overt
nephropathy. In the multi-center ACTION trial, pimagedine therapy did not reach
statistical significance in its primary endpoint, the time to doubling of serum
creatinine, but did result in a statistically significant and clinically
meaningful reduction of urinary protein excretion. Pimagedine also reduced, to a
statistically significant extent, cholesterol and triglycerides as well as the
progression of retinopathy. After discussion with the Food and Drug
Administration ("FDA") and with scientific and clinical advisors active in
nephrology research and treatment of renal disease, Alteon is actively exploring
potential corporate partnerships for the continued development of pimagedine,
both in the U.S. and abroad.
Alteon is also utilizing its technical expertise in the field of
diabetes to develop compounds focused on glucose regulation and control. These
anti-hyperglycemic compounds, or glucose lowering agents ("GLA"), are in
pre-clinical studies.
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TECHNOLOGY
The foundation for Alteon's technology is the experimental evidence
that intervention and treatment along the pathway towards A.G.E. cross-link
formation would be likely to provide significant benefit in slowing or reversing
the development of the serious pathologies that develop in the diabetic and
aging populations. ALT-711 and pimagedine are the lead compounds resulting from
Alteon's research in this field.
The following chart illustrates the process of A.G.E. formation and
cross-linking and is qualified by the more detailed description in the text. It
also highlights those areas within the A.G.E. cascade where Alteon is attempting
to offer chemical agents to intervene pharmaceutically.
[ NOTE: THE PRINTED COPY OF THIS FORM 10-K CONTAINS A ]
[ GRAPHICAL REPRESENTATION OF THE FOLLOWING. THE "I" ]
[ REPRESENT ARROWS POINTING FROM "GLUCOSE LOWERING ]
[ AGENTS" TO "GLUCOSE + PROTEINS," FROM "A.G.E. FORMATION INHIBITORS" ]
[ TO "A.G.E.S," AND FROM "A.G.E. CROSSLINK BREAKERS" TO ]
[ "CROSS-LINKED A.G.E.S" ]
ALTEON'S TECHNOLOGY PLATFORM AND PRODUCT PIPELINE
Glucose + Proteins ====> A.G.E.s ====> Cross-linked A.G.E.s
I I I
Glucose Lowering A.G.E.-Formation A.G.E.
Agents And Crosslink
I Cross-link Inhibitors Breakers
I I I
ALT-4037 PIMAGEDINE ALT-711
-------- ---------- -------
| | I | I
| | ALT-946 | ALT-1016
| | ------- | -------
Pre-Clinical Lead | | | |
Type II Diabetes | | | |
| Pre-Clinical | Pre-Clinical
| Lead | Lead
Phase II/III |
Diabetic Phase II Candidate
Kidney Cardiovascular
Disease Disease
A.G.E. CROSSLINK BREAKERS
Structural matrix proteins such as collagen and elastin play an
integral role in the maintenance of cardiovascular elasticity and wall
integrity. They are also prime targets for A.G.E. cross-linking. For example,
collagen isolated from tissues of diabetics and aged individuals is more highly
cross-linked than that isolated from non-diabetics or younger individuals.
Restriction of movement arising from A.G.E. cross-linking of matrix proteins
appears to impair normal functioning of contractile organs, such as blood
vessels and cardiac muscle, which are dependent on flexibility and
distensibility for normal function.
The Company initially is developing the A.G.E. Crosslink Breaker class
of compounds, specifically the lead compound, ALT-711, for cardiovascular
indications. Currently available antihypertensive agents improve arterial
compliance indirectly as they reduce the pressure burden on the vessel wall,
which results in a greater dynamic range of elasticity from the resting state.
This approach lowers peripheral resistance and/or intravascular circulating
volume, leading to a reduction in mean blood pressure. A current subject of
debate is whether any of the available drugs can increase arterial elasticity,
beyond what would be expected from restoring the dynamic range of the vessel
wall with a reduction in blood pressure alone. Pharmacologic intervention
targeting the stiffness of the
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cardiovascular system may decrease the incidence and severity of complications
such as congestive heart failure, myocardial ischemia and cerebrovascular
accidents.
Through its unique mechanism of action, ALT-711 is the first compound
that breaks A.G.E.-derived cross-links between proteins, both in vitro and in
vivo. In the case of collagen, ALT-711 does not disrupt the natural enzymatic
glycosylation sites or peptide bonds that are responsible for maintaining the
normal integrity of the collagen chain. Thus, normal structure and function is
preserved while abnormal cross-linking is reduced.
Studies in animal models in several laboratories around the world have
demonstrated rapid reversal of impaired cardiovascular functions with ALT-711.
In these pre-clinical models, ALT-711 reverses the stiffening of arteries as
well as stiffening of the heart that accompanies the development of diabetes and
aging.
The Company is also evaluating development of the breaker class for
several other indications where A.G.E.s and A.G.E. cross-linking lead to
abnormal function. Data from Phase I trials of ALT-711 suggest that Crosslink
Breakers may have an effect on soft tissue compliance in the bladder (for
treating urinary incontinence). The scientific literature also points to the
possible utility of breaker compounds in ophthalmic and dermatological
conditions, stiff joint disorders, and peritoneal dialysis. See "--ALT-711."
A.G.E.-FORMATION INHIBITORS
Alteon's most advanced therapeutic program has been in the development
of drugs that inhibit A.G.E. formation. These compounds are designed to prevent
the progression of major diabetic and age-related complications by blocking the
formation of A.G.E.s and subsequent cross-linking of A.G.E.s to other proteins.
Alteon's lead compound, pimagedine, has been shown to inhibit A.G.E. formation
and subsequent cross-link formation. Pimagedine is able to have a beneficial
impact on what is thought to be one of the earliest steps in the progression of
nephropathy in diabetic patients. Alteon believes that because pimagedine exerts
its activity by a mechanism uniquely different from currently available
therapies, its benefits will be over and above current standard treatment. Data
from the ACTION I trial of pimagedine suggest that other potential indications
for this compound include proteinuria and retinopathy.
Alteon has identified ALT-946 as a second-generation clinical lead in
the A.G.E. inhibitor category. Further development of the A.G.E. inhibitor class
of compounds is subject to further funding.
See "--Pimagedine Intravenous" and "Pimagedine Topical."
GLUCOSE LOWERING AGENTS
Alteon is also utilizing its technical expertise in the field of
diabetes to develop compounds focused on glucose regulation and control. These
anti-hyperglycemic compounds, or GLA, are in pre-clinical studies. Removing or
lessening the impact of hyperglycemia on the progression of the A.G.E Pathway
also would likely enhance the impact of inhibitors and breakers. With respect to
the cardiovascular arena, an agent that improves insulin responsiveness would
favorably impact the cardiovascular risk from chronic elevated serum
triglycerides and fatty acids.
The GLA Program arose from a search of plant-derived natural products
that would exhibit a beneficial profile of glucose and lipid lowering in animal
models of Type II diabetes. From the inception of this program, several
pre-clinical candidates have been evaluated that display these beneficial
properties. A lead pre-clinical candidate, ALT-4037, lowers glucose and lipids,
restores normal pancreatic sensing of glucose, stimulates greater production of
insulin, and restores insulin sensitivity in skeletal muscle and fat. Further
development of the GLA class of compounds is subject to further funding.
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PRODUCTS UNDER DEVELOPMENT
ALT-711 ORAL
Several classes of novel compounds have been identified which are
capable of breaking the cross-links formed as a result of A.G.E. accumulation.
These compounds are currently under evaluation in various pre-clinical models to
assess their potential for the treatment of a variety of diseases including
cardiovascular disease states and other conditions of soft tissue compliance.
A Phase I program of ALT-711, the Company's lead A.G.E. Crosslink
Breaker compound, was initiated in June 1998. The Phase I program consisted of
four trials, all conducted in Utrecht, The Netherlands. The first trial, a
placebo-controlled, double-blind, single and ascending dose study, enrolled 88
subjects, consisting of a younger cohort, aged 18 to 50 years, and an older
cohort, aged 55 to 75 years. A 14-day multiple dosing trial was then conducted
in 16 older (65 to 75 years) subjects. In the third trial of 12 subjects, aged
65 to 75 years, ALT-711 was administered in ascending doses every other day. In
the final Phase I study, the highest dose of ALT-711 was administered to 12
subjects, aged 65-75 years, over a consecutive 14-day period. Analyses of the
clinical and safety data of each Phase I study did not show any medically
relevant events.
Cardiovascular Disease. The Company's early clinical program on
treating cardiovascular disease is focused on ALT-711, an agent that cleaves the
A.G.E. cross-link that forms between structural matrix proteins such as collagen
and elastin, which play an important role in the maintenance of normal vessel
elasticity. Intervention targeting the stiffness of the cardiovascular system
may decrease the incidence and severity of complications such as congestive
heart failure, myocardial ischemia and cerebrovascular accidents.
Pre-clinical studies of ALT-711 conducted by researchers from The
National Institute on Aging and Johns Hopkins Geriatric Center demonstrated the
ability of the compound to significantly reduce arterial stiffness in elderly
Rhesus monkeys. In this primate study, administration of ALT-711 was found to
significantly reduce aortic stiffness by week 3 which persisted through week 8.
Baseline weight, fasting blood glucose, creatinine and cholesterol did not
change after treatment. In a recent pre-clinical study of ALT-711 in aged dogs,
administration of ALT-711 for one month resulted in an approximate 40% decrease
in age-related ventricular stiffness, or hardening. This decrease was
accompanied by an overall improvement in cardiac function. Reductions in blood
pressure that have been observed in animal models of diabetic hypertension
suggest that Crosslink Breakers also may prove beneficial in the treatment of
systolic hypertension in the elderly.
The Company has filed an investigational new drug application ("IND")
focused on vascular and ventricular compliance, and expects to initiate Phase II
trials of ALT-711 in 2000. Thereafter, subsequent development will require
additional funding.
Other Indications. A.G.E. cross-linking has been shown to affect soft
tissue compliance and interfere with the normal function of other organs of the
body. Early clinical experience in Phase I human studies of ALT-711 suggest that
urinary elastic dysfunction (leading to urinary incontinence) is a potential
therapeutic target. Based on pre-clinical studies, the Company may decide to
pursue additional therapeutic opportunities such as skin aging and
dermatological conditions, stiff joint disorders and peritoneal dialysis,
conditions where A.G.E. cross-linking has contributed to a loss of normal
function, elasticity and flexibility.
ALT-711 OPHTHALMIC
Ophthalmic Conditions. The Company is pursuing investigations into the
role of A.G.E. cross-linking in restricting the flow of fluid through the eye,
the consequence of which causes elevated intraocular pressure, which is central
to the development of glaucoma. Preliminary studies in aged primates demonstrate
a persistent improvement in fluid flow following a single intraocular injection
of ALT-711. In addition, pre-clinical research in diabetic models of retinopathy
demonstrates a reversal in the expression of vascular endothelial-derived growth
factor ("VEGF"). The elevated levels of VEGF receptors were also reduced,
suggesting the possible utility of ALT-711 in proliferative retinopathy.
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PIMAGEDINE ORAL
Alteon has conducted the following Phase II and Phase III trials on
pimagedine:
Overt Nephropathy. Kidney disease is a significant cause of morbidity
and mortality in patients with Type 1 and Type 2 diabetes. It is a chronic and
progressive disease. One of the early signs of kidney damage is microalbuminuria
(characterized by leakage of small amounts of protein into the urine) which
progresses to overt nephropathy (characterized by leakage of large amounts of
protein into the urine and ultimately to end-stage renal disease (advanced renal
disease requiring dialysis). Approximately 34% of patients with Type 1 diabetes
and approximately 10-15% of patients with Type 2 diabetes develop nephropathy.
As of 1995, there were approximately 1,000,000 diabetics diagnosed with kidney
disease in the United States.
The Company conducted a randomized double-blind, placebo-controlled,
multi-center, Phase II/III clinical trial to evaluate the safety and efficacy of
pimagedine in Type 1 diabetic patients with overt nephropathy, the ACTION I
trial. The trial was initiated in January 1994. The primary objective of the
trial was to evaluate the safety and efficacy of pimagedine in preserving renal
function in Type 1 patients. Enrollment in the trial was completed in August
1996 with 690 patients from 56 investigational sites in the United States and
Canada. Patients were treated for a minimum of two years and received twice
daily oral doses of pimagedine, adjusted for kidney function. Under this
protocol, pimagedine treatment was in addition to the best available therapeutic
regimen chosen by the treating physicians.
In November 1998, the Company announced results of an analysis of data
from the ACTION I trial. Although the results showed that pimagedine reduced the
risk of doubling of serum creatinine, the study's primary endpoint, the data did
not reach statistical significance. However, pimagedine therapy did result in a
statistically significant and clinically meaningful reduction of urinary protein
excretion. Pimagedine also reduced to a statistically significant extent,
cholesterol and triglycerides as well as the progression of retinopathy.
Additional data suggested a trend toward improvements in other measures of renal
function including estimated creatinine clearance and glomerular filtration
rate. The drug was generally well tolerated.
After discussion with medical and clinical consultants and the FDA,
Alteon is actively exploring potential corporate partnerships for the continued
development of pimagedine and expects to pursue development if funding is
obtained.
A second Phase III trial of pimagedine, in patients with Type 2
diabetes and overt nephropathy (ACTION II), was initiated in July 1995 and used
a trial design similar to the ACTION I trial. The objective of this study was to
evaluate the safety and efficacy of pimagedine in preserving renal function in
Type 2 patients. In March 1998, the Company discontinued this trial because of
an insufficient risk/benefit ratio based upon data then available.
End-Stage Renal Disease ("ESRD"). In January 1996, the Company
initiated a Phase II study to evaluate the safety and efficacy of pimagedine in
diabetic patients with ESRD on hemodialysis. This clinical trial enrolled
approximately 120 patients who received oral doses of pimagedine three times per
week in conjunction with their dialysis treatment. After the ACTION I results
were unblinded in November 1998, the Company evaluated this program as part of
its overall evaluation of further development of pimagedine and the trial was
ended in April 1999. Data from the study was inconclusive.
Dyslipidemia. In April 1997, Alteon and Gamida completed a randomized,
double-blind, placebo-controlled, Phase II clinical trial to evaluate the effect
of pimagedine on plasma lipid levels and A.G.E.s in patients with diabetes and
elevated serum cholesterol levels. Dyslipidemia is a condition characterized by
an abnormal lipid profile. The elevation of one lipid component, low-density
lipoprotein, is known to be a significant risk factor in cardiovascular disease.
Diabetic patients are twice as likely as non-diabetic individuals to die from
coronary artery disease, and the annual incidence of cardiovascular
complications is increased significantly in patients with Type 2 diabetes. This
Phase II clinical trial enrolled 89 patients in Israel who were treated for a
minimum of three months and who received twice daily oral doses of pimagedine,
adjusted for kidney function. The primary objective of this study was to
evaluate the safety and efficacy of pimagedine in reducing levels of low-density
lipoproteins ("LDLs") in Type 2 diabetic patients with varying degrees of renal
function and elevated LDLs.
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A comprehensive statistical report of the trial after audit of the
results concluded that lipid parameters between pimagedine and placebo treatment
arms showed steeper decreases in the pimagedine arm in almost all parameters and
in all populations. In cholesterol, triglycerides and very low-density
lipoproteins ("VLDL") the decreases were significant by "last observation
carried forward" analysis. In LDL, the decrease in the pimagedine group was
significant at the 8th week. While not an endpoint of the Israeli trial, albumin
in the urine was also reduced in patients identified as having albuminuria
(excretion of more than 30 mg of albumin in 24 hours).
At this time, the Company has no plans to develop pimagedine solely for
this indication.
PIMAGEDINE INTRAVENOUS
Stroke. Every year approximately 500,000 patients in the United States
suffer a stroke and approximately one-third of these individuals die, making
stroke the third leading cause of death by disease. According to the American
Heart Association, in 1994 the economic cost of stroke due to health care
expense and loss of productivity was estimated to be nearly $30 billion.
Individuals at increased risk for stroke include those with hypertension,
smokers, obese individuals, diabetics and those with hyperlipidemia. Currently,
several pharmaceutical and biopharmaceutical companies are conducting
pre-clinical studies and clinical trials on numerous compounds for the treatment
of stroke.
Animal studies have demonstrated that pimagedine, when given prior to
or after indication of stroke by occlusion of the middle cerebral artery,
reduced the volume of tissue death by 30%.
Alteon has completed acute toxicity studies in animals with an
intravenous formulation of pimagedine. The Company has filed an IND with the
FDA. Additional development of intravenous pimagedine will require additional
funding.
PIMAGEDINE TOPICAL
Inflammatory Skin Disease. Nitric oxide ("NO") has been shown to play a
role in the inflammatory disease process. Independent researchers have reported
that treatment with pimagedine reduces inflammation in specific pre-clinical
models. Pimagedine has also been shown to decrease the migration of macrophages
(inflammatory cells) to the site of tissue damage and prevent the release of
cytokines and consequent release of NO. Based on these findings, the Company
believes that pimagedine could have a beneficial effect in certain inflammatory
diseases such as contact dermatitis and eczema. Currently, topical steroids are
the treatment of choice for these indications but are contraindicated for
prolonged use. A topical formulation of pimagedine has been developed. The
Company has filed an IND for these indications. Additional development of
topical pimagedine will require additional funding.
ALT-4037
ALT-4037 has been identified as the pre-clinical lead in the Glucose
Lowering Agent class of compounds. ALT-4037 is a novel compound that lowers
blood glucose, triglycerides and free fatty acid levels in pre-clinical animal
models of Type 2 diabetes. Pre-clinical findings demonstrate an improvement in
pancreatic function following chronic dosing with ALT-4037. The Company has put
this research program on hold as it focuses its resources on the development of
the A.G.E. breaker class.
CORPORATE STRATEGIC ALLIANCES
Genentech, Inc.
In December 1997, Alteon and Genentech entered into a stock purchase
agreement and a development collaboration and license agreement providing for
the development and marketing of pimagedine and second-generation
A.G.E.-Formation Inhibitors. Pursuant to the stock purchase agreement Genentech
purchased $5,610,000 of Common Stock and $31,934,000 of Series G Preferred Stock
and Series H Preferred Stock for an aggregate purchase price of $37,544,000.
Genentech's obligations to purchase shares of Alteon's stock terminated
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December 31, 1998. Pursuant to a letter agreement dated February 11, 1999,
between Alteon and Genentech, the development collaboration and license
agreement terminated effective June 30, 1999.
Yamanouchi Pharmaceutical Co., Ltd.
In July 1989, Alteon and Yamanouchi entered into a series of agreements
pursuant to which the parties formed a strategic alliance to develop and
commercialize Alteon's A.G.E.-related technology in Japan, South Korea, Taiwan
and The People's Republic of China (the "Yamanouchi Territory"). Under this
arrangement, the parties agreed to collaborate on further research and
development, Yamanouchi purchased shares of Alteon stock and Alteon granted to
Yamanouchi an exclusive license to commercialize Alteon's technology in the
Yamanouchi Territory in exchange for royalty payments on net sales, if any.
Yamanouchi has the right to terminate the agreement upon 90 days' prior written
notice to Alteon. This license expires as to each product in each licensed
country upon the later of 15 years from the date of the agreement, the
expiration of the last patent applicable to the product or five years after the
first commercial sale of the product in the country.
Pursuant to the license agreement, Alteon granted Yamanouchi the right
to manufacture pimagedine bulk material for sale in the Yamanouchi Territory.
With respect to certain second-generation A.G.E.-Formation Inhibitors, Alteon
has the option to supply all of Yamanouchi's reasonable requirements of active
ingredient bulk materials for sale within the Yamanouchi Territory.
Alteon and Yamanouchi also entered into a research and development
collaboration agreement to provide for joint collaboration on further research
and development, specifically Alteon's A.G.E.-formation and protein
cross-linking technology. Yamanouchi also agreed to fund pre-clinical studies,
including most toxicology studies on pimagedine and any other products that the
parties jointly agree to develop including a second-generation A.G.E.-Formation
Inhibitor and a macrophage stimulator. The collaboration agreement provides that
any joint development program is terminable by either party upon 60 days' prior
written notice. The agreement terminated in June 1999. Since then the parties
have been in discussions regarding the continuation of their collaboration on
pimagedine.
Pursuant to the research and development collaboration agreement,
Yamanouchi provided financial support for most of the pre-clinical toxicity
studies and completed Phase I clinical trials on pimagedine in Japan.
Yamanouchi has not conducted Phase II clinical trials in Japan.
Roche Diagnostics
In December 1994, the Company entered into an exclusive licensing
arrangement with Roche for Alteon's technology for diagnostic applications.
Under this alliance, Alteon will be entitled to receive royalties based on net
sales of research and commercial assays developed by Roche and based on Alteon's
A.G.E. technology. Roche will receive exclusive worldwide rights to the
technology for diagnostic applications outside the Yamanouchi Territory.
Under the agreement, Roche has agreed to develop immunoassays to detect
A.G.E.-hemoglobin, ApoB-A.G.E. and A.G.E.-serum protein/peptides. Development of
reagents and formats for the A.G.E. competitive ELISA and a procedure for
measuring hemoglobin-A.G.E. was completed in 1998. Continuation of the program
to adapt these reagents to automated clinical assays is contingent upon FDA
approval of pimagedine and will advance along with any product launch of
pimagedine.
The agreement gives Roche discretion over commercial development. Roche
may terminate the license agreement upon 90 days' prior written notice.
Gamida
In November 1995, the Company entered into clinical testing and
distribution agreements with Gamida. Under these agreements, Gamida conducted,
at its own expense, a Phase II multi-site clinical trial in Israel, in
accordance with the protocol developed by Alteon, to evaluate pimagedine in
patients with diabetes and elevated serum cholesterol levels. Gamida will
receive the exclusive right to distribute pimagedine, if successfully developed
and approved for marketing, in Israel, Bulgaria, Cyprus, Jordan and South
Africa. The distribution agreement is for a term ending 10 years after the date
of regulatory approval for the sale of pimagedine in Israel; thereafter, it will
be
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automatically renewed for successive three-year periods unless terminated by
either party on the last day of the initial or renewal term.
IDEXX
In June 1997, Alteon entered into a license and supply agreement with
IDEXX pursuant to which Alteon licensed to IDEXX pimagedine as a potential
therapeutic in companion animals (dogs, cats and horses) and its A.G.E.
diagnostics technology for companion animal use. IDEXX will be responsible for
the development, licensing and marketing of pimagedine and A.G.E. diagnostics
for such use on a worldwide basis. Alteon will be entitled to receive milestone
payments and royalties on sales of the licensed products.
ACADEMIC RESEARCH AND LICENSE AGREEMENTS
Washington University, St. Louis
In June 1995, the Company obtained an exclusive, worldwide,
royalty-bearing license from Washington University for patents covering the use
of pimagedine as an inhibitor of inducible nitric oxide synthase ("iNOS"). The
agreement requires the Company to pay certain licensing fees upon the attainment
of development milestones as well as a royalty on net sales or a share of
sub-licensing profits on products covered by the patents. The license also
covers patents developed through any subsequent research collaboration between
the parties which Alteon agrees to fund.
Cerami Consulting Corporation and Warren Laboratories
Effective May 17, 1999, the Company terminated its consulting agreement
with Cerami Consulting Corporation and its research agreement with Kenneth S.
Warren Laboratories, Inc. The company retained the rights to results and
inventions resulting from these agreements.
The Rockefeller University
Pursuant to an agreement with Rockefeller University, Alteon has
exclusive, worldwide and perpetual rights to the technology and inventions
relating to A.G.E.s and other protein cross-linking, including those relating to
the complications of diabetes and aging. See "--Patents, Trade Secrets and
Licenses."
The Picower Institute for Medical Research
Pursuant to an agreement with The Picower Institute, a not-for-profit
biomedical science institution, the Company has received an exclusive worldwide,
royalty-bearing license for certain commercial health care applications of
A.G.E.-related inventions. See "--Patents, Trade Secrets and Licenses."
MANUFACTURING
The Company has no manufacturing facilities for either production of
bulk chemicals or the manufacturing of pharmaceutical dosage forms. The Company
relies on third party contract manufacturers to produce the raw materials and
chemicals used as the active drug ingredients in its pharmaceutical products and
to perform the tasks necessary to process, package and distribute these products
in finished form.
Such third party contractors will be inspected by the Company and its
consultants to confirm compliance with current Good Manufacturing Practice
("cGMP") required for pharmaceutical products. The Company believes it will be
able to obtain sufficient quantities of bulk chemical at reasonable prices to
satisfy anticipated needs. There can be no assurance, however, that the Company
can continue to meet its needs for supply of bulk chemicals or that
manufacturing limitations will not delay clinical trials or possible
commercialization. See "--Corporate Strategic Alliances."
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MARKETING AND SALES
Alteon plans to market and sell its products, if successfully developed
and approved, directly or through co-promotion or other licensing arrangements
with third parties. Such arrangements may be exclusive or nonexclusive and may
provide for marketing rights worldwide or in a specific market.
For certain of its products Alteon has licensed exclusive marketing
rights, formed joint marketing arrangements or granted distribution rights
within specified territories with its corporate partners, Yamanouchi, Roche,
Gamida, and IDEXX. See "--Corporate Strategic Alliances."
PATENTS, TRADE SECRETS AND LICENSES
Proprietary protection for the Company's product candidates, processes
and know-how is important to its business. Alteon aggressively files and
prosecutes patents covering its proprietary technology, and, if warranted, will
defend its patents and proprietary technology. As appropriate, the Company seeks
patent protection for its proprietary technology and products in the United
States and Canada and in key commercial European and Asia/Pacific countries. The
Company also relies upon trade secrets, know-how, continuing technological
innovation and licensing opportunities to develop and maintain its competitive
position.
Pimagedine is not a novel compound and is not protected by a
composition-of-matter patent. In 1992, a United States patent on the use of
pimagedine was issued to Rockefeller University and subsequently exclusively
licensed to Alteon with claims relating to the inhibition of A.G.E. formation.
The patent claims the new use of a known agent for the treatment of the
complications of diabetes and aging. In 1994, corresponding patents were granted
in France, Germany, Italy, the United Kingdom and other European countries. A
corresponding patent was issued in Japan in 1995. The Company continues to
pursue and patent chemical analogs of known A.G.E.-Formation Inhibitors, as well
as novel compounds having potential inhibitory properties.
Alteon has obtained several patents covering certain novel compounds in
the A.G.E. Crosslink Breaker category. These patents and additional patent
applications contain compound, composition and method of treatment claims for
several chemical classes of Crosslink Breaker compounds. The novel compounds
have the ability to break what were previously believed to be permanent,
A.G.E.-mediated bonds between proteins. The use of these compounds offers the
possibility of the first therapeutic approach to the removal of A.G.E.
cross-links.
The Company believes that its licensed and owned patents provide a
substantial proprietary base that will allow Alteon and its collaborative
partners to commercialize products in this field. There can be no assurance,
however, that pending or future applications will issue, that the claims of any
patents which do issue will provide any significant appreciation of the
Company's technology, or that the Company's directed discovery research will
yield compounds and products of therapeutic and commercial value.
In 1987, the Company acquired an exclusive, royalty-free, worldwide
license (including the right to sub-license to others) to issued patents, patent
applications and trade secrets from Rockefeller University relating to the
A.G.E.-formation and cross-linking technology currently under development at
Alteon. The inventors of the patented technology include Drs. Michael A.
Brownlee, Anthony Cerami, Helen Vlassara and Peter C. Ulrich. Additional patent
applications have since been filed on discoveries made in support of the
technology from research conducted at Rockefeller University, The Picower
Institute and the Company's laboratories.
Pursuant to the Company's agreement with The Picower Institute, certain
patentable inventions and discoveries relating to A.G.E. technology have been
licensed exclusively to the Company. In consultation with the Company, The
Picower Institute is responsible for the worldwide filing and prosecution of
patent applications and maintenance of patents for such inventions. Alteon will
contribute 50% of the cost of such activities.
As of December 31, 1999, the Company's patent estate of owned and/or
licensed patent rights consisted of 100 issued patents or allowed United States
patent applications, none of which expire prior to 2005, and 23 pending patent
applications in the United States, the majority of which are A.G.E.-related.
Included in Alteon's patent estate are two issued United States patents on the
use of pimagedine for inhibition of iNOS, licensed from Washington
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University. Alteon also owns or has exclusive rights to over 25 issued or
granted non-United States patents and has over 70 patent applications pending in
Europe, Japan, Australia and Canada.
The Company intends to continue to focus its research and development
efforts on the synthesis of novel compounds and on the search for additional
therapeutic applications to expand and broaden the Company's rights within its
technological and patent base. The Company is also prepared to in-license
additional technology that may be useful in building its proprietary position.
Where appropriate, the Company utilizes trade secrets and unpatentable
improvements to enhance its technology base and improve its competitive
position. Alteon requires all employees, scientific consultants and contractors
to execute confidentiality agreements as a condition of engagement by the
Company. There can be no assurance, however, that the Company can limit
unauthorized or wrongful disclosures of unpatented trade secret information.
The Company believes that its estate of licensed and owned issued
patents, if upheld, and pending applications, if granted and upheld, will be a
substantial factor in the Company's success. The patent positions of
pharmaceutical firms, including Alteon, are generally uncertain and involve
complex legal and factual questions. Consequently, even though Alteon is
currently prosecuting such patent applications in the United States and foreign
patent offices, the Company does not know whether any of such applications will
result in the issuance of any additional patents or, if any additional patents
are issued, whether the claims thereof will provide significant proprietary
protection or will be circumvented or invalidated.
Competitors or potential competitors have filed for or have received
United States and foreign patents and may obtain additional patents and
proprietary rights relating to compounds or processes competitive with those of
the Company. Accordingly, there can be no assurance that the Company's patent
applications will result in patents being issued or that, if issued, the claims
of the patents will afford protection against competitors with similar
technology; nor can there be any assurance that others will not obtain patents
that the Company would need to license or circumvent. See "--Competition."
The Company's success will depend, in part, on its ability to obtain
patent protection for its products, preserve its trade secrets and operate
without infringing on the proprietary rights of third parties. There can be no
assurance that the Company's current patent estate will enable the Company to
prevent infringement by third parties or that competitors will not develop
competitive products outside the protection that may be afforded by the claims
of such patents. To the extent the Company relies on trade secrets and
unpatented know-how to maintain its competitive technological position, there
can be no assurance that others may not develop independently the same or
similar technologies. Failure to maintain its current patent estate or to obtain
requisite patent and trade secret protection, which may become material or
necessary for product development, could delay or preclude the Company or its
licensees or marketing partners from marketing their products and could thereby
have a material adverse effect on the Company's business, financial condition
and results of operations.
GOVERNMENT REGULATION
The Company and its products are subject to comprehensive regulation by
the FDA in the United States and by comparable authorities in other countries.
These national agencies and other federal, state and local entities regulate,
among other things, the pre-clinical and clinical testing, safety,
effectiveness, approval, manufacturing, labeling, marketing, export, storage,
record keeping, advertising and promotion of the Company's products.
The process required by the FDA before the Company's products may be
approved for marketing in the United States generally involves (i) pre-clinical
new drug laboratory and animal tests, (ii) submission to the FDA of an IND,
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 drug for its intended indication, (iv) submission to the FDA of an NDA, and
(v) FDA review of the NDA in order to determine, among other things, whether the
drug is safe and effective for its intended uses. There is no assurance that the
FDA review process will result in product approval on a timely basis, if at all.
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Pre-clinical tests include laboratory evaluation of product chemistry
and formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Certain pre-clinical tests are subject to FDA
regulations regarding current Good Laboratory Practices. The results of the
pre-clinical tests are submitted to the FDA as part of an IND and are reviewed
by the FDA prior to the commencement of clinical trials or during the conduct of
the clinical trials, as appropriate.
Clinical trials are conducted under protocols that detail such matters
as the objectives of the study, the parameters to be used to monitor safety and
the efficacy criteria to be evaluated. Each protocol must be submitted to the
FDA as part of the IND. Further, each protocol must be reviewed and approved by
an institutional review board.
Clinical trials are typically conducted in three sequential phases,
which may overlap. During Phase I, when the drug is initially given to human
subjects, the product is tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion. Phase II involves studies in a limited
patient population to (i) evaluate preliminarily the efficacy of the product for
specific, targeted indications, (ii) determine dosage tolerance and optimal
dosage, and (iii) identify possible adverse effects and safety risks. Phase III
trials are undertaken in order to further evaluate clinical efficacy and to
further test for safety within an expanded patient population. The FDA may
suspend clinical trials at any point in this process if it concludes that
clinical subjects are being exposed to an unacceptable health risk.
FDA approval of the Company's products, including a review of the
manufacturing processes and facilities used to produce such products, will be
required before such products may be marketed in the United States. The process
of obtaining approvals from the FDA can be costly, time consuming and subject to
unanticipated delays. There can be no assurance that approvals of the Company's
proposed products, processes, or facilities will be granted on a timely basis,
if at all. Any delay or failure to obtain such approvals would have a material
adverse effect on the Company's business, financial condition and results of
operations. Moreover, even if regulatory approval is granted, such approval may
include significant limitations on indicated uses for which a product could be
marketed.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's manufacturing procedures conform to cGMP
requirements, which must be followed at all times. In complying with those
requirements, manufacturers (including a drug sponsor's third party contract
manufacturers) must continue to expend time, money and effort in the area of
production and quality control to ensure compliance. Domestic manufacturing
establishments are subject to periodic inspections by the FDA in order to
assess, among other things, cGMP compliance. To supply a product for use in the
United States, foreign manufacturing establishments must comply with cGMP and
are subject to periodic inspection by the FDA or by regulatory authorities in
certain of such countries under reciprocal agreements with the FDA.
Both before and after approval is obtained, a product, its
manufacturer, and the holder of the NDA for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements at any
stage, including the pre-clinical and clinical testing process, the approval
process, or thereafter (including after approval) may result in various adverse
consequences, including the FDA's delay in approving or refusal to approve a
product, withdrawal of an approved product from the market, and/or the
imposition of criminal penalties against the manufacturer and/or NDA holder. In
addition, later discovery of previously unknown problems may result in
restrictions on such product, manufacturer, or NDA holder, including withdrawal
of the product from the market. Also, new government requirements may be
established that could delay or prevent regulatory approval of the Company's
products under development.
The FDA has implemented accelerated approval procedures for certain
pharmaceutical agents that treat serious or life-threatening diseases and
conditions, especially where no satisfactory alternative therapy exists. The
Company cannot predict the ultimate impact, however, of the FDA's accelerated
approval of procedures on the timing or likelihood of approval of any of its
potential products or those of any competitor. In addition, the approval of a
product under the accelerated approval procedures may be subject to various
conditions, including the requirement to verify clinical benefit in
post-marketing studies, and the authority on the part of the FDA to withdraw
approval under streamlined procedures if such studies do not verify clinical
benefit.
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For marketing outside the United States, the Company will be subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and diagnostic products. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. The Company does not currently have any
facilities or personnel outside of the United States.
In addition to regulations enforced by the FDA, the Company also is
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local regulations. The Company's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company.
COMPETITION
A number of companies are pursuing the research and development of
pharmaceutical agents to treat cardiovascular and renal disease and other
disorders of diabetes and aging. The Company is not aware of any other
pharmaceutical company developing an A.G.E.-Formation Inhibitors that has
reached the clinical development stage of demonstrating efficacy with a relevant
physiological endpoint. The Company has no knowledge of any company pursuing a
product to break cross-linked A.G.E. proteins. Conversely, Alteon is aware of
many companies which are pursuing research and development of compounds for the
lowering of glucose levels, for cardiovascular and renal diseases, and the
selective inhibition if iNOS.
Many of the Company's potential competitors have substantially greater
financial, technical and human resources than the Company and may be better
equipped to develop, manufacture and market products. In addition, many of these
companies have extensive experience in pre-clinical testing and human clinical
trials. These companies may develop and introduce products and processes
competitive with or superior to those of the Company.
The Company's competition will be determined in part by the potential
indications for which the Company's compounds are developed and ultimately
approved by regulatory authorities. For certain of the Company's potential
products, an important factor in competition may be the timing of market
introduction of its or its competitors' products. Accordingly, the relative
speed with which Alteon can develop products, complete the clinical trials and
approval processes and supply commercial quantities of the products to the
market are important competitive factors. The Company expects that competition
among products approved for sale will be based on, among other things, product
efficacy, safety, reliability, availability, price and patent position.
Competitive drugs based on other therapeutic mechanisms may be
efficacious in treating diabetic complications. The development by others of
non-A.G.E.-related treatment modalities for these diabetic and/or other
age-related complications could render pimagedine and other Alteon products in
the diabetic field non-competitive or obsolete. Therapeutic approaches being
pursued include curing diabetes via gene therapy or islet cell transplantation,
as well as pharmaceutical intervention with agents such as the aldose reductase
inhibitors.
Results of the DCCT showed that tight glucose control reduced the
incidence of diabetic complications. Numerous companies are pursuing other
methods to manage glucose control and to reduce the incidence of diabetic
complications. In addition, several companies have initiated research with drugs
that inhibit vascularization as a potential treatment of diabetic retinopathy.
In the event one or more of these initiatives are successful, the market for
some of the Company's products may be reduced or eliminated.
The treatment of diabetic complications with use of existing agents
such as lipid lowering agents or A.C.E. inhibitors also appears beneficial. The
A.C.E. inhibitor, captopril, has been approved by the FDA for patients with
diabetic nephropathy. Alteon's clinical trials were designed assuming patients'
baseline therapy would include A.C.E. inhibitor treatment. The patent covering
captopril expired in March 1996. Other pharmaceutical companies have chosen to
market and sell this drug, which has led to a significant decrease in its price.
Sales of captopril may reduce or eliminate the market for any product developed
by the Company for this indication.
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In addition, a broad range of cardiovascular drugs is under
development, which could reduce or eliminate the market for any cardiovascular
product developed by the Company.
The Company's competitive position also depends upon its ability to
attract and retain qualified personnel, obtain protection or otherwise develop
proprietary products or processes and secure sufficient capital resources.
MEDICAL AND CLINICAL ADVISORS
The Company's Medical and Clinical Advisors consist of individuals with
recognized expertise in the medial and pharmaceutical science and related fields
who advise the Company about present and long-term scientific planning, research
and development. These advisors consult and meet with Company management
informally on a frequent basis. All advisors are employed by employers other
than the Company and may have commitments to, or consulting or advisory
agreements with, other entities that may limit their availability to the
Company. These companies may also be competitors of Alteon. The advisors have
agreed, however, not to provide any services to any other entities that might
conflict with the activities that they provide. Each member also has executed a
confidentiality agreement for the benefit of the Company.
The following persons are Medical and Clinical Advisors:
Michael A. Brownlee, M.D., Anita and Jack Saltz Professor of Diabetes
Research, Departments of Medicine and Pathology, Albert Einstein
College of Medicine.
Jay N. Cohn, M.D., Professor of Medicine, University of Minnesota
Medical School; immediate Past-President of the International Society
of Hypertension.
Richard J. Glassock, M.D., MACP, Professor Emeritus, UCLA School of
Medicine; Past-President, National Kidney Foundation; Past-President,
American Society of Nephrology.
Jan Lessem, M.D., Ph.D., FACC, Chief Medical Officer and Vice
President, Clinical Research and Development, OraPharma, Inc.; former
Vice President and Corporate Officer, Drug Strategy and Medical
Director, Takeda America, Inc.; Director of Clinical Investigations,
SmithKline Beecham Pharmaceuticals.
Seth A. Rudnick, M.D., Venture Partner, Caanan Partners; former
Chairman, President and CEO, CytoTherapeutics, Inc..
Mark E. Williams, M.D., Director of Dialysis, Joslin Diabetes Center;
Chairman, National Scientific Council on Diabetic Kidney Disease,
National Kidney Foundation.
EMPLOYEES
As of March 15, 2000, Alteon employed 20 persons (6 of whom held a
Ph.D., M.D. or other advanced degree), of whom 7 were engaged in research and
development and 13 were engaged in administration and management. Alteon
believes that it has been successful in attracting skilled and experienced
personnel. None of the Company's employees are covered by collective bargaining
agreements and all employees are covered by confidentiality agreements. The
Company believes that its relationship with its employees is good.
FORWARD-LOOKING STATEMENTS
Statements in this Form 10-K that are not statements or descriptions of
historical facts are "forward-looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by the Company or its representatives are based on a number of
assumptions. The words "believes," "expects," "anticipates," "intends,"
"estimates" or other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking
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statements as they involve risks and uncertainties, and actual results could
differ materially from those currently anticipated due to a number of factors,
including those set forth in this section and elsewhere in, or incorporated by
reference into, this Form 10-K. These factors include, but are not limited to,
the risks set forth below. The forward-looking statements represent the
Company's judgment and expectations as of the date of this Report. The Company
assumes no obligation to update any such forward-looking statements.
Alteon may not be able to obtain sufficient additional funding to meet
its needs or to allow it to continue the research, product development,
pre-clinical testing and clinical trials of its product candidates.
Alteon anticipates that its existing available cash and cash
equivalents and short-term investments will be adequate to satisfy its working
capital requirements for its current and planned operations into 2001. Alteon
will require substantial new funding in order to continue the research, product
development, pre-clinical testing and clinical trials of its product candidates,
including ALT-711 and pimagedine. The Company will also require additional
funding for operating expenses, the pursuit of regulatory approvals for its
product candidates and the establishment of marketing and sales capabilities.
The Company's future capital requirements will depend on many factors, including
continued scientific progress in its research and development programs, the size
and complexity of these programs, progress with pre-clinical testing and
clinical trials, the time and costs involved in obtaining regulatory approvals,
the costs involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the establishment of additional
collaborative arrangements, the cost of manufacturing arrangements,
commercialization activities, and the cost of product in-licensing and strategic
acquisitions, if any. There can be no assurance that the Company's cash reserves
and other liquid assets, including funding that may be received from the
Company's corporate partners and equity sales and interest income earned
thereon, will be adequate to satisfy its capital and operating requirements.
Alteon intends to seek funding initially through arrangements with
corporate collaborators. It may in the future seek funding through public or
private sales of the Company's securities, including equity securities, when and
if conditions permit. In addition, the Company may pursue opportunities to
obtain debt financing, including capital leases, in the future. There can be no
assurance, however, that additional funding will be available on reasonable
terms, if at all. Any additional equity financing would be dilutive to the
Company's stockholders. If adequate funds are not available, Alteon may be
required to curtail significantly or eliminate one or more of its research and
development programs. If Alteon obtains funds through arrangements with
collaborative partners or others, it may be required to relinquish rights to
certain of its technologies or product candidates.
Alteon may not successfully develop or derive revenues from any products.
All of the Company's product candidates are in the research or
development stage, and all revenues to date have been generated from
collaborative research agreements and financing activities, or interest income
earned on these funds. No revenues have been generated from product sales. There
can be no assurance that product revenues can be realized on a timely basis, if
at all.
Alteon has not yet requested or received regulatory approval for any
product from the FDA or any other regulatory body. Before obtaining regulatory
approvals for the commercial sale of any of its products under development, the
Company must demonstrate through pre-clinical studies and clinical trials that
the product is safe and effective for use in each target indication. The results
from pre-clinical studies and early clinical trials may not be predictive of
results that will be obtained in large-scale testing, and there can be no
assurance that any clinical trials undertaken by the Company will demonstrate
sufficient safety and efficacy to obtain the requisite regulatory approvals or
will result in marketable products.
There can be no assurance that Alteon will succeed in the development
and marketing of any therapeutic or diagnostic product. To achieve profitable
operations, the Company must, alone or with others, successfully identify,
develop, introduce and market proprietary products. Such products will require
significant additional investment, development and pre-clinical and clinical
testing prior to potential regulatory approval and commercialization.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Potential products may be found ineffective or cause harmful side
effects during pre-clinical
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testing or clinical trials, fail to receive necessary regulatory approvals, be
difficult to manufacture on a large scale, be uneconomical, fail to achieve
market acceptance or be precluded from commercialization by proprietary rights
of third parties. There can be no assurance that the Company will undertake
additional clinical trials or that the Company's product development efforts
will be successfully completed, that required regulatory approvals can be
obtained or that any products, if introduced, will be successfully marketed or
achieve customer acceptance. Commercial availability of any Alteon products,
including ALT-711 and pimagedine, is not expected for a number of years, if at
all.
Alteon may never generate profits.
At December 31, 1999, the Company had an accumulated deficit of
$121,496,049. The Company anticipates that it will incur substantial,
potentially greater losses in the future. There can be no assurance that the
Company's products under development will be successfully developed or that its
products, if successfully developed, will generate revenues sufficient to enable
the Company to earn a profit. Alteon expects to incur substantial additional
operating expenses over the next several years as its research, development and
clinical trial activities increase. Alteon does not expect to generate revenues
from the sale of products, if any, for a number of years. The Company's ability
to achieve profitability depends in part on its ability to enter into agreements
for product development, obtain regulatory approval for its products and develop
the capacity, or enter into agreements, for the manufacture, marketing and sale
of any products. There can be no assurance that Alteon will obtain required
regulatory approvals, or successfully develop, manufacture, commercialize and
market product candidates or that the Company will ever achieve product revenues
or profitability.
The Company may not be able to form and maintain collaborative
relationships which its business strategy requires.
The Company's strategy for development and commercialization of certain
of its products is dependent upon entering into various arrangements with
research collaborators, corporate partners and others and upon the subsequent
success of these third parties in performing their obligations.
Alteon has established collaborative arrangements with Yamanouchi,
Roche, IDEXX and Gamida with respect to the development of drug therapies and
diagnostics utilizing the Company's scientific platforms. Alteon is seeking to
establish new collaborative relationships to provide the funding necessary for
continuation of its product development but there can be no assurance that such
effort will be successful. The Company will, in some cases, be dependent upon
these outside partners to conduct pre-clinical testing and clinical trials and
to provide adequate funding for the Company's development programs. Under
certain of these arrangements, the Company's corporate partners may have all or
a significant portion of the development and regulatory approval
responsibilities. Failure of the corporate partners to develop marketable
products or to gain the appropriate regulatory approvals on a timely basis, if
at all, would have a material adverse effect on the Company's business,
financial condition and results of operations.
In most cases, the Company cannot control the amount and timing of
resources that its corporate partners devote to the Company's programs or
potential products. If any of the Company's corporate partners breach or
terminate their agreements with the Company or otherwise fail to conduct their
collaborative activities in a timely manner, the pre-clinical or clinical
development or commercialization of product candidates or research programs will
be delayed, and the Company will be required to devote additional resources to
product development and commercialization or terminate certain development
programs. The termination of collaborative arrangements would have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that disputes will not arise in the future
with respect to the ownership of rights to any technology developed with
third-parties. These and other possible disagreements between collaborators and
the Company could lead to delays in the collaborative research, development or
commercialization of certain product candidates or could require or result in
litigation or arbitration, which would be time-consuming and expensive and would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Alteon's corporate partners may develop, either alone or with others,
products that compete with the development and marketing of the Company's
products. Competing products, either developed by the corporate partners or to
which the corporate partners have rights, may result in their withdrawal of
support with respect to all
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or a portion of the Company's technology, which would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company may not be able to protect the proprietary rights that are
critical to its success.
The Company's success will depend on its ability to obtain patent
protection for its products, preserve its trade secrets, prevent third parties
from infringing upon its proprietary rights and operate without infringing upon
the proprietary rights of others, both in the United States and abroad.
The degree of patent protection afforded to pharmaceutical inventions
is uncertain and the Company's potential products are subject to this
uncertainty. Pimagedine is not a novel compound and is not covered by a
composition-of-matter patent. The patents covering pimagedine are use patents
containing claims covering therapeutic indications and the use of specific
compounds and classes of compounds to inhibit A.G.E. formation. Use patents may
afford a lesser degree of protection in certain foreign countries due to their
patent laws. Competitors may develop and commercialize pimagedine or
pimagedine-like products for indications outside of the protection provided by
the claims of the Company's use patents. Physicians, pharmacies and wholesalers
could then substitute for the Company's pimagedine products. Substitution for
the Company's pimagedine products would have a material adverse effect on the
Company's business, financial condition and results of operations.
ALT-711 is a novel compound protected by a composition-of-matter
patent, and the Company has several patent applications pending to protect
proprietary technology and potential products. There can be no assurance,
however, that these patents will provide any significant protection of the
Company's technology or products, or that the Company will enjoy any patent
protection beyond the expiration dates of its currently issued patents.
There can be no assurance that competitors will not develop competitive
products to pimagedine and/or ALT-711 outside the protection that may be
afforded by the claims of the Company's patents. The Company is aware that other
parties have been issued patents and have filed patent applications in the
United States and foreign countries with respect to other agents which impact
A.G.E. or A.G.E. cross-link formation.
The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to maintain, develop
and expand its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its corporate partners, collaborators, employees
and consultants. The Company also has invention or patent assignment agreements
with its employees and certain, but not all, corporate partners and consultants.
There can be no assurance that relevant inventions will not be developed by a
person not bound by an invention assignment agreement. There can be no assurance
that binding agreements will not be breached, that the Company would have
adequate remedies for such breach, or that the Company's trade secrets will not
otherwise become known to or be independently discovered by competitors.
The Company cannot be certain that regulatory approvals will be obtained
for its products.
Alteon's research, pre-clinical testing and clinical trials of its
product candidates are, and the manufacturing and marketing of its products will
be, subject to extensive and rigorous regulation by numerous governmental
authorities in the United States and in other countries where the Company
intends to test and market its product candidates.
Prior to marketing, any product developed by the Company must undergo
an extensive regulatory approval process. This regulatory process, which
includes pre-clinical testing and clinical trials, and may include
post-marketing surveillance, of each compound to establish its safety and
efficacy, can take many years and can require the expenditure of substantial
resources. Data obtained from pre-clinical and clinical activities are
susceptible to varying interpretations which could delay, limit or prevent
regulatory approval. In addition, delays or rejections may be encountered based
upon changes in FDA policy for drug approval during the period of product
development and FDA regulatory review of each submitted NDA. Similar delays may
also be encountered in foreign countries. There can be no assurance that
regulatory approval will be obtained for any drugs developed by the Company.
Moreover, regulatory approval may entail limitations on the indicated uses of
the drug. Further, even if regulatory approval is obtained, a marketed drug and
its manufacturer are subject to continuing review and discovery of previously
unknown problems with a product or manufacturer which may have adverse effects
on the
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Company's business, financial condition and results of operations, including
withdrawal of the product from the market. Violations of regulatory requirements
at any stage, including pre-clinical testing and clinical trials, the approval
process or post-approval, may result in various adverse consequences including
the FDA's delay in approving, or its refusal to approve, a product withdrawal of
an approved product from the market and the imposition of criminal penalties
against the manufacturer and NDA holder. None of the Company's products have
been approved for commercialization in the United States or elsewhere. No
assurance can be given that the Company will be able to obtain FDA approval for
any products. Failure to obtain requisite governmental approvals or failure to
obtain approvals of the scope requested will delay or preclude the Company or
its licensees or marketing partners from marketing the Company's products or
limit the commercial use of such products and will have a material adverse
effect on the Company's business, financial condition and results of operations.
There is intense competition for cures and therapies for diabetes,
cardiovascular diseases and the other conditions for which the Company seeks to
develop products.
The Company is engaged in pharmaceutical fields characterized by
extensive research efforts and rapid technological progress. Many established
pharmaceutical and biotechnology companies with resources greater than those of
the Company are attempting to develop products that would be competitive with
the Company's products. Other companies may succeed in developing products that
are safer, more efficacious or less costly than any that may be developed by
Alteon and may also be more successful than Alteon in production and marketing.
Rapid technological development by others may result in the Company's products
becoming obsolete before the Company recovers a significant portion of the
research, development or commercialization expenses incurred with respect to
those products.
Certain technologies under development by other pharmaceutical
companies could result in a cure for diabetes or the reduction of the incidence
of diabetes and its complications. For example, a number of companies are
investigating islet cell transplantation as a possible cure for Type I diabetes.
Results of a study conducted by the National Institutes of Health, known as the
DCCT, published in 1993, showed that tight glucose control reduced the incidence
of diabetic complications. Numerous companies are pursuing methods to control
glucose levels. In addition, several large companies have initiated or expanded
research, development and licensing efforts to build a diabetic pharmaceutical
franchise focusing on diabetic nephropathy, neuropathy, retinopathy and related
conditions. An example of this is research seeking anti-angiogenesis drugs for
the potential treatment of diabetic retinopathy. Furthermore, the Company is
aware of several pharmaceutical companies that are developing and marketing
thiazolidinedione derivatives ("glitazones") for the treatment of Type II
diabetes. It is possible that one or more of these initiatives may reduce or
eliminate the market for some of the Company's products.
In addition, a broad range of cardiovascular drugs is under development
by many pharmaceutical and biotechnology companies. It is possible that one or
more of these initiatives may reduce or eliminate the market for some of the
Company's products.
Efforts to reduce healthcare costs may affect our operations.
The Company's business, financial condition and results of operations
may be materially adversely affected by the continuing efforts of government and
third-party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing and/or profitability of
prescription pharmaceuticals are subject to government control. In the United
States, the Company expects that there will continue to be federal and state
initiatives to control and/or reduce pharmaceutical expenditures. In addition,
increasing emphasis on managed care in the United States will continue to put
pressure on pharmaceutical pricing. Cost control initiatives could decrease the
price that the Company receives for any products it may develop and sell in the
future and have a material adverse effect on the Company's business, financial
condition and results of operations. Further, to the extent that cost control
initiatives have a material adverse effect on the Company's corporate partners,
the Company's ability to commercialize its products may be adversely affected.
The Company's ability to commercialize pharmaceutical products may
depend in part on the extent to which reimbursement for the products will be
available from government health administration authorities, private health
insurers and other third-party payors. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and third-party
payors, including Medicare, are increasingly challenging the prices
19
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charged for medical products and services. There can be no assurance that any
third-party insurance coverage will be available to patients for any products
developed by the Company. Government and other third-party payors are
increasingly attempting to contain health care costs by limiting both coverage
and the level of reimbursement for new therapeutic products and by refusing in
some cases to provide coverage for uses of approved products for disease
indications for which the FDA has not granted labeling approval. If adequate
coverage and reimbursement levels are not provided by government and other
third-party payors for the Company's products, the market acceptance of these
products would be adversely affected.
Alteon has no experience in marketing or sales and may have to rely on
others to market and sell any products the Company may development.
For certain of its products, the Company has licensed exclusive
marketing rights to its corporate partners or formed collaborative marketing
arrangements within specified territories in return for royalties to be received
on sales, a share of profits or beneficial transfer pricing. These agreements
are terminable at the discretion of the Company's partners upon as little as 90
days' prior written notice. If the licensee or marketing partner terminates an
agreement or fails to market a product successfully, the Company's business,
financial condition and results of operations may be adversely affected.
Alteon currently has no experience in marketing or selling
pharmaceutical products. In order to achieve commercial success for any approved
product, Alteon must either develop a marketing and sales force or, where
appropriate or permissible, enter into arrangements with third parties to market
and sell its products. There can be no assurance that Alteon will develop
successfully marketing and sales experience or that it will be able to enter
into marketing and sales agreements with others on acceptable terms, if at all,
or that any such arrangements, if entered into, will not be terminated. If the
Company develops its own marketing and sales capability, it will compete with
other companies that currently have experienced, well funded and larger
marketing and sales operations. To the extent that the Company enters into
co-promotion or other sales and marketing arrangements with other companies, any
revenues to be received by Alteon will be dependent on the efforts of others,
and there can be no assurance that their efforts will be successful.
Alteon has no experience in manufacturing products and may have to rely on
others to manufacture any products the Company may develop.
The Company has no experience in manufacturing products for commercial
purposes and does not have manufacturing facilities. Consequently, the Company
is dependent on contract manufacturers for the production of products for
development and commercial purposes. The manufacture of the Company's products
for clinical trials and commercial purposes is subject to cGMP regulations
promulgated by the FDA. The Company has contracted or will be contracting with
third parties for the manufacture and distribution of ALT-711 and pimagedine.
However, in the event that the Company is unable to obtain or retain third-party
manufacturing for its products, it will not be able to proceed with clinical
trials or commercialize such products as planned. There can be no assurance that
the Company will be able to enter into agreements for the manufacture of future
products with manufacturers whose facilities and procedures comply with cGMP and
other regulatory requirements. The Company's current dependence upon others for
the manufacture of its products may adversely affect its profit margin, if any,
on the sale of future products and the Company's ability to develop and deliver
such products on a timely and competitive basis.
Use of any products the Company develops may result in liability claims.
The use of any of the Company's potential products in clinical trials
and the sale of any approved products, including the testing and
commercialization of pimagedine or ALT-711, may expose the Company to liability
claims resulting from the use of products or product candidates. These claims
might be made directly by consumers, pharmaceutical companies or others. The
Company maintains product liability insurance coverage for claims arising from
the use of its products in clinical trials. However no assurance can be given
that the Company will be able to maintain insurance or, if maintained, that
insurance can be acquired at a reasonable cost or in sufficient amounts to
protect the Company against losses due to liability that could have a material
adverse effect on the Company's business, financial conditions and results of
operations. There can be no assurance that the Company will be able to obtain
commercially reasonable product liability insurance for any product approved for
marketing in
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the future or that insurance coverage and the resources of the Company would be
sufficient to satisfy any liability resulting from product liability claims. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on its business, financial
condition and results of operations.
Alteon may be unable to attract and retain the key personnel on whom its
success depends.
The Company is highly dependent on the principal members of its
management and scientific staff. The loss of services of any of these personnel
could impede the achievement of the Company's development objectives.
Furthermore, recruiting and retaining qualified scientific personnel to perform
research and development work in the future will also be critical to the
Company's success. There can be no assurance that the Company will be able to
attract and retain personnel on acceptable terms given the competition between
pharmaceutical and health care companies, universities and non-profit research
institutions for experienced scientists. In addition, the Company relies on
consultants to assist the Company in formulating its research and development
strategy. All of Alteon's consultants are employed outside the Company and may
have commitments to or consulting or advisory contracts with other entities that
may limit their availability to the Company.
Alteon's operations involve a risk of injury or damage from hazardous
materials.
The Company's research and development activities involve the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of hazardous materials comply with the standards prescribed by
state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of an
accident, the Company could be held liable for any damages or fines that result.
Such liability could have a material adverse effect on the Company's business,
financial condition and results of operations.
ITEM 2. PROPERTIES.
The Company leases a 37,000 square foot building in Ramsey, New
Jersey, which contains its executive and administrative offices and research
laboratory space. The lease, which commenced on November 1, 1993, has a 10-year
term. In addition, the lease has two five-year renewal options.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock - was traded on the Nasdaq Market until
December 10, 1999, under the symbol "ALTN." Since December 13, 1999, the
Company's Common Stock has been traded on the Over-the-Counter Bulletin Board
("OTCBB") under the symbol ALTN. The following table sets forth, for the
calendar periods indicated, the range of high and low sale prices for the Common
Stock of the Company on the Nasdaq Market or the OTCBB, as applicable:
High Low
---- ---
1998
----
First Quarter $13.125 $4.563
Second Quarter 5.500 3.250
Third Quarter 5.000 2.188
Fourth Quarter 5.500 0.531
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High Low
---- ---
1999
----
First Quarter $1.6875 $0.6875
Second Quarter 1.0625 0.6250
Third Quarter 1.4375 0.5625
Fourth Quarter 1.3438 0.5000
As of March 17, 2000, there were 340 holders of the Common Stock,
with beneficial stockholders in excess of 400. On March 17, 2000, the last sale
price reported on the OTCBB for the Common Stock was $4.50 per share.
Effective with the close of business on December 10, 1999, the
Company's Common Stock was delisted from the Nasdaq Stock Market because it did
not satisfy the $1.00 per share minimum bid price required for listing on the
Nasdaq Stock Market. Effective December 13, 1999, the Common Stock has been
traded on the OTCBB. The delisting from the Nasdaq Stock Market could have a
material adverse effect on the Company's ability to raise capital on favorable
terms or at all.
The Company has neither paid nor declared dividends on its Common
Stock since its inception and does not plan to pay dividends in the foreseeable
future. Any earnings that the Company may realize will be returned to finance
the growth of the Company.
The market prices for securities of biotechnology and pharmaceutical
companies, including Alteon, have historically been highly volatile, and the
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products by the
Company or others, clinical trial results, developments concerning agreements
with collaborators, governmental regulation, developments in patent or other
proprietary rights, public concern as to safety of drugs developed by the
Company or others, future sales of substantial amounts of Common Stock by
existing stockholders and general market conditions can have an adverse effect
on the market price of the Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below should be read in
conjunction with the audited financial statements and related notes included
elsewhere in this Annual Report on Form 10-K. The selected financial data for
the five years ended December 31, 1999, has been derived from the audited
financial statements of the Company.
YEARS ENDED DECEMBER 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues:
Investment income ................... $ 1,888 $ 2,295 $ 1,510 $ 1,321 $ 835
Other income ........................ -- -- -- -- 600
-------- -------- -------- -------- --------
Total revenues .................... 1,888 2,295 1,510 1,321 1,435
Expenses:
Research and development ............... 10,004 17,494 23,264 24,592 10,598
Elimination of previously accrued
loss contingency .................. -- -- -- (1,771) --
General and administrative .......... 3,699 3,517 3,633 4,842 4,357
Interest ............................ 68 47 25 4 --
-------- -------- -------- -------- --------
Total expenses .................... 13,771 21,058 26,922 27,667 14,955
-------- -------- -------- -------- --------
Net loss before benefit for income taxes (11,883) (18,763) (25,412) (26,346) (13,520)
Income tax benefit ..................... -- -- -- -- 2,588
-------- -------- -------- -------- --------
Net loss ............................... (11,883) (18,763) (25,412) (26,346) (10,932)
Preferred stock dividends
and discount amortization ........... -- -- 1,091 2,207 2,707
-------- -------- -------- -------- --------
Net loss applicable to common
stockholders ........................ $(11,883) $(18,763) $(26,503) $(28,553) $(13,639)
======== ======== ======== ======== ========
Basic loss per share to common
stockholders ........................ $ (0.90) $ (1.20) $ (1.60) $ (1.57) $ (0.72)
======== ======== ======== ======== ========
Diluted loss per share to common
stockholders ........................ $ (0.90) $ (1.20) $ (1.60) $ (1.57) $ (0.72)
======== ======== ======== ======== ========
Weighted average common shares used
in computing basic and diluted loss
per share ........................... 13,170 15,640 16,566 18,211 19,055
======== ======== ======== ======== ========
DECEMBER 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(in thousands)
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments ......... $ 45,197 $ 34,500 $ 28,974 $ 24,132 $ 12,370
Working capital ................... 44,433 26,542 22,390 20,093 10,425
Total assets ...................... 52,216 40,139 33,508 27,652 15,021
Long-term capital lease obligations 467 162 -- -- --
Accumulated deficit ............... (34,037) (52,800) (79,303) (107,857) (121,496)
Stockholders' equity .............. 49,716 31,371 26,455 23,338 12,827
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
OVERVIEW
Since its inception in October 1986, Alteon has devoted
substantially all of its resources to its research, drug discovery and
development programs. To date, Alteon has not generated any revenues from the
sale of products and does not expect to generate any such revenues for a number
of years, if at all. Alteon has incurred an accumulated deficit of $121,496,049
as of December 31, 1999, and expects to incur operating losses, potentially
greater than losses in prior years, for a number of years.
Alteon has financed its operations through proceeds from an initial
public offering of Common Stock in 1991, a follow-on offering of Common Stock
completed in 1995, and private placements of common and preferred equity
securities, revenue from present and former collaborative relationships,
reimbursement of certain of Alteon's research and development expenses by its
collaborative partners, investment income earned on cash balances and short-term
investments and the sale of its New Jersey State Net Operating Losses ("NOLs")
carryforwards.
In December 1997, Alteon and Genentech entered into a stock purchase
agreement and a development collaboration and license agreement providing for
the development and marketing of pimagedine and second-generation
A.G.E.-Formation Inhibitors. Pursuant to the stock purchase agreement Genentech
purchased Common Stock, Series G Preferred Stock and Series H Preferred Stock
for an aggregate purchase price of $37,544,000. Genentech's obligations to
purchase shares of Alteon's stock terminated December 31, 1998. Pursuant to a
letter agreement dated February 11, 1999, between Alteon and Genentech, the
development collaboration and license agreement terminated effective June 30,
1999.
Although the Company anticipates increased expenditures in research
and development expenses as it develops products and conducts its clinical
trials, a portion of such development expenses are expected to be reimbursed by
Alteon's collaborative partners. Yamanouchi funded pre-clinical studies,
including most toxicology studies, on pimagedine. Gamida conducted, at its own
expense, a Phase II clinical trial in Israel to evaluate pimagedine in patients
with diabetes and elevated serum cholesterol levels, which was completed in
April 1997. Yamanouchi and Gamida do not fund Alteon's research or early product
development expenses.
In August 1999, Alteon and Taisho Pharmaceutical Co., Ltd.
("Taisho") entered into an agreement under which Taisho was granted an exclusive
option through December 31, 1999, to acquire a license to Alteon's lead A.G.E.
Crosslink Breaker, ALT-711, for Japan, South Korea, Taiwan and China for a
non-refundable option fee of $600,000. This amount is reflected in "Other
income" in the statement of operations. The option expired on December 31, 1999.
In December 1999, Alteon sold $27.7 million of its gross state net
operating loss carryforwards and $645,000 of its state research and development
tax credit carryforwards under the State of New Jersey's Technology Business Tax
Certificate Transfer Program (the "Program"). The Program allowed qualified
technology and biotechnology businesses in New Jersey to sell unused amounts of
net operating loss carryforwards and defined research and development tax
credits for cash. The total tax value sold was $3,137,000 and the total proceeds
received by the Company were $2,588,000, which was recorded as a tax benefit in
the statement of operations.
The Company's business is subject to significant risks including,
but not limited to, (i) its ability to obtain funding, (ii) the risks inherent
in its research and development efforts, including clinical trials, (iii)
uncertainties associated both with obtaining and enforcing its patents and with
the patent rights of others, (iv) the lengthy, expensive and uncertain process
of seeking regulatory approvals, (v) uncertainties regarding government reforms
and product pricing and reimbursement levels, (vi) technological change and
competition, (vii) manufacturing uncertainties, and (viii) dependence on
collaborative partners and other third parties. Even if the Company's product
candidates appear promising at an early stage of development, they may not reach
the market for numerous reasons. Such reasons include the possibilities that the
products will prove ineffective or unsafe during clinical trials, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on a
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
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RESULTS OF OPERATIONS
Years Ended December 1999, 1998, 1997
Revenues
Total revenues for 1999, 1998 and 1997 were $1,435,000, $1,321,000
and $1,510,000, respectively. Revenues in 1999, 1998 and 1997 were derived from
interest earned on cash and cash equivalents and short-term investments and
other income. The increase in revenues in 1999 over 1998 was attributed to other
income from the option agreement with a potential corporate partner, offset by
the decrease in investment income due to a decrease in cash and cash equivalents
and short-term investment balances during most of 1999.
Operating Expenses
The Company's total expenses decreased to $14,955,000 in 1999, from
$27,667,000 in 1998 and $26,922,000 in 1997 and consisted primarily of research
and development expenses Research and development expenses, net of
reimbursements from its collaborative partners, were $10,598,000 in 1999,
$24,592,000 in 1998, and $23,264,000 in 1997. Research and development expenses
decreased in 1999 from 1998 by $13,994,000, or 56.9%. This decrease was
primarily due to decreased expenses related to the closure of the ACTION I and
ESRD trials. Research and development expenses increased in 1998 from 1997 by
$1,328,000, or 5.7%, due to the increased expenses related to the A.G.E.
Crosslink Breaker program including Phase I clinical trial costs and the
expansion of the ESRD trial offset by a decrease in the ACTION trial costs due
to the termination of the ACTION II trial.
General and administrative expenses were $4,357,000 in 1999 as
compared to $4,842,000 in 1998 and $3,633,000 in 1997. The decrease in 1999 over
1998 was due to decreased personnel related and investor relations costs and
patent fees offset by increased consulting expenditures.
Interest expense was $0 in 1999, $4,000 in 1998 and $25,000 in 1997.
The decrease in interest expense was primarily due to the Company's exercise of
its purchase option in June 1998 on its capital lease arrangement, which
commenced in June 1994 for leasehold improvements on the Company's headquarters
and research facility.
Net Loss
At December 31, 1999, the Company had available Federal net
operating tax loss carryforwards ("NOLs"), which expire in various amounts from
the years 2006 through 2014, of approximately $111.8 million for income tax
purposes and State net operating loss carryforwards, which expire in the years
2000 through 2007, of approximately $81 million. In addition, the Company had
Federal research and development credit carryforwards of approximately $4.5
million and State research and development tax credit carryforwards of
approximately $2.5 million. The Company had net losses of $10,932,000 in 1999,
$26,346,000 in 1998 and $25,412,000 in 1997.
The Company does not believe that inflation has had a material
impact on the results of its operations.
LIQUIDITY AND CAPITAL RESOURCES
Alteon had cash and cash equivalents and short-term investments at
December 31, 1999, of $12,370,000 compared to $24,132,000 at December 31, 1998.
This is a decrease in cash and cash equivalents and short-term investments for
the twelve months ended December 31, 1999, of $11,762,000. This consisted of
$11,770,000 of cash used in operations consisting primarily of research and
development expenses, personnel and related costs and facility expenses. Also
included in the cash used in operations was $2,588,000 from the sale of the
Company's NOLs and $600,000 of other income from the option agreement with
Taisho. Capital expenditures consisted of $158,000. This was offset by $166,000
of financing activities primarily related to the sale of Common Stock. As of
December 31, 1999, Alteon had invested $7,520,000 in capital equipment and
leasehold improvements.
In December 1999, Alteon sold $2,588,210 of its NOLs under the State
of New Jersey's Technology Business Tax Certificate Transfer Program (the
"Program"). The Program allowed qualified technology and
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biotechnology businesses in New Jersey to sell unused amounts of NOLs and
defined research and development tax credits for cash.
In August 1999, Alteon and Taisho entered into an agreement under
which Taisho was granted an exclusive option through December 31, 1999, to
acquire a license to Alteon's lead A.G.E. Crosslink Breaker, ALT-711, for Japan,
South Korea, Taiwan and China for a non-refundable option fee of $600,000. This
amount is reflected in "Other income" in the Statement of Operations. The option
expired on December 31, 1999.
The Company's research and development expenses, to date, have been
funded primarily by research and development collaborative arrangements and
sales of equity securities. In programs that are subject to joint development
agreements, the Company expects to incur substantial additional research and
development costs, including costs related to drug discovery, pre-clinical
research and clinical trials. The Company anticipates that it will be able to
offset a portion of its research and development expenses and its clinical
development expenses with funding from its collaborative partners.
Alteon anticipates that its existing available cash and cash
equivalents and short-term investments will be adequate to satisfy its working
capital requirements for its current and planned operations into 2001.
In December 1997, Alteon and Genentech entered into a stock purchase
agreement and a development collaboration and license agreement providing for
the development and marketing of pimagedine and second-generation
A.G.E.-Formation Inhibitors. Pursuant to the stock purchase agreement Genentech
purchased Common Stock, Series G Preferred Stock and Series H Preferred Stock
for an aggregate purchase price of $37,544,000. Genentech's obligations to
purchase shares of Alteon's stock terminated December 31, 1998. Pursuant to a
letter agreement dated February 11, 1999, between Alteon and Genentech, the
development collaboration and license agreement terminated effective June 30,
1999.
The amount of the Company's future capital requirements will depend on
numerous factors, including the progress of the Company's research and
development programs, the conduct of pre-clinical tests and clinical trials, the
development of regulatory submissions, the costs associated with protecting
patents and other proprietary rights, the development of marketing and sales
capabilities and the availability of third party funding.
Because of the Company's long-term capital requirements, it may seek
access to the public or private equity markets whenever conditions are
favorable. The Company may also seek additional funding through corporate
collaborations and other financing vehicles, potentially including off-balance
sheet financing through limited partnerships or corporations. There can be no
assurance that such funding will be available at all or on terms acceptable to
the Company. If adequate funds are not available, the Company may be required to
curtail significantly one or more of its research or development programs. If
the Company obtains funds through arrangements with collaborative partners or
others it may be required to relinquish rights to certain of its technologies or
product candidates.
Alteon's corporate partners may develop, either alone or with others,
products that compete with the development and marketing of the Company's
products. Competing products, either developed by the corporate partners or to
which the corporate partners have rights, may result in their withdrawal of
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's current priorities are the development of ALT-711, its
lead A.G.E. Crosslink Breaker candidate, and the continued development of
pimagedine. The Company is focusing its resources on the development of ALT-711,
and is actively seeking one or more corporate partners to help fund further
development. After consultation with the FDA, the Company also has decided to
continue the development of pimagedine and is actively seeking one or more
corporate partners to provide necessary funding. The Company believes that
additional development of these compounds and other product candidates will
require the Company to find sources of funding.
Effective with the close of business on December 10, 1999, the
Company's Common Stock was delisted from the Nasdaq Stock Market because it did
not satisfy the $1.00 per share minimum bid price required for listing
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on the Nasdaq Stock Market. Effective December 13, 1999, the Common Stock has
been traded on the OTCBB. The delisting from the Nasdaq Stock Market could have
a material adverse effect on the Company's ability to raise capital on favorable
terms.
The Company initiated a program to assess the risks of year 2000
compliance, remediate all non-compliant systems and to assess the readiness of
key third parties. The critical aspects of the year 2000 readiness program were
completed in the third quarter of 1999. The Company has not experienced any
significant business disruptions related to the transition to the year 2000.
Total costs to address the year 2000 issue were not material to the Company's
financial position, results of operations or cash flows.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment in marketable securities. The
Company does not use derivative financial instruments in its investments. The
Company's investments consist primarily of debt instruments of the U.S.
government, government agencies, financial institutions and corporations with
strong credit ratings. The table below presents principal amounts and related
weighted average interest rates expected by maturity date for the Company's
investment portfolio.
2000 2001 2002 2003 2004 Thereafter
---- ---- ---- ---- ---- ----------
Assets
-------
Cash equivalents:
Fixed rate $5,335,529 --- --- --- --- ---
Average interest rate 5.02% --- --- --- --- ---
Short-term investments:
Fixed rate $7,034,258 --- --- --- --- ---
Average interest rate 5.82% --- --- --- --- ---
Total investment securities: $12,369,787 --- --- --- --- ---
Average interest rate 5.42% --- --- --- --- ---
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required to be filed pursuant to this Item 8
are appended to this Annual Report on Form 10-K. A list of the financial
statements filed herewith is found at "Index to Financial Statements and
Schedules" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
For information concerning this item, see the information under
"Election of Directors," "Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement to be filed
with respect to the Annual Meeting of Stockholders to be held on June 12, 2000,
which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning this item, see the information under
"Executive Compensation" in the Company's Proxy Statement to be filed with
respect to the Annual Meeting of Stockholders to be held on June 12, 2000, which
information is incorporated herein by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information concerning this item, see the information under
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement to be filed with respect to the Annual Meeting of
Stockholders to be held on June 12, 2000, which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning this item, see the information under
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement to be filed with respect to the Annual Meeting of Stockholders to be
held on June 12, 2000, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements.
The Company's audited financial statements, financial statement
schedules and the Report of Independent Public Accountants are appended to this
Annual Report on Form 10-K. Reference is made to the Index to Financial
Statements and Schedules on page F-1.
(b) Reports on Form 8-K.
On January 7, 2000, the Company filed a current report on Form 8-K,
dated January 5, 2000, regarding the Company's sale of net operating loss
carryforwards under the State of New Jersey's Technology Business Tax
Certificate Transfer Program.
On January 7, 2000 the Company filed a current report on Form 8-K,
dated December 13, 1999, announcing that it has been notified that the its
common stock had been delisted from trading on the Nasdaq SmallCap Market.
On November 23, 1999, the Company filed a current report on Form
8-K, dated November 23, 1999, announcing that it had been approved to sell net
operating loss carryforwards under the State of New Jersey's Technology Business
Tax Certificate Transfer Program.
On November 16, 1999, the Company filed a current report on Form 8-K,
dated November 11, 1999, announcing the financial results for the third quarter
ended September 30, 1999.
On November 16, 1999, the Company filed a current report on Form 8-K,
dated November 8, 1999, announcing that the first data on the Phase III ACTION I
trial of pimagedine in Type 1 diabetic patients with overt nephropathy has been
published and presented at the American Society of Nephrology ("ASN") 32nd
Annual Meeting and Scientific Exposition in Miami Beach, Florida.
October 15, 1999, the Company filed a current report on Form 8-K,
dated September 27,