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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission File Number 0-23272
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NPS PHARMACEUTICALS, INC.
(Exact name of Registrant as Specified in Its Charter)
Delaware 87-0439579
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
420 Chipeta Way, Salt Lake City, Utah 84108-1256
(Address of Principal Executive Offices) (Zip Code)
(801) 583-4939
(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value
Preferred Stock Purchase Rights
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 at least the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of the Common Stock held by
non-affiliates of the Registrant was $855,485,258 as of March 1, 2002, based
upon the closing price for the shares of common stock reported on The Nasdaq
Stock Market and The Toronto Stock Exchange, on such date. This excludes
1,463,576 shares of Common Stock held by directors and officers as of March 1,
2002. The determination of affiliate status is not a conclusive determination
for other purposes.
The number of shares of Common Stock outstanding as of March 1, 2002 was
30,219,383, which includes 422,321 Exchangeable Shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report on Form 10-K incorporates by reference portions of
the Registrant's definitive Proxy Statement for the Registrant's Annual Meeting
of Stockholders, to be held May 23, 2002, which will be filed with the
Securities and Exchange Commission.
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 21E of the Securities and Exchange Act of 1934. These
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those discussed in these forward-looking
statements. Factors that could cause or contribute to the differences include,
but are not limited to, those discussed in the Section entitled "Business--Risk
Factors," as well as other parts of this Annual Report. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. We undertake no obligation to publicly release
updates or revisions to these statements.
PART I
ITEM 1. Business
Overview
Our objective is to build a profitable biopharmaceutical company by
discovering, developing and commercializing small molecule drugs and recombinant
proteins. Our current product candidates are primarily for the treatment of bone
and mineral disorders, gastrointestinal disorders and central nervous system
disorders.
We have three product candidates in active clinical development and several
preclinical product candidates. Two of these product candidates, PREOS(TM) and
AMG 073, are in Phase III clinical trials. Our third product candidate, ALX-
0600, is in a pilot Phase II clinical trial. PREOS and ALX-0600 are proprietary
to and are being developed by us. PREOS is our recombinant, full-length
parathyroid hormone for the treatment of osteoporosis, and ALX-0600 is our
analog of glucagon-like peptide 2 for the treatment of gastrointestinal
disorders. AMG 073, our orally active, small molecule compound for the treatment
of hyperparathyroidism, is being developed by our licensees, Amgen Inc. and
Kirin Brewery Company, Ltd. We collaborate on three preclinical programs with
AstraZeneca AB, GlaxoSmithKline, and Janssen. Pharmaceutica N.V., a subsidiary
of Johnson & Johnson.
Strategy
We intend to achieve our objective through the following strategy:
. Build a diversified pipeline of products addressing a variety of
medical conditions. We are developing a diverse pipeline of product
candidates that are in various stages of clinical and preclinical
development. Our portfolio approach allows us to reduce our exposure
to the impact of any single product failure and increases our
flexibility to focus on our most promising programs. We believe this
strategy increases the likelihood that we will successfully develop
commercially viable pharmaceutical products.
. Develop sales, marketing and manufacturing capabilities to facilitate
product commercialization, either internally or through contract
relationships. In order to commercialize our proprietary drug
candidates and to exploit our co-promotion rights, we intend to
develop sales and marketing capabilities, either internally or through
contract relationships. We also intend to develop pre-launch and
commercial-scale production capabilities through agreements with
contract manufacturers.
. Collaborate to reduce our risk and accelerate the commercialization of
select product candidates. We believe collaborators with clinical
development and marketing expertise in specific therapeutic areas will
facilitate more rapid entry into the market for certain of our
products and accelerate their acceptance by healthcare providers and
third-party payors. We selectively enter into collaboration agreements
and licenses with pharmaceutical and biotechnology companies to
enhance our financial flexibility. This strategy allows us to devote
greater resources to proprietary programs and to pursue a greater
number of product candidates than would otherwise be possible.
. In-license or acquire complementary products, technologies or
companies. In addition to our internal discovery efforts, we intend to
pursue our product portfolio strategy by identifying and evaluating
potential products and technologies developed by third parties that we
believe fit within our overall portfolio strategy. In 1999, we
acquired Allelix Biopharmaceuticals Inc., in part because its product
candidates complemented our existing programs in osteoporosis and
central nervous system disorders and brought late-stage candidates to
our product pipeline.
. Continue to develop and leverage our core discovery competencies and
proprietary expertise. We believe that the continued evaluation,
selection and winnowing of candidates in our product development
pipeline will be effective based in part on the ability of our
scientists to apply techniques related to our core competencies. We
intend to continue to use these abilities to identify molecular
targets for the development of new drugs and to identify, evaluate,
select, and winnow drug candidates meriting continued evaluation. Our
multidisciplinary discovery teams focus on developing a broad product
pipeline covering a variety of disorders.
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Our Product Development Programs
The following is a summary of our product development programs by
therapeutic area:
Licensees and
Product or Program Indication(s) Status Collaborators
------------------- ------------- ------ -------------
Bone and Mineral Disorders
PREOS (formerly ALX1-11) Osteoporosis Phase III Proprietary
Calcilytic Compounds Osteoporosis Preclinical GlaxoSmithKline*
AMG 073 Hyperparathyroidism
Primary Phase II Amgen, Kirin
Secondary Phase III Amgen, Kirin
Gastrointestinal Disorders
ALX-0600 Short Bowel Syndrome Pilot Phase II Proprietary
Central Nervous System
Disorders
Metabotropic Glutamate Psychiatric and Neurological
Receptors Disorders and Pain Preclinical AstraZeneca*
Glycine Reuptake Inhibitors Schizophrenia and Dementia Preclinical Janssen*
- ----------
* We retain co-promotion rights for product candidates from these
collaborations.
Bone and Mineral Disorders
Overview. Bone and mineral disorders include a range of diseases affecting
nearly every major organ system in the body. The most common bone and mineral
disorder is osteoporosis, an age-related disease characterized by reduced bone
mineral density and increased susceptibility to fractures. Although bone loss is
a universal consequence of age, the process is accelerated in women following
menopause. Osteoporosis is often diagnosed only after fractures in weakened
bones. Fractures of the hip, spine or wrist can result in serious long-term
disability.
Another bone and mineral disorder is hyperparathyroidism. In
hyperparathyroidism, there is an oversecretion of parathyroid hormone by the
parathyroid glands located in the neck. Symptoms of hyperparathyroidism may
include bone loss and pain, bone deformities, muscle weakness, severe
generalized itching and abnormal calcification of soft tissues, including the
heart. Patients may also experience depression and cognitive dysfunction.
Hyperparathyroidism is characterized as either primary or secondary. Primary
hyperparathyroidism is primarily an age-related disorder that is characterized
by enlargement of one or more of the four parathyroid glands. Secondary
hyperparathyroidism is primarily a physiological response to failing kidneys. As
renal function deteriorates, the body is unable to maintain proper levels of
calcium, Vitamin D, and phosphorus in the blood. To compensate, parathyroid
glands enlarge and produce increased amounts of parathyroid hormone in an
attempt to increase calcium and decrease phosphorus levels in the blood.
PREOS and Calcilytic Compounds for Osteoporosis
We are pursuing two separate but related programs for the treatment of
osteoporosis. We are developing PREOS internally, and we are pursuing calcilytic
compounds in conjunction with GlaxoSmithKline.
PREOS. PREOS is our recombinant, full-length, human parathyroid hormone
being developed for the treatment of osteoporosis. We expect that PREOS will be
delivered subcutaneously on a daily basis through an injection pen device
designed to make delivery of the drug simple and relatively painless. Although
chronically high levels of parathyroid hormone are known to cause bone loss, as
in hyperparathyroidism, preclinical and clinical studies conducted to date show
that pulsatile dosing with PREOS, in which parathyroid hormone levels rise
rapidly and then return to normal levels within a few hours, actually stimulates
bone growth. In a Phase II clinical trial of over 200 post-menopausal women
completed in 1997, daily injections of PREOS produced a clinically and
statistically significant average increase in bone mineral density in the lumbar
spine of nearly seven percent in only one-year. We are
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conducting a pivotal Phase III clinical trial with PREOS in post-menopausal
women for osteoporosis and another ancillary Phase III trial in osteoporotic
women undergoing estrogen replacement therapy.
Market Opportunity. Approximately 10 million American women have advanced
osteoporosis and another 18 million women are osteopenic, or approaching
osteoporosis, and are at high risk of fractures because of low bone mineral
density. A recent study published in the Journal of the American Medical
Association demonstrated that nearly one-half of post-menopausal women have
undetected low bone mineral density, and women identified with low bone mineral
density were at a significantly increased risk of fracture. In addition, 50
percent of women over 50 years of age in the United States will suffer an
osteoporosis-related fracture during their lifetime. According to the National
Institutes of Health, osteoporosis is responsible for more than 1.5 million
fractures annually. The National Osteoporosis Foundation reports that an average
of 24 percent of hip fracture patients age 50 and over die within one year after
their fracture, and 25 percent of those who were ambulatory before their hip
fracture require long-term care afterward. The size of the United States
population aged 50 years and over is expected to increase significantly over the
next several decades as a result of the aging of the "baby boomer" generation
and longer life expectancies. Estimated United States expenditures for
osteoporosis and related fractures is $14.0 billion each year.
Current therapies for osteoporosis include supplementing dietary calcium
and vitamin D, which may help to slow the rate of bone loss. Other therapies
include estrogen replacement therapy in post-menopausal women, bisphosphonates
and raloxifene, a selective estrogen receptor modulator. All of these therapies
act to prevent further bone loss by inhibiting bone resorption. These therapies
have been shown to reduce the incidence of fracture, but they have only a
limited positive effect on bone mineral density. For example, Fosamax, a
bisphosphonate sold by Merck, showed a reduction in fractures but an increase in
bone mineral density of only seven to ten percent over three years. Merck
reported sales of Fosamax in 2001 of $1.8 billion.
We believe there exists a significant need for improved therapy that will
increase bone mineral density to a greater degree and at a faster rate, thereby
reducing the risk of fracture. Parathyroid hormone treatment, such as our
product candidate, PREOS, and Lilly's parathyroid hormone-fragment, Forteo, are
designed to address this medical need and supplement currently available
treatments.
The FDA's Endocronologic and Metabolic Drug Advisory Committee recently
recommended Forteo for the treatment of osteoporosis, which we believe further
validates the clinical benefit of parathyroid hormone treatment. PREOS is our
recombinant parathyroid hormone consisting of all 84 amino acids found in the
naturally occurring human parathyroid hormone. Lilly's Forteo is a fragment of
the naturally occurring parathyroid hormone and is only comprised of the first
34 amino acids. Data from Lilly's Phase III clinical trial indicated that, in
post-menopausal women with severe osteoporosis, daily injections of Forteo
provided statistically significant reductions in fractures and rapid and
significant increases in bone mineral density. Because PREOS consists of 84
amino acids found in the naturally occurring human parathyroid hormone, we
believe that our Phase III clinical trials will also show efficacy in the
treatment of osteoporosis. In addition, studies currently being conducted by us
and our academic collaborators are designed to confirm what, if any, therapeutic
advantage our full-length human parathyroid hormone may have compared to
fragments of parathyroid hormone.
PREOS Development Status. We are currently conducting a Phase III clinical
trial for PREOS. This trial, referred to as the Treatment of Osteoporosis with
Parathyroid hormone Study, or TOP Study, is a double-blind, placebo-controlled,
multi-center clinical trial designed to demonstrate the ability of PREOS to
reduce fractures and build bone mineral density in women with osteoporosis. The
TOP Study is evaluating the effects of PREOS in post-menopausal women who have
low bone mineral density and may have suffered a fracture, but who are not
receiving drug or hormone therapy for osteoporosis. Women participating in the
study receive daily, subcutaneous injections of PREOS or placebo. Dosing in this
study is planned to last for 18 months. We originally designed the TOP Study for
enrollment of 1,800 patients by the end of 2001. We reached this goal, but we
decided to expand our original enrollment target and continue the period of
enrollment into the first quarter of 2002 to provide us with strengthened
clinical results and greater analytic flexibility. Enrollment will be completed
no later than March 31, 2002.
We are also conducting a Phase III clinical study to measure the effects of
PREOS in osteoporotic women undergoing estrogen replacement treatment. We refer
to this trial as the Parathyroid Hormone for Osteoporotic Women on Estrogen
Replacement Study, or POWER Study. This study will be conducted at selected
clinical sites in Europe, which is the largest pharmaceutical market for
osteoporosis after the United States. Participants will receive daily,
subcutaneous injections of PREOS or placebo in addition to their ongoing hormone
replacement therapies. Dosing in the trial is expected to last for 24 months. By
completing this trial in European countries, we expect to provide additional
support for our regulatory submissions in Europe and our worldwide marketing
efforts.
In addition, PREOS is being tested in a clinical trial coordinated by the
University of California at San Francisco and sponsored by the National
Institutes of Health. This randomized, double-blind trial is referred to as the
parathyroid hormone and alendronate in combination for the treatment of
osteoporosis, or PaTH, study. This trial enrolled approximately 240 women with
low bone mineral density and will test, over a 12 month period, whether PREOS is
more effective in building bone mineral density than Fosamax, and whether the
combination of PREOS and Fosamax is more effective in building bone mineral
density than either therapy alone.
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Calcilytic Compounds Development Status. We are collaborating with
GlaxoSmithKline on the discovery, identification and characterization of
calcilytic compounds for the treatment of osteoporosis. Calcilytic compounds are
aimed at temporarily increasing the secretion of the body's own parathyroid
hormone. In animal studies, we demonstrated that intermittent increases in
circulating levels of parathyroid hormone can be obtained through the use of
calcilytics. In these studies, we observed that increased levels of parathyroid
hormone achieved by this mechanism are equivalent to those achieved by an
injection of parathyroid hormone sufficient to cause bone growth. As a result,
we believe that orally administered calcilytic drugs that act on the parathyroid
cell calcium receptors could provide a cost-effective treatment for
osteoporosis. We conducted preclinical studies in conjunction with
GlaxoSmithKline on some of the lead compounds identified in this program.
GlaxoSmithKline has conducted a proof-of-principle Phase I clinical trial with a
calcilytic compound for which we received a $1.0 million milestone payment. The
purpose of this trial was to establish the safety of calcilytic compounds in
humans. We and GlaxoSmithKline continue our evaluation of calcilytic compounds
to identify a lead candidate to take into the clinic to test for both safety and
efficacy.
GlaxoSmithKline has paid us a total of $33.2 million for license fees,
research support, milestone payments and equity purchases as part of our
collaboration. We will receive additional payments of up to an aggregate of
$13.0 million if certain clinical milestones are achieved. Our agreement also
provided for royalties on any sales by GlaxoSmithKline of products
commercialized based on compounds identified in this collaboration. In addition
to the milestone and royalty payments, we have a limited right to co-promote any
products that are developed through our collaboration and we will receive
co-promotion revenue if we elect to exercise these rights. For more information
about our agreement, see the section of this report on Form 10-K entitled
"Business--Collaborative Research, Development, and License Agreements."
AMG 073 for Hyperparathyroidism
AMG 073 is our orally active, small molecule compound being developing for
the treatment of both primary and secondary hyperparathyroidism. In 1993, we and
our collaborators at The Brigham and Women's Hospital in Boston were the first
to isolate and clone calcium receptors. We have discovered small molecules that
mimic the role of calcium and cause a decrease in the secretion of parathyroid
hormone. These compounds are called calcimimetic compounds and include AMG 073,
which we licensed for development to Amgen and Kirin. In December 2001, Amgen
commenced Phase III clinical trials of AMG 073 for the treatment of secondary
hyperparathyroidism. Amgen continues to conduct Phase II clinical trials of AMG
073 for the treatment of primary hyperparathyroidism.
Market Opportunity. Over 75,000 people in the United States develop new
cases of primary hyperparathyroidism each year, and over 500,000 people in the
United States are estimated to suffer from the disorder. The current treatment
for primary hyperparathyroidism is the surgical removal of one or more of the
parathyroid glands in the neck. There are currently no effective pharmaceutical
therapies for the treatment of primary hyperparathyroidism. Studies suggest that
over 30 percent of the estimated two million patients in the United States with
chronic renal failure are affected by secondary hyperparathyroidism. Secondary
hyperparathyroidism commonly develops during the early stages of chronic renal
failure before dialysis is necessary. Approximately 85 percent of the estimated
300,000 acute renal failure patients who require either dialysis or renal
transplant suffer from secondary hyperparathyroidism. Current treatment for
secondary hyperparathyroidism includes calcium supplements, phosphate binding
chemicals and vitamin D, none of which directly regulate the secretion of
parathyroid hormone.
Development Status. We licensed AMG 073 to Kirin in the territories of
Japan, China, Taiwan and Korea, and to Amgen for the rest of the world. In
December 2001, Amgen commenced Phase III clinical trials of AMG 073 for
secondary hyperparathyroidism, which resulted in milestone payments to us in the
aggregate amount of $6.0 million from Amgen and Kirin. Results from Amgen's
earlier Phase II clinical trials in patients with primary hyperparathyroidism
were presented at the American Society for Bone and Mineral Research meeting in
October 2001 and other Amgen Phase II clinical trial results in patients with
secondary hyperparathyroidism were presented at the First World Congress on
Nephrology in October 2001.
The results from Amgen's Phase II clinical trial in patients with primary
hyperparathyroidism, presented at the American Society of Bone and Mineral
Research conference, confirmed earlier Phase II studies and indicated that AMG
073 normalized total calcium in the blood and reduced levels of parathyroid
hormone in the blood safely and effectively. Results typical of those seen in
several other Phase II studies were seen in a double-blind, placebo-controlled
24-week trial with 78 patients with primary hyperparathyroidism. In this study,
patients were given a range of doses up to a maximum of 50 mg of AMG 073
administered twice daily to find a dose at which calcium in the blood would be
returned to normal levels. Eighty-eight percent of patients who received AMG 073
experienced a return to normal levels of calcium in the blood, defined as less
than or equal to 10.3 mg/dL over the course of the 12-week maintenance phase of
the study. Only five percent of patients receiving placebo showed a return to
normal levels of calcium during the 12-week maintenance period. It was also
noted that during the maintenance period, patients who received AMG 073
experienced a 7.6 percent reduction in mean parathyroid hormone levels at 12
hours post-dose, while those receiving placebo experienced a 7.7 percent
increase in mean parathyroid hormone levels at the same interval. This reduction
in parathyroid hormone is directly related to the reduction of calcium and
demonstrates the potential utility of calcimimetic compounds such as AMG 073 in
exerting a therapeutic effect on parathyroid glands. In the study, AMG 073 was
well-tolerated with no significant difference in adverse events between the
treatment and control groups.
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At the First World Congress of Nephrology, Amgen presented data from four
Phase II clinical trials of AMG 073 in patients with secondary
hyperparathyroidism. These studies involved larger numbers of patients and
higher maximum drug doses than studies reported a year earlier. The aggregate
results of three separate 12-week studies in 216 patients with secondary
hyperparathyroidism and chronic renal failure indicated that AMG 073 effectively
reduced both parathyroid hormone and calcium-phosphorus product levels and was
safe and well tolerated at daily doses up to 100 mg. Mean parathyroid hormone
levels were reduced by 20 to 33 percent in the AMG 073 groups and increased by
16 percent in the combined placebo group. In addition, mean calcium-phosphorus
product decreased in the AMG 073 groups by 7.1 percent and increased in the
placebo groups by 14.3 percent. Persistently elevated calcium-phosphorus product
has been implicated as a cause of soft tissue and vascular calcification in
patients with secondary hyperparathyroidism.
The fourth study was an 18-week study in 71 hemodialysis patients with
secondary hyperparathyroidism who were receiving vitamin D therapy and phosphate
binders throughout the course of the study. Treatments with AMG 073 safely and
effectively reduced circulating parathyroid hormone by an additional 32 percent
while simultaneously reducing calcium-phosphorus product by an additional 7.9
percent. The results from this study further indicate the safety and efficacy of
AMG 073 when used in combination with other standard therapies used by renal
failure patients.
Amgen has paid to us license fees, research support payments, and milestone
payments, and has made equity purchases totaling $22.5 million, including the
milestone payment for the commencement of Phase III trials in secondary
hyperparathyroidism. Amgen will pay us up to an additional $23.0 million if it
achieves other development and regulatory milestones. Amgen will also pay us
royalties on any sales of AMG 073 in its territories. Kirin has paid to us $19.0
million in license fees, research and development support payments and milestone
payments, and under the terms of our agreement is required to pay us up to an
additional $6.0 million upon accomplishment of additional milestones. Kirin also
is required to pay us royalties on any sales of AMG 073 in its territories. For
more information about our agreement, see the section of this Form 10-K entitled
"Business--Collaborative Research, Development, and License Agreements."
Gastrointestinal Disorders
Overview
The gastrointestinal tract is a complex system of organs involved in the
transport, digestion and absorption of nutrients. It also plays an important
role in the excretion of toxic chemicals, pathogens and byproducts of digestive
processes, and in balancing the absorption and secretion of electrolytes and
water. Gastrointestinal disorders can have severe consequences on the quality of
life of the people that suffer from them.
One disorder in particular that affects the ability of the gastrointestinal
tract to absorb nutrients and water is short bowel syndrome. Short bowel
syndrome is a condition arising from surgical removal of a large portion of the
small intestine resulting in an inadequate surface area for absorption of
nutrients, electrolytes and fluids. In some patients, all or portions of the
large intestine may also be removed. Short bowel syndrome results in symptoms
such as diarrhea, weight loss and fatigue. Patients with short bowel syndrome
often must be fed intravenously by a technique called total parenteral nutrition
for a period of time and, in some cases, permanently.
ALX-0600 for Short Bowel Syndrome
We are independently developing ALX-0600 for the treatment of short bowel
syndrome. ALX-0600 is an analog of glucagon-like peptide 2, a naturally
occurring hormone that regulates growth and proliferation of the cell lining of
the small intestine. Our animal studies have indicated that ALX-0600 has the
ability to stimulate the regeneration of cells lining the small intestine,
expanding the surface area for absorption of nutrients. In animal studies,
ALX-0600 induced an approximately 50 percent increase in the weight of the small
intestine within 10 days of administration. Further, these studies suggest the
growth-promoting properties of ALX-0600 appear to be highly tissue-specific,
predominantly affecting the small intestine, and thereby potentially reducing
the risk of adverse side effects. We have completed dosing patients in a pilot
Phase II clinical trial with ALX-0600 in a small number of patients with short
bowel syndrome and are presently evaluating the results of the trial.
Market Opportunity. Approximately 25,000 adults and 7,000 children in North
America are afflicted with short bowel syndrome. Many of these patients require
total parenteral nutrition, the cost of which can exceed $100,000 annually per
patient. There are currently no effective therapies available for enhancing the
growth and repair of the cell lining of the small intestine. We believe that the
short bowel syndrome market is an attractive one because of the high cost of
treating patients and the absence of any effective drug therapies. We have been
granted orphan drug designation for ALX-0600 for short bowel syndrome from the
FDA, which provides, subject to several restrictions, seven years of marketing
exclusivity once a product is approved for treatment of diseases that afflict
fewer than 200,000 patients. The Commission of the European Communities has also
recently designated ALX-0600 an orphan medicinal product for the treatment of
short bowel syndrome.
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We believe that ALX-0600, if successful in the treatment of short bowel
syndrome, may also be useful in treating other gastrointestinal conditions
marked by inefficient absorption or altered absorptive capacity. Examples of
these conditions include Crohn's disease, inflammatory bowel disease and
intestinal mucositis in cancer patients.
Development Status. We have recently completed dosing in a pilot Phase II
clinical trial in a small number of patients receiving treatment for short bowel
syndrome. This trial was designed to measure improvement in nutrient absorption
and physical changes in the small intestine, as well as safety and tolerability.
We are currently evaluating the results of the trial and determining next steps
in the clinical development of ALX-0600. Preliminary data presented to the
European Society for Enteral and Parenteral Nutrition in September 2001 showed
that ALX-0600 was safe and well-tolerated and significantly increased intestinal
absorption and body weight in parenteral nutrition-dependent short bowel
syndrome patients with no large intestine. Additional results from this study
have been submitted to the American Gastroenterological Association for
presentation at its annual meeting in May 2002.
Prior to our acquisition of Allelix in December 1999, Allelix entered into
a research funding agreement with the Canadian government through a program
known as Technology Partnerships Canada. Under the agreement, the Canadian
government will reimburse us up to Cdn. $8.4 million for our qualified costs
related to research and development of ALX-0600 through December 2002. As of
December 31, 2001, a total of Cdn. $4.7 million had been invoiced by both
Allelix, prior to the effective date of the acquisition, and us, for
reimbursement under the terms of the agreement. The agreement provides Canada
with a 10 percent royalty on revenues we receive from the sale or license of
ALX-0600. Our royalty obligation terminates on December 31, 2008 if we have paid
at least Cdn. $23.9 million prior to that time. If we have not paid that amount
by that date, we must continue to pay royalties until the earlier of the date we
have paid Cdn. $23.9 million in royalties or December 31, 2017. The agreement
places certain obligations on us for Canada based activities in the
manufacturing and development of ALX-0600, which could adversely affect or make
impracticable our continued development of ALX-0600. In the past we have
demonstrated to Canada certain impracticalities of certain terms and Canada has
granted us waivers from those terms. For more information about our agreement,
see the section entitled "Business--Collaborative Research, Development, and
License Agreements."
Central Nervous System Disorders
Overview
Central nervous system disorders are broad, complex and severe diseases,
that are a major focus of current medical research. However, few central nervous
system disorders are able to be effectively treated, creating an opportunity for
novel therapies. Central nervous system disorders affect a broad portion of the
population through diseases such as epilepsy, bipolar disorder, stroke,
Alzheimer's disease, Parkinson's disease, dementia, anxiety, depression,
schizophrenia and pain. Recent reports indicate that nearly $36.0 billion is
expended annually in retail prescription drug sales for central nervous system
related products on a worldwide basis. However, many of these treatments are
palliative, not curative, and a need for new and improved treatment exists. We
are addressing central nervous system disorders on a number of different fronts.
Metabotropic Glutamate Receptor Program
Since 1996, we have been working to find compounds that act on targets in
the central nervous system called metabotropic glutamate receptors, or mGluRs.
Because these nerve cell receptors are structurally related to calcium
receptors, we have been able to leverage our expertise in calcium receptors to
create proprietary methods for screening drug candidates active at mGluRs. We
have discovered a number of compounds that activate or inhibit mGluRs and that
are highly selective for specific subtypes of mGluRs. Our animal studies with a
number of these compounds have demonstrated their potential as drug candidates
for the treatment of central nervous system disorders such as chronic pain.
There are three principal groups of mGluRs and several subtypes of mGluRs
within those groups that differ in their chemical composition, their effects on
cellular metabolism and their location in the central nervous system. Published
research indicates that different mGluRs are variously involved in diseases such
as stroke, epilepsy, Alzheimer's disease, schizophrenia and pain. Because we
have the ability to identify compounds that are selective for the various mGluR
subtypes, we believe that it is possible that we will be able to pursue the
development of products that will treat several central nervous system
disorders.
In March 2001, we entered into an agreement with AstraZeneca under which we
will collaborate exclusively on a number of mGluR subtypes. We granted
AstraZeneca exclusive rights to commercialize mGluR subtype-selective compounds.
If certain milestones are met, AstraZeneca is required to pay us up to $30.0
million. AstraZeneca is also required to pay us royalties on sales of products
that include those compounds. We have the right to co-promote any resulting
product in the United States and Canada and receive co-promotion revenue, if
any. Should we elect to co-promote products, in some circumstances we will be
required to share in the development and regulatory costs associated with those
products, and we may not receive some late-stage milestone payments. For more
information about our agreement, see the section entitled "Business--
Collaborative Research, Development, and License Agreements."
Other Programs for Central Nervous System Disorders
We collaborated with Janssen on glycine reuptake inhibitors to identify
prospective drug candidates for schizophrenia and dementia. In November 2001 we
received a milestone payment from Janssen as a result of the selection of a
preclinical compound for
7
further development as a potential treatment for schizophrenia. We will receive
additional milestone payments of up to $20.5 million from Janssen and royalties
on sales of any drugs developed or sold by Janssen under this collaboration
agreement.
We have completed several Phase I clinical trials with NPS 1776, a small
molecule compound for the treatment of epilepsy, to evaluate its safety and
tolerability and its ability to be delivered in a sustained release formulation.
Our analysis of the data indicates that the drug was safe and well tolerated.
Our preclinical studies show that NPS 1776 is effective in a number of animal
models of epilepsy.
In March 2000, we entered into an agreement with Abbott Laboratories Inc.
in which we granted Abbott worldwide marketing rights to NPS 1776 in exchange
for Abbott's commitment to fund further development of this product candidate
and pay us milestone payments as well as royalties on any sales. In January
2002, Abbott terminated the agreement. As a result, all rights to NPS 1776 were
returned to us. In addition, we are entitled to use all studies and information
generated by Abbott under the agreement in our development effort for NPS 1776.
We are presently reviewing all information related to NPS 1776 and will decide
the future of this program when that review is complete.
In 1998 we completed a Phase I clinical trial with ALX-0646, a small
molecule compound, for the treatment of migraine, in healthy volunteers. In
August 2000, we entered into an agreement with Forest Laboratories Inc. in which
we granted to Forest worldwide commercialization rights to ALX-0646 in return
for Forest's commitment to fund further development of ALX-0646 and pay us
milestone payments of up to $25.0 million, as well as royalties on any sales of
ALX-0646. In November 2001, we earned and received a $1.0 million milestone
payment from Forest for developments made by Forest with the compound. In
January 2002, Forest notified us that we had earned a $2.0 million milestone
payment for the achievement of certain clinical and preclinical developments
related to Forest's preclinical work with ALX-0646 for treating migraine. Forest
read and approved a press release by us announcing that event. In March 2002, we
received notice from Forest that it was terminating the agreement and returning
all rights to ALX-0646 to us. Forest also indicated that it believes this
obviates its obligation to pay the $2.0 million milestone payment. We disagree
with this assertion. Nevertheless, absent resolution of this issue, we will not
recognize revenue for the $2.0 million milestone in the first quarter of 2002.
We expect to review all information related to ALX-0646 and will decide the
future of this program when that review is complete.
Internal Discovery Research
Through internal discovery efforts, we have developed a diverse product
pipeline covering a variety of disorders. This pipeline allows us to reduce our
exposure to the impact of any single product failure and increases our
flexibility to focus on our most promising programs. The continued expansion of
our product pipeline is based on the ability of our scientists to apply
techniques related to our core competencies such as the use of proteins as
therapies, manipulating G-protein coupled receptors and finding compounds that
act on those receptors. Our current discovery research activities span the
spectrum from target identification and validation through late stage
preclinical safety assessment.
Our internal discovery research group is comprised of 57 staff members, 21
of whom hold doctorate degrees, with 28 members in our Salt Lake City location
and 29 members in our Toronto location. The disciplines within our discovery
research group include medicinal chemistry, molecular biology, pharmacology, and
drug metabolism and pharmacokinetics. Areas of expertise within the group
include bone and mineral metabolism, gastrointestinal physiology and
pharmacology, and central nervous system physiology and pharmacology. We intend
to continue our focus on scientific discovery by retaining creative scientists
who we believe can make breakthrough discoveries leading to innovative products.
Collaborative Research, Development, and License Agreements
We selectively enter into collaboration agreements and licenses with
pharmaceutical and biotechnology companies to leverage our financial investment
in our discovery, development and commercialization programs. These agreements
generally include the payment of research support payments to fund research
performed by us over an agreed period of time, the payment of milestone payments
on the achievement of defined preclinical and clinical events and ultimately,
the payment of royalties on sales of products developed under the terms of the
particular agreement. In return for these financial benefits, we grant to the
particular collaborator an exclusive license to the technology that is the
subject of the collaboration as well as to the products developed under the
agreement. This strategy allows us to devote greater resources to selected
programs and to pursue a greater number of programs and products than would
otherwise be possible. In addition, we believe collaborators with clinical
development and marketing expertise in specific therapeutic areas will
facilitate more rapid entry into the market for our products and accelerate
their acceptance by healthcare providers and third-party payors. We currently
have collaborative research, development or license agreements with several
collaborators, including Amgen, GlaxoSmithKline, AstraZeneca, Janssen, and
Kirin.
We also enter into research support agreements with various academic and
other not-for-profit institutions. These agreements generally require us to fund
certain research at the institution over a specific period of time in exchange
for which we acquire the right
8
to use the results of the research and obtain an option to exclusively license
from the institution any inventions made during the term of the research on
terms mutually agreed to at that time.
Amgen
In March 1996, we entered into a development and license agreement with
Amgen in which we granted Amgen the exclusive right to develop and commercialize
AMG 073 and related compounds for the treatment of hyperparathyroidism and any
other indications other than osteoporosis worldwide, excluding Japan, China,
Hong Kong, North and South Korea and Taiwan, territories in which we licensed
such rights to Kirin. If our agreement with Kirin is terminated, Amgen's
territory becomes worldwide. Under the terms of our agreement, Amgen is
authorized and responsible to conduct, fund and pursue all aspects of the
development, submissions for regulatory approvals, manufacture and
commercialization of the AMG 073 compound in its territories. Amgen paid us an
initial up-front license fee upon signing the agreement. In addition, if
specified milestones are achieved, then Amgen is required to make additional
milestone payments and must pay royalties to us on any sales of AMG 073. We may
terminate the agreement if Amgen breaches the agreement and does not cure the
breach within 120 days of receiving notice of the breach. Amgen may terminate
the agreement for any reason on 90 days' prior written notice. If there is a
termination for a reason other than our breach of the agreement, we would
reacquire the technology, patent and commercialization rights to AMG 073.
GlaxoSmithKline
In November 1993, we entered into a collaborative research and worldwide
exclusive license agreement with GlaxoSmithKline for the research, development
and commercialization of calcium-receptor active compounds for the treatment of
osteoporosis and other bone metabolism disorders, excluding hyperparathyroidism.
GlaxoSmithKline also has a first right to negotiate for a collaboration
arrangement regarding other research that might be related to bone metabolism
disorders, and an exclusive right to negotiate for a license to compounds
developed under the agreement for purposes other than bone metabolism disorders.
Once compounds have been selected for development, GlaxoSmithKline has the
authority and responsibility to conduct and fund all product development,
including clinical trials and regulatory submissions, and manufacturing. We have
the right to co-promote, in the United States, products resulting the
collaboration. In addition to research funding, and some previously paid
milestone payments, GlaxoSmithKline has agreed to pay us additional amounts as
it achieves certain development or marketing milestones, and must pay royalties
on any sales of products for osteoporosis and other bone metabolism disorders
that include compounds developed by GlaxoSmithKline under the agreement and a
percentage of profits from co-promotion of the products. GlaxoSmithKline may
terminate the agreement on 30 days' written notice and after a six-month waiting
period, or in the event we breach the agreement on 60 days' written notice for
our breach. Upon termination, rights and licenses we granted GlaxoSmithKline
revert to us. The collaborative research portion of this agreement is now
continuing on a month-to-month basis with considerably more work being done by
GlaxoSmithKline than by us. We are discussing with GlaxoSmithKline appropriate
next phases of our agreement.
AstraZeneca
In March 2001, we entered into an exclusive research collaboration and
license agreement with AstraZeneca to collaborate on the discovery, development
and marketing of small molecule therapies for the treatment of various disorders
of the central nervous system. Specifically, the collaboration focuses on the
identification of small molecules active on mGluRs. We granted AstraZeneca an
exclusive license to the worldwide development and commercialization of any
mGluR-active compounds identified under the collaboration, including
improvements. During the five-year research term, we will work together on the
identification of mGluR-active compounds. Once compounds have been selected for
development, AstraZeneca will conduct and fund product development, including
all human clinical trials, regulatory submissions, commercializations and
manufacturing. We have the right to co-promote any resulting product in the
United States and Canada and receive co-promotion revenue, if any. Should we
elect to co-promote products, in some circumstances we will be required to share
in the development and regulatory costs associated with those products. If we
elect not to co-promote, we are entitled to milestone payments and royalties on
any sales of products developed and marketed under the agreement. We may
terminate the agreement if AstraZeneca breaches the agreement and does not cure
the breach within 60 days of receiving notice of the breach. After two years of
the research program, either party may terminate the agreement on six months'
prior written notice. After the research term, AstraZeneca may terminate the
agreement at anytime upon 90 days' prior written notice. Termination by
AstraZeneca for reasons other than our breach will result in the return to us of
all rights we granted and the related technology, including improvements.
Janssen
In October 1998, we entered into a collaborative agreement with Janssen for
the research, development and commercialization of new drugs for the treatment
of schizophrenia and dementia. The research phase of this collaboration ended in
October 2000. In addition, Janssen controls and is responsible for development
and commercialization of the compounds, including manufacturing, and including
all costs and expenses associated with the development efforts. While Janssen
has the right to market products worldwide, we may co-promote, in Canada, any
products developed under the agreement. We will receive milestone
9
payments if Janssen reaches certain milestones, and royalties from any product
sales resulting from the collaboration. We may terminate the agreement if
Janssen breaches the agreement and does not cure the breach within 60 days of
receiving notice of the breach. In that case, all rights granted to Janssen
revert to us. Janssen may terminate, for any reason, on 90 days notice to us. If
Janssen terminates, other than for our breach, then the rights to any compounds
or products are transferred to us. We can also terminate Janssen's rights if
Janssen does not launch the product in the United States, but must pay a royalty
to Janssen on product sales after that termination.
Kirin
In June 1995, we entered into a collaborative research and license
agreement with Kirin to develop and commercialize AMG 073 for the treatment of
hyperparathyroidism and any other indications other than osteoporosis and bone
metabolism disorders in Japan, China, Hong Kong, North and South Korea and
Taiwan. Kirin is responsible for conducting clinical trials and obtaining
regulatory approvals in its territories, and for developing and commercializing
products within its territories. The agreement also requires Kirin to use
reasonable good faith efforts to introduce a product to market. Kirin paid us an
initial up-front license fee and agreed to pay us certain milestone payments on
the achievement of specified events. Kirin is required to pay us royalties on
any sales of products containing AMG 073 or a similar compound within its
territories. We may terminate the agreement if Kirin breaches the agreement and
does not cure the breach within 90 days of receiving notice of the breach. Kirin
may terminate the agreement for any reason on 90 days' prior written notice, and
on a country by country basis on specified conditions relating to market size.
If Kirin terminates the agreement, Amgen would receive rights to develop and
commercialize AMG 073 for the treatment of hyperparathyroidism and other
indications, except osteoporosis, in the terminated territories. We are advised
that Kirin and Amgen have executed a separate data sharing agreement related to
clinical data under their separate agreements with us. We have also authorized
them to enter into a manufacturing agreement with one or more manufacturing
companies for clinical and commercial supplies.
Sponsored and Government Funded Research Programs
We have entered into certain research and license agreements that require
us to make research support payments to academic or research institutions when
the research is performed. Additional payments may be required upon the
accomplishment of research milestones by the institutions or as license fees or
royalties to maintain the licenses.
For example, in February 1993, we entered into a collaborative research
agreement and a patent license agreement with The Brigham and Women's Hospital,
an affiliate of Harvard University Medical School. The patent license agreement
grants us an exclusive license to certain calcium receptor and inorganic ion
receptor technology covered by patents we jointly own with the hospital. The
research agreement grants us a right of first negotiation for exclusive license
rights to any patentable subject matter arising out of research that we sponsor
at the hospital. The Brigham and Women's Hospital is also entitled to a royalty
on any sales of certain products under the patent license agreement, and we have
committed to promote sales of any licensed products for hyperparathyroidism for
which we receive regulatory approval.
Prior to the time that we acquired Allelix in December 1999, Allelix had
entered into a research funding agreement with the Government of Canada pursuant
to the Technology Partnerships Canada program. Under the agreement, Canada is
obligated to reimburse us for up to 30 percent of the eligible research and
development costs we incur for our ALX-0600 product candidate through December
2002 up to a maximum of Cdn. $8.4 million. As of December 31, 2001, a total of
Cdn. $4.7 million had been invoiced by both Allelix, prior to the effective date
of the acquisition, and us, for reimbursement under the terms of the agreement.
The agreement provides Canada with a 10 percent royalty on revenues we receive
from the sale or license of ALX-0600. Our royalty obligation terminates on
December 31, 2008 if we have paid at least Cdn. $23.9 million. If we have not
paid that amount by that date, our royalty obligation continues until the
earlier of the date we have paid Cdn. $23.9 million in royalties or December 31,
2017.
The agreement contains a number of significant limitations on our ability
to develop, manufacture and commercialize ALX-0600 outside of Canada. For
example, the agreement requires us to produce in Canada clinical and commercial
supplies of ALX-0600. In addition, the agreement requires us to enter into a
licensing arrangement with a pharmaceutical company operating in Canada for the
conduct of Phase III clinical trials and commercialization of ALX-0600.
10
The agreement also prohibits us from entering into any licensing agreement for
the further development, production and marketing of ALX-0600 without the prior
written consent of the Canadian government. In general, the agreement includes
on-going commitments to create manufacturing, marketing and sales jobs in
Canada.
If we were to fail to meet our obligations under the agreement, or obtain a
waiver of the obligation, Canada would have the right to declare us in default.
If we were unable to cure the default, we would suffer adverse consequences,
including the payment of liquidated damages, repaying all amounts received from
Canada, or surrendering all intellectual property rights associated with
ALX-0600, in some circumstances.
We have been unable to identify a Canadian manufacturer capable of
producing ALX-0600 in compliance with cGMP with the quality and in the quantity
we need for our future development efforts. As a result, we have arranged for a
contract manufacturer outside of Canada to manufacture ALX-0600 in bulk form,
which is then being formulated by a Canadian company. We have notified the
Canadian government of our arrangements and received its authorization to
proceed with the manufacture of ALX-0600 for our Phase II clinical trials.
New Drug Development and Approval Process
Regulation by governmental authorities in the United States and other
countries is a significant factor in the manufacture and marketing of
pharmaceuticals and in our ongoing research and development activities. All of
our product candidates will require regulatory approval by governmental agencies
prior to commercialization. In particular, drug candidates are subject to
rigorous preclinical testing and clinical trials and other premarketing approval
requirements by the FDA and regulatory authorities in other countries. In the
United States, various federal, and in some cases state statutes and regulations
also govern or affect the manufacturing, safety, labeling, storage, record
keeping and marketing of such products. The lengthy process of seeking required
approvals and the continuing need for compliance with applicable statutes and
regulations require the expenditure of substantial resources. Regulatory
approval, when and if obtained, may significantly limit the indicated uses for
which our products may be marketed. Further, approved drugs, as well as their
manufacturers, are subject to ongoing review and discovery of previously unknown
problems with such products may result in restrictions on their manufacturer,
sale or use or in their withdrawal from the market.
The steps required by the FDA before our drug candidates may be marketed in
the United States include, among other things:
. the performance of preclinical laboratory and animal tests and
formulation studies;
. the submission to the FDA of an Investigational New Drug application,
or IND, which must become effective before human clinical trials may
commence;
. the completion of adequate and well-controlled human clinical trials
to establish the safety and efficacy of the drug;
. the submission of a New Drug Application, or NDA, to the FDA; and
. FDA approval of the NDA.
The testing and approval process requires substantial time, effort and
financial resources and we cannot be certain that any approvals for any of our
proposed products will be granted on a timely basis, if at all.
11
Prior to commencing a clinical trial, we must submit an IND to the FDA. The
IND becomes effective 30 days after receipt by the FDA, unless within the 30-day
period, the FDA raises concerns or questions with respect to the conduct of the
trial. In such a case, the IND sponsor and the FDA must resolve any outstanding
concerns before the study can begin. The submission of an IND may not result in
FDA authorization to commence a clinical trial. Further, an independent
institutional review board at the medical center or centers proposing to conduct
the trial must review and approve the plan for any clinical trial before it
commences.
Human clinical trials are typically conducted in three sequential phases
that may overlap:
. PHASE I: the drug is initially introduced into healthy human subjects
or patients and tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion.
. PHASE II: involves studies in a limited patient population to identify
possible adverse effects and safety risks, to determine the efficacy
of the product for specific targeted diseases and to determine optimal
dosage.
. PHASE III: when Phase II evaluations demonstrate that a dosage range
of the product is effective and has an acceptable safety profile,
Phase III trials are undertaken to further evaluate dosage and
clinical efficacy and to further test for safety in an expanded
patient population at geographically dispersed clinical study sites.
We cannot be certain that we or any of our collaborative partners will
successfully complete Phase I, Phase II or Phase III testing of any compound
within any specific time period, if at all. Furthermore, the FDA or the study
sponsor may suspend clinical trials at any time on various grounds, including a
finding that the subjects or patients are being exposed to an unacceptable
health risk.
The results of product development, preclinical studies and clinical trials
are submitted to the FDA as part of an NDA. The FDA may deny an NDA if the
applicable regulatory criteria are not satisfied or may require additional
clinical data. Even if such data is submitted, the FDA may ultimately decide
that the NDA does not satisfy the criteria for approval. If approved, the FDA
may withdraw product approval if compliance with regulatory standards is not
maintained or if problems occur after the product reaches the market. In
addition, the FDA may require testing and surveillance programs to monitor the
effect of approved products that have been commercialized, and the FDA has the
power to prevent or limit further marketing of a product based on the results of
these post-marketing programs.
Satisfaction of the above FDA requirements or similar requirements of
state, local and foreign regulatory agencies typically takes several years and
the actual time required may vary substantially, based upon the type, complexity
and novelty of a product or indication.
Government regulation may delay or prevent marketing of potential products
for a considerable period of time and impose costly procedures upon our or our
partner's activities. The FDA or any other regulatory agency may not grant any
approvals on a timely basis, if at all. Success in early stage clinical trials
does not assure success in later stage clinical trials. Data obtained from
clinical activities is not always conclusive and may be susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval. Even
if a product receives regulatory approval, the approval may be significantly
limited to specific indications and dosages. Further, even if regulatory
approval is obtained, later discovery of previously unknown problems with a
product may result in restrictions on the product or even complete withdrawal of
the product from the market. Delays in obtaining, or failures to obtain
regulatory approvals may have a material adverse effect on our business. In
addition, we cannot predict what adverse governmental regulations may arise from
future United States or foreign governmental action.
Any products manufactured or distributed by us or our partners pursuant to
FDA approvals are subject to pervasive and continuing regulation by the FDA,
including record-keeping requirements and reporting of adverse experiences with
the drug. Drug manufacturers are required to register their establishments with
the FDA and certain state agencies, and are subject to periodic unannounced
inspections by the FDA for compliance with current good manufacturing practice,
or cGMP, regulations which impose certain procedural and documentation
requirements upon us and our contract manufacturers. We cannot be certain that
we or our present or future suppliers will be able to comply with the cGMP
regulations and other FDA regulatory requirements.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a rare disease or condition, which is generally a
disease or condition that affects fewer than 200,000 individuals in the United
States. Orphan drug designation must be requested before submitting an NDA.
After the FDA grants orphan drug designation, the generic identity of the
therapeutic agent and its potential orphan use are disclosed publicly by the
FDA. Orphan drug designation does not convey any advantage in or shorten the
duration of the regulatory review and approval process. If a product that has
orphan drug designation subsequently receives FDA approval for the disease for
which it has such designation, the product is entitled to orphan exclusivity.
For example, the FDA may not approve any other applications to market the same
drug for the same disease, except in very limited circumstances, for seven
years. We intend to file for orphan drug designation for those diseases which
meet the criteria for orphan
12
exclusivity. Although obtaining FDA approval to market a product with orphan
drug exclusivity can be advantageous, there can be no assurance that it would
provide us with a material commercial advantage.
Steps similar to those in the United States must be undertaken in virtually
every other country comprising the market for our product candidates before any
such product can be commercialized in those countries. The approval procedure
and the time required for approval vary from country to country and may involve
additional testing. There can be no assurance that approvals will be granted on
a timely basis, or at all. In addition, regulatory approval of prices is
required in most countries other than the United States. There can be no
assurance that the resulting prices would be sufficient to generate an
acceptable return to us.
Patents and Other Proprietary Technology
Our intellectual property portfolio includes patents, patent applications,
trade secrets, know-how and trademarks. Our success will depend in part on our
ability to obtain additional patents, maintain trade secrets and operate without
infringing the proprietary rights of others, both in the United States and in
other countries. We periodically file patent applications to protect the
technology, inventions and improvements that may be important to the development
of our business. We rely on trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain our competitive
position.
We file patent applications on our own behalf as assignee and, when
appropriate, have filed and expect to continue to file, applications jointly
with our collaborators. These patent applications cover compositions of matter,
methods of treatment, methods of discovery, use of novel compounds and novel
modes of action, as well as recombinantly expressed receptors and gene sequences
that are important in our research and development activities. Some of our
principal intellectual property rights related to processes, compounds, uses and
techniques related to calcium receptor science are now protected by issued
United States patents. We intend to file additional patent applications relating
to our technology and to specific products, as we think appropriate.
We hold patents directed to potential therapeutic products such as new
chemical entities, pharmaceutical compositions and methods of treating diseases.
We hold patents directed also to nucleic acid and amino acid sequences of novel
cellular receptors and methods of screening for compounds active at such
cellular receptors. We continue actively to seek patent protection for these and
related technologies in the United States and in foreign countries.
We also rely on trade secrets and contractual arrangements to protect our
trade secrets. Much of the know-how important to our technology and many of its
processes are dependent upon the knowledge, experience and skills of our key
scientific and technical personnel and are not the subject of pending patent
applications or issued patents. To protect our rights to know-how and
technology, we require all of our employees, consultants, advisors and
collaborators to enter into confidentiality agreements that prohibit the
unauthorized use of, and restrict the disclosure of, confidential information
and require disclosure and assignment to us of their ideas, developments,
discoveries and inventions.
In connection with our research and development activities, we have
sponsored research at various university and government laboratories. For
example, we have executed license and research agreements regarding research in
the area of calcium and other ion receptors with The Brigham and Women's
Hospital. We have also sponsored work at other government and academic
laboratories for various evaluations, assays, screenings and other tests.
Generally, under these agreements, we fund the work of investigators in exchange
for the results of the specified work and the right or option to a license to
any patentable inventions that may result in certain designated areas. If the
sponsored work produces patentable subject matter, we generally have the first
right to negotiate for license rights related to that subject matter. Any
resulting license would be expected to require us to pay royalties on net sales
of licensed products.
Competition
We and our collaborators and licensees are pursuing areas of product
development in which we believe there is a potential for extensive technological
innovation in relatively short periods of time. We operate in a field in which
new discoveries occur at a rapid pace. Our competitors may succeed in developing
technologies or products that are more effective than ours, or in obtaining
regulatory approvals for their drugs more rapidly than we are able to, which
could render our products obsolete or noncompetitive. Competition in the
pharmaceutical industry is intense and is expected to continue to increase. Many
competitors, including biotechnology and pharmaceutical companies, are actively
engaged in research and development in areas where we are also developing
products, including the fields of osteoporosis, hyperparathyroidism, and
neurological disorders. For osteoporosis, there are a number of therapies which
are currently being marketed, including estrogen replacement therapies like
Wyeth-Ayerst's Premarin, bisphosphonates like Merck's Fosamax, and selective
estrogen receptor modulators, like Lilly's Evista. Lilly also has been
developing Forteo, which will compete as a bone-building agent for the treatment
of osteoporosis. Lilly has filed an NDA for Forteo administered by subcutaneous
injection, and an FDA advisory committee has recommended that the FDA approve
Forteo as a treatment for osteoporosis in postmenopausal women. Lilly has also
received an Approvable Letter from the FDA for Forteo as a treatment for
osteoporosis. Lilly's product will likely be the first to market in the
treatment of osteoporosis using an
13
injectable bone-building drug. Lilly has also announced that it is investigating
alternate methods of delivery of Forteo. For hyperparathyroidism, Bone Care
International is presently marketing Hectoral, a vitamin D analog to relieve
some symptoms of secondary hyperparathyroidism, and Genzyme is currently
marketing RenaGel for the treatment of hyperphosphatemia, a condition resulting
from secondary hyperparathyroidism.
Many of our competitors have substantially greater financial, technical,
marketing and personnel resources. In addition, some of them have considerable
experience in preclinical testing, human clinical trials and other regulatory
approval procedures. Moreover, certain academic institutions, governmental
agencies and other research organizations are conducting research in the same
areas in which we are working. These institutions are becoming increasingly
aware of the commercial value of their findings and are more actively seeking
patent protection and licensing arrangements to collect royalties for the
technology that they have developed. These institutions may also market
competitive commercial products on their own or through joint ventures and will
compete with us in recruiting highly qualified scientific personnel. Our ability
to compete successfully will depend, in part, on our ability to:
. develop marketing, sales and distribution capabilities for our
proprietary products;
. leverage our established collaborations and enter into new
collaborations for the development of our products;
. identify new product candidates through our internal discovery effort
or through acquisition;
. develop products that reach the market first;
. develop products that are superior to other products in the market;
. develop products that are cost-effective and competitively priced; and
. obtain and enforce patents covering our technology.
Manufacturing
We currently rely, and will continue to rely for at least the foreseeable
future, on contract manufacturers to provide sufficient quantities of our
product candidates for use in our preclinical and clinical trials and for our
pre-launch and commercial launch needs. We have contracted with, and continue to
negotiate with, various contract manufacturers for supplies of PREOS to meet our
clinical trial and commercial launch requirements. Clinical supplies of PREOS
are produced on an on-going basis. We do not have on hand sufficient supplies of
PREOS to meet all our clinical trial requirements. If clinical supplies of PREOS
are disrupted, exhausted, or fail to arrive when needed, we will have to
substantially curtail or terminate the Phase III trials of PREOS. Additionally,
our current contract manufacturers do not have sufficient capacity to meet our
expected full commercial requirements of PREOS after product launch. As a
result, we will need to contract with one or more other commercial
manufacturers.
We are also seeking arrangements with contract manufacturers for
supplies of ALX-0600 to be used in future clinical trials. Our agreement with
the Canadian government requires that the ALX-0600 we use in clinical trials and
for commercial launch be manufactured by a Canadian company. We have been unable
to identify a Canadian manufacturer capable of manufacturing and formulating
ALX-0600 in compliance with cGMP and with sufficient quantity and quality for
our future clinical development program. As a result, we have arranged for a
contract manufacturer outside of Canada to manufacture the bulk compound, which
is then formulated into ALX-0600 by a Canadian company. We have notified the
Canadian government of our arrangements and received their authorization to
proceed with the manufacture of ALX-0600 for our Phase II clinical trials. If
clinical supplies of ALX-0600 are disrupted, exhausted, or fail to arrive when
needed, we will have to substantially curtail or postpone initiation of planned
clinical trials with ALX-0600.
Employees
As of December 31, 2001, we employed 146 individuals full-time, of which 33
hold Ph.D. degrees and 32 hold other advanced degrees. A total of 97 full-time
employees are engaged in research, development and support activities. A total
of 49 full-time employees are employed in finance, legal, human resources,
market research, corporate development and general administrative activities.
None of our employees are covered by collective bargaining agreements and our
management considers its relations with our employees to be good.
14
RISK FACTORS
Before you make an investment decision with respect to any of our securities,
you should be aware of various risks, including those described below. You
should carefully consider the following risk factors, together with all of the
other information included in this Annual Report on Form 10-K , before you make
an investment decision regarding any of our securities. The risks set out below
are not the only risks we face. If any of the following risks occur, our
business, financial condition or results of operations would likely suffer. In
that case, the trading price of our securities could fall, and you may lose all
or part of the money you paid to buy our securities.
We have a history of operating losses. We expect to incur net losses and we may
never achieve or maintain profitability.
With the exception of 1996, we have not been profitable since our inception
in 1986. As of December 31, 2001, we had an accumulated deficit of approximately
$161.0 million. We have not generated any revenue from product sales to date,
and it is possible that we will never have significant product sales revenue, if
any. We expect to continue to incur losses for at least the next several years
as we and our collaborators and licensees pursue clinical trials and research
and development efforts. To become profitable, we, either alone or with our
collaborators and licensees, must successfully develop, manufacture and market
our current product candidates, particularly PREOS and AMG-073, as well as
continue to identify, develop, manufacture and market new product candidates. It
is possible that we will never have significant product sales revenue or receive
significant royalties on our licensed product candidates.
We do not have, and may never develop, any commercial drugs or other products
that generate revenues.
Our existing product candidates will require significant additional
development, clinical trials, regulatory clearances and additional investment
before they can be commercialized. Our product development efforts may not lead
to commercial drugs for a number of reasons, including the failure of our
product candidates to be safe and effective in clinical trials or because we
have inadequate financial or other resources to pursue the programs through the
clinical trial process. We do not expect to be able to market any of our
existing product candidates for a number of years, if at all.
We are dependent on the successful outcome of the clinical trials for our two
most advanced product candidates, PREOS and AMG 073. If either or both of these
product candidates fail to advance in the clinic, our business will be
materially harmed and our stock price will be adversely affected.
We are currently conducting Phase III clinical trials for PREOS, our
proprietary product candidate for the treatment of osteoporosis. Amgen, our
licensee, is conducting Phase III clinical trials for AMG 073, a compound
intended to treat hyperparathyroidism. Our success will depend, to a great
degree, on the success of these and subsequent clinical trials. In order to
successfully commercialize PREOS and AMG 073, we and Amgen must be able to,
among other things, obtain required regulatory approvals for these product
candidates. Prior to receiving approval for commercialization, we must
demonstrate with substantial evidence from well-controlled clinical trials, and
to the satisfaction of the FDA and comparable foreign regulatory authorities,
that each of these product candidates is both safe and efficacious. While no
significant safety issues have emerged in Phase I and Phase II clinical trials
with respect to either of these product candidates, we will still need to
demonstrate their efficacy for the treatment of their respective specific
indications, as well as their continued safety through the conduct of Phase III
clinical trials. The successful outcome of our and Amgen's Phase III clinical
trials for PREOS and AMG 073 will depend in part on our and Amgen's ability to
successfully complete enrollment in the trials and completion of the study, a
process that can be difficult and may result in delays in the completion or
suspension of the trials. To date, neither long-term safety nor efficacy has
been demonstrated in clinical trials with either of these product candidates.
Accordingly, the results of future studies may indicate that the candidates are
unsafe, ineffective or both, notwithstanding the results of earlier clinical
trials. We cannot assure you that either or both of these products will continue
to prove to be safe or efficacious in accordance with regulatory requirements.
Further, we cannot assure you that these product candidates will be approved in
a timely manner, if at all. If we or Amgen fail to successfully obtain
regulatory approvals for PREOS or AMG 073, our business will be materially
harmed and our stock price will be adversely affected.
The FDA has not approved any of our product candidates and we cannot assure you
that data collected from preclinical and clinical trials of our product
candidates will be sufficient to support approval by the FDA, the failure of
which could delay our profitability and adversely affect our stock price.
Many of our research and development programs are at an early stage.
Clinical trials are long, expensive and uncertain processes. Clinical trials may
not be commenced or completed on schedule, and the FDA may not ultimately
approve our product candidates for commercial sale. Further, even if the results
of our preclinical studies or clinical trials are initially positive, it is
possible that we will obtain different results in the later stages of drug
development or that results seen in clinical trials will not continue with
longer term treatment. Drugs in late stages of clinical development may fail to
show the desired safety and efficacy traits despite
15
having progressed through initial clinical testing. For example, positive
results in early Phase I or Phase II clinical trials may not be repeated in
larger Phase II or Phase III clinical trials. All of our potential drug
candidates are prone to the risks of failure inherent in drug development. The
clinical trials of any of our drug candidates could be unsuccessful, which would
prevent us from commercializing the drug. Our failure to develop safe,
commercially viable drugs would substantially impair our ability to generate
revenues and sustain our operations and would materially harm our business and
adversely affect our stock price.
If we fail to maintain our existing or establish new collaborative
relationships, or if our collaborators do not devote adequate resources to the
development and commercialization of our licensed drug candidates, we may have
to reduce our rate of product development and may not see products brought to
market or be able to achieve profitability.
Our strategy for developing, manufacturing and commercializing our products
includes entering into various relationships with large pharmaceutical companies
to advance many of our programs. We have granted exclusive development,
commercialization and marketing rights to a number of our collaborators for some
of our key product development programs, including AMG 073, calcilytics, mGluRs
and glycine reuptake inhibitors. Except in the case of our collaboration with
AstraZeneca for research involving mGluRs, our collaborators have full control
over those efforts in their territories and the resources they commit to the
programs. Accordingly, the success of the development and commercialization of
product candidates in those programs depends on their efforts and is beyond our
control. For us to receive any significant milestone or royalty payments from
our collaborators, they must advance drugs through clinical trials, establish
the safety and efficacy of our drug candidates, obtain regulatory approvals or
achieve market acceptance of those products.
Under our collaboration with AstraZeneca, we are required to co-direct the
research and to pay for an equal share of the research through a minimum of 30
months and, under certain circumstances, for the full term of 60 months. This
commitment of personnel and capital may limit or restrict our ability to
initiate or pursue other research efforts. As part of our product development
strategy, we evaluate whether to seek collaborators for our product candidates.
If we elect to collaborate, we may not be able to negotiate collaborative
arrangements for our product candidates on acceptable terms, if at all. If we
are unable to establish collaborative arrangements, we will either need to
increase our expenditures and undertake the development and commercialization
activities at our own expense or delay further development of the effected
product candidate. Our research funding agreement with the Canadian government
significantly limits our ability to establish collaborations for ALX-0600
without its consent.
Collaborative agreements, including our existing agreements, pose the
following risks:
. our contracts with collaborators may be terminated and we may not
be able to replace our collaborators;
. the terms of our contracts with our collaborators may not be
favorable to us in the future;
. our collaborators may not pursue further development and
commercialization of compounds resulting from their
collaborations with us;
. a collaborator with marketing and distribution rights to one or
more of our products may not commit enough resources to the
marketing and distribution of our product candidates;
. disputes with our collaborators may arise, leading to delays in
or termination of the research, development or commercialization
of our product candidates, or resulting in significant litigation
or arbitration;
. contracts with our collaborators may fail to provide significant
protection if one or more of them fail to perform;
. in some circumstances, if a collaborator terminates an agreement,
or if we are found to be in breach of our obligations, we may be
unable to secure all of the necessary intellectual property
rights to continue developing the same compound or product;
. our collaborators could independently develop, or develop with
third parties, drugs that compete with our products; and
. we may be unable to meet our financial or other obligations under
our collaborative agreements; for example, we have had to obtain
a waiver of our obligation to have manufactured in Canada
clinical supplies of ALX-0600 because no such Canadian
manufacturer could be identified, and we could face similar
issues in the future, which might lead to a loss of significant
rights or require us to pay significant damages.
16
There is a great deal of uncertainty surrounding the success of our current
and future collaborative efforts. If our collaborative efforts fail, our
business and financial condition would be materially harmed.
Because we do not have marketing, sales or distribution capabilities, we may be
unable to market and sell our products and generate revenues.
We have recruited and continue to recruit marketing, market research, and
product planning personnel. However, we currently have no sales, marketing or
distribution capabilities. In order to commercialize any product candidates for
which we receive FDA approval, we will have to develop a sales and marketing
force or rely on third parties to perform these functions. To market products
directly, we will have to develop a marketing and sales force with technical
expertise and supporting distribution capability. Our inability to develop
expertise and attract skilled marketing and sales personnel to establish in-
house sales and distribution capabilities may limit our ability to gain market
acceptance for our products and generate revenues. For example, if we are
successful in our Phase III clinical trials with PREOS, and the FDA grants
approval for the commercialization of PREOS, we will be unable to introduce the
product to market without developing these capabilities. We have only recently
begun to develop our internal sales and marketing force and cannot assure you
that we will be successful in our efforts to establish this force. Further, if
we rely on relationships with one or more large pharmaceutical companies with
established distribution systems and direct sales forces to market any or all of
our product candidates, we cannot assure you that we will be able to enter into
or maintain agreements with these companies on acceptable terms, if at all.
In addition, we expect to begin to incur significant expenses in developing
sales, marketing and distribution capabilities in advance of determining our
commercialization strategy with respect to one or more of our product
candidates. The determination of our commercialization strategy with respect to
a product candidate will depend on a number of factors, including:
. the extent to which we have funded the development of the product
candidate independently;
. the extent to which our agreement with our collaborators permits
us to exercise marketing or promotion rights with respect to the
product candidate; and
. how our product candidates compare with competitive products with
respect to labeling, pricing and therapeutic effect.
A number of these factors will be difficult to determine until additional
information is known and are otherwise outside of our control. Therefore, we may
change commercialization strategies by entering into agreements with our
collaborators or third parties after we have incurred significant expenses in
developing internal sales, marketing and distribution capabilities. A change of
this nature could result in increased expenses or delays in commercialization
and therefore could delay revenues and adversely affect our future operating
results.
We have no manufacturing capabilities. We depend on third parties for
manufacturing and storage of our product candidates and our clinical trials and
product introductions may be delayed or suspended if the manufacture of our
products is interrupted or discontinued.
We do not have manufacturing facilities to produce sufficient supplies of
either PREOS or ALX-0600 to support clinical trials and preparations for
commercial launch of these products, if they are approved. We are dependent on
third parties for manufacturing and storage of our product candidates. If we are
unable to contract for a sufficient supply of our product candidates on
acceptable terms, or if we encounter delays or difficulties in manufacturing
process or our relationships with our manufacturers, we may not have sufficient
product to conduct or complete our clinical trials or support preparations for
the commercial launch of our product candidates, if approved.
We have entered into agreements with contract manufacturers to manufacture
PREOS for use in clinical trial activities and for commercial launch if PREOS is
approved by the FDA. These contract manufacturers are currently our only source
for the production and formulation of PREOS. To date, these contract
manufacturers have produced only small quantities of PREOS relative to those
needed for commercialization. They may be unable to scale production when
necessary to allow preparations for commercial launch or accurately and reliably
manufacture commercial quantities of PREOS at reasonable costs, on a timely
basis, and in compliance with the FDA's current good manufacturing practices, or
cGMP. We will need to contract with one or more other commercial manufacturers
to supply commercial grade quantities of PREOS.
Our agreement with the Canadian government requires that the ALX-0600 we
use in clinical trials and for commercial launch be manufactured by a Canadian
company. This agreement also contains a number of other significant restrictions
on our ability to develop, manufacture and commercialize ALX-0600 outside of
Canada. To the extent that we are unable to comply with any performance
obligation or obtain a waiver of the obligation, the Canadian government would
have the right to declare us in default. If we were unable to cure the default,
we could suffer adverse consequences, including the payment of liquidated
damages that would be
17
material to us or surrendering all intellectual property rights associated with
ALX-0600 in some circumstances. We have been unable to identify a Canadian
manufacturer capable of manufacturing and formulating ALX-0600 in compliance
with cGMP and with sufficient quantity and quality for our future clinical
development program. As a result, we have arranged for a contract manufacturer
outside of Canada to manufacture the bulk compound, which is then formulated
into ALX-0600 by a Canadian company. We have notified the Canadian government of
our arrangements and received their authorization to proceed with the
manufacture of ALX-0600 for our Phase II clinical trials.
We may be unable to maintain our current relationships or establish new
relationships with contract manufacturers on acceptable terms, if at all.
Moreover, our reliance on contract manufacturers exposes us to the following
additional risks:
. delays in scale-up to quantities needed for clinical trials or
failure to manufacture such quantities to our specifications, or
delivery of such quantities on the dates we require could cause
us to delay or suspend clinical trials, regulatory submissions
and commercialization of our products in development;
. our current and future manufacturers are subject to ongoing,
periodic, unannounced inspection by the FDA and corresponding
state and international regulatory authorities for compliance
with strictly enforced cGMP regulations and similar foreign
standards, and we do not have control over our contract
manufacturers' compliance with these regulations and standards;
. our current and future manufacturers may not be able to comply
with applicable regulatory requirements, which would prohibit
them from manufacturing products for us;
. if we need to change to other commercial manufacturing
contractors, the FDA and comparable foreign regulators must
approve these contractors prior to our use, which would require
new testing and compliance inspections, and the new manufacturers
would have to be educated in, or themselves develop substantially
equivalent processes necessary for, the production of our
products;
. our manufacturers might not be able to fulfill our commercial
needs, which would require us to seek new manufacturing
arrangements and may result in substantial delays in meeting
market demand; and
. we may not have intellectual property rights, or may have to
share intellectual property rights, to any improvements in the
manufacturing processes or new manufacturing processes for our
products.
Any of these factors could cause us to delay or suspend clinical trials,
regulatory submission, required approvals or commercialization of our products
under development, entail higher costs and result in our being unable to
effectively commercialize our products.
We do not currently intend to manufacture any of our product candidates,
although we may choose to do so in the future. If we decide to manufacture our
products, we would be subject to the regulatory risks and requirements described
above. We would also be subject to similar risks regarding delays or
difficulties encountered in manufacturing our pharmaceutical products and we
would require additional facilities and substantial additional capital. We
cannot assure you that we would be able to manufacture any of our products
successfully in accordance with regulatory requirements and in a cost-effective
manner.
We may need additional financing, but our access to capital funding is
uncertain.
Our current and anticipated operations, particularly our product
development and commercialization programs for PREOS and ALX-0600, require
substantial capital. We expect that our existing cash and cash equivalents will
sufficiently fund our operations through at least 2003. However, our future
capital needs will depend on many factors, including receiving milestone
payments from our collaborators and making progress in our internally funded
research, development and commercialization activities. Our capital requirements
will also depend on the magnitude and scope of these activities, our ability to
maintain existing and establish new collaborations, the terms of those
collaborations, the success of our collaborators in developing and marketing
products under their respective collaborations with us, competing technological
and market developments, the time and cost of obtaining regulatory approvals,
the extent to which we choose to commercialize our future products through our
own sales and marketing capabilities, the cost of preparing, filing,
prosecuting, maintaining and enforcing patent and other rights and our success
in acquiring and integrating complementary products, technologies or companies.
We do not have committed external sources of funding and we cannot assure you
that we will be able to obtain additional funds on acceptable terms, if at all.
If adequate funds are not available, we may be required to:
. engage in equity financing that would be dilutive to current
shareholders;
18
. delay, reduce the scope of or eliminate one or more of our
development programs;
. obtain funds through arrangements with collaborators or others
that may require us to relinquish rights to technologies, product
candidates or products that we would otherwise seek to develop or
commercialize ourselves; or
. license rights to technologies, product candidates or products on
terms that are less favorable to us than might otherwise be
available.
If funding is insufficient at any time in the future, we may not be able to
develop or commercialize our products, take advantage of business opportunities
or respond to competitive pressures.
Because of the uncertainty of pharmaceutical pricing, reimbursement and
healthcare reform measures, we may be unable to sell our products profitably.
The availability of reimbursement by governmental and other third-party
payors affects the market for any pharmaceutical product. These third-party
payors continually attempt to contain or reduce the costs of healthcare. There
have been a number of legislative and regulatory proposals to change the
healthcare system and further proposals are likely. Under current guidelines,
Medicare does not reimburse patients for self-administered drugs. Medicare's
policy may decrease the market for our products that are designed to treat
patients with age-related disorders, such as osteoporosis and
hyperparathyroidism. Significant uncertainity exists with respect to the
reimbursement status of newly approved healthcare products. In addition,
third-party payors are increasingly challenging the price and cost-effectiveness
of medical products and services. We might not be able to sell our products
profitably or recoup the value of our investment in product development if
reimbursement is unavailable or limited in scope, particularly for product
candidates addressing small patient populations, such as ALX-0600 for the
treatment of short bowel syndrome.
As a result of intense competition and technological change in the
pharmaceutical industry, the marketplace may not accept our products and we may
not be able to compete successfully against other companies in our industry and
achieve profitability.
Many of our competitors have drug products that have already been approved
or are in development, and operate large, well-funded research and development
programs in these fields. For example, Forteo, a fragment of the full-length
parathyroid hormone for the treatment of osteoporosis, was recently recommended
for approval by the FDA's Endocrinologic and Metabolic Drugs Advisory Committee
for the treatment of osteoporosis and Lilly has received an Approvable Letter
from the FDA for Forteo as a treatment for osteoporosis. If PREOS is approved by
the FDA, it will compete directly with Forteo and other approved therapies,
including estrogen replacement therapies, bisphosphonate and selective estrogen
modulators therapies. Similarly, Hectoral, a product of Bone Care International,
Inc., is currently being marketed as a treatment to relieve some symptoms of
secondary hyperparathyroidism and will compete directly with AMG 073, if it is
approved by the FDA. Also, Genzyme Pharmaceuticals, Inc. is currently marketing
RenaGel, which is a treatment for hyperphosphatemia, a condition resulting from
secondary hyperparathyroidism. Many of our competitors have substantially
greater financial and management resources, superior intellectual property
positions and greater manufacturing, marketing and sales capabilities, areas in
which we have limited or no experience. In addition, many of our competitors
have significantly greater experience than we do in undertaking preclinical
testing and clinical trials of new or improved pharmaceutical products and
obtaining required regulatory approvals. Consequently, our competitors may
obtain FDA and other regulatory approvals for product candidates sooner and be
more successful in manufacturing and marketing their products than we or our
collaborators.
Existing and future products, therapies and technological approaches will
compete directly with the products we seek to develop. Current and prospective
competing products may provide greater therapeutic benefits for a specific
problem or may offer comparable performance at a lower cost. Any product
candidate that we develop and that obtains regulatory approval must then compete
for market acceptance and market share. Our product candidates may not gain
market acceptance among physicians, patients, healthcare payors and the medical
community. Further, any products we develop may become obsolete before we
recover any expenses we incurred in connection with the development of these
products. As a result, we may never achieve profitability.
We may be unable to obtain patents to protect our technologies from other
companies with competitive products, and patents of other companies could
prevent us from manufacturing, developing, or marketing our products.
The patent positions of pharmaceutical and biotechnology firms are
uncertain and involve complex legal and factual questions. In addition, the
scope of the claims in a patent application can be significantly modified during
prosecution before the patent is issued. Consequently, we cannot know whether
our pending applications will result in the issuance of patents or, if any
patents are issued, whether they will provide us with significant proprietary
protection or will be circumvented, invalidated, or found to be unenforceable.
Until recently, patent applications in the United States were maintained in
secrecy until the patents issued, and publication of discoveries in scientific
or patent literature often lags behind actual discoveries. Patent applications
filed in the United States after November 2000 generally will be published 18
months after the filing date unless the applicant certifies that the invention
19
will not be the subject of a foreign patent application. We cannot assure you
that, even if published, we will be aware of all such literature. Accordingly,
we cannot be certain that the named inventors of our products and processes were
the first to invent that product or process or that we were the first to pursue
patent coverage for our inventions.
Moreover, we may have to participate in interference proceedings declared
by the United States Patent and Trademark Office to determine priority of
invention, which could result in substantial cost and delay, even if the
eventual outcome is favorable to us. We cannot assure you that our pending
patent applications, if issued, would be held valid or enforceable. Third
parties may assert infringement or other intellectual property claims against us
based on their patents or other intellectual property rights. An adverse outcome
in these proceedings could subject us to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require us
to cease or modify our use of the technology. Additionally, many of our foreign
patent applications have been published as part of the patent prosecution
process in such countries. Protection of the rights revealed in published patent
applications can be complex, costly and uncertain.
The pursuit of patents is intensely competitive for therapeutic products in
our areas of research. A number of pharmaceutical companies, biotechnology
companies, universities and research institutions have filed patent applications
or received patents in these and related fields. Some of these applications or
patents may limit or preclude our applications and could result in a significant
reduction in the coverage of our patents.
In order to protect goodwill associated with our company and product names,
we rely on trademark protection for our marks. We have filed to register the
"PREOS" trademark with the United States Patent and Trademark Office, which may
or may not register this mark. Third parties may oppose this mark. Failure to
timely register the PREOS mark or objections by the FDA could force us to select
a new name for PREOS, which could cause us to incur additional expense or delay
its introduction to market.
We also rely on trade secrets, know-how and confidentiality provisions in
our agreements with our collaborators, employees and consultants to protect our
intellectual property. However, these and other parties may not comply with the
terms of their agreements with us, and we might be unable to adequately enforce
our rights against these people or obtain adequate compensation for the damages
caused by their unauthorized disclosure or use.
Finally, if we are found to be in noncompliance with one or more of our
obligations under the terms of our research funding agreement with the Canadian
government, we may be required to surrender all intellectual property rights
associated with ALX-0600, or, at our option, pay liquidated damages.
We are subject to extensive government regulation that may cause us to cancel or
delay the introduction of our products to market.
Our research and development activities and the clinical investigation,
manufacture, distribution and marketing of drug products are subject to
extensive regulation by governmental authorities in the United States and other
countries. Prior to marketing in the United States, a drug must undergo rigorous
testing and an extensive regulatory approval process implemented by the FDA
under federal law, including the Federal Food, Drug and Cosmetic Act. To receive
approval, we or our collaborators must, among other things, demonstrate with
substantial evidence from well-controlled clinical trials that the product is
both safe and effective for each indication where approval is sought. Depending
upon the type, complexity and novelty of the product and the nature of the
disease or disorder to be treated, that approval process can take several years
and require substantial expenditures. Data obtained from testing are susceptible
to varying interpretations that could delay, limit or prevent regulatory
approvals of our products. Drug testing is subject to complex FDA rules and
regulations, including the requirement to conduct human testing on a large
number of test subjects. We, our collaborators or the FDA may suspend human
trials at any time if a party believes that the test subjects are exposed to
unacceptable health risks. We cannot assure you that any of our product
candidates will be safe for human use. Other countries also have extensive
requirements regarding clinical trials, market authorization and pricing. These
regulatory schemes vary widely from country to country, but, in general, are
subject to all of the risks associated with United States approvals.
If any of our products receive regulatory approval, the approval will be
limited to those disease states and conditions for which the product is safe and
effective, as demonstrated through clinical trials. Even if regulatory approval
is obtained, later discovery of previously unknown problems may result in
restrictions of the product, including withdrawal of the product from the
market. Further, governmental approval may subject us to ongoing requirements
for post-marketing studies. Even if we obtain governmental approval, a marketed
product, its manufacturer and its manufacturing facilities are subject to
unannounced inspections by the FDA and must comply with the FDA's cGMP and other
regulations. These regulations govern all areas of production, record keeping,
personnel and quality control. If a manufacturer fails to comply with any of the
manufacturing regulations, it may be subject to, among other things, product
seizures, recalls, fines, injunctions, suspensions or revocations of marketing
licenses, operating restrictions and criminal prosecution. Other countries also
impose similar manufacturing requirements.
20
If we fail to attract and retain key employees, we may have to delay the
development and commercialization of our products.
We are highly dependent on the principal members of our scientific and
management staff. If we lose any of these persons, our ability to develop
products and become profitable could suffer. The risk of being unable to retain
key personnel may be increased by the fact that we have not executed long-term
employment contracts with our employees. Our future success will also depend in
large part on our continued ability to attract and retain other highly qualified
scientific and management personnel. We face competition for personnel from
other companies, academic institutions, government entities and other
organizations.
If product liability claims are brought against us, we may incur substantial
liabilities that could reduce our financial resources.
The clinical testing and commercial use of pharmaceutical products involves
significant exposure to product liability claims. We have obtained limited
product liability insurance coverage for our clinical trials on humans. Our
insurance coverage may be insufficient to protect us against product liability
damages. We might not be able to obtain or maintain product liability insurance
in the future on acceptable terms or in sufficient amounts to protect us against
product liability damages. If we are required to pay a product liability claim,
we may not have sufficient financial resources to complete development or
commercialization of any of our product candidates and our business and results
of operations will be adversely affected.
Our operations involve hazardous materials and we must comply with environmental
laws and regulations, which can be expensive and restrict how we do business.
Our research and development activities involve the controlled use of
hazardous materials, radioactive compounds and other potentially dangerous
chemicals and biological agents. Although we believe our safety procedures for
these materials comply with governmental standards, we cannot entirely eliminate
the risk of accidental contamination or injury from these materials. If an
accident or environmental discharge occurs, we could be held liable for any
resulting damages, which could exceed our financial resources.
Our stock price has been and may continue to be volatile and an investment in
our common stock could suffer a decline in value.
You should consider an investment in our common stock as risky and invest
only if you can withstand a significant loss and wide fluctuations in the market
value of your investment. We receive only limited attention by securities
analysts and frequently experience an imbalance between supply and demand for
our common stock. The market price of our common stock has been highly volatile
and is likely to continue to be volatile. Factors affecting our common stock
price include:
. fluctuations in our operating results;
. announcements of technological innovations or new commercial
products by us, our collaborators or our competitors;
. published reports by securities analysts;
. the progress of our and our collaborators' clinical trials;
governmental regulation; changes in medical and pharmaceutical
product reimbursement policies;
. developments in patent or other intellectual property rights;
. publicity concerning the discovery and development activities by
our licensees;
. public concern as to the safety and efficacy of drugs that we and
our competitors develop; and
. general market conditions.
Anti-takeover provisions in our Certificate of Incorporation, Bylaws,
stockholders rights plan and under Delaware law may discourage or prevent a
change of control.
Provisions of our Certificate of Incorporation, Bylaws and Section 203 of
the Delaware General Corporation Law could delay or prevent a change of control
of NPS. For example, our Board of Directors, without further stockholder
approval, may issue preferred stock that could delay or prevent a change of
control as well as reduce the voting power of the holders of common stock, even
to the extent of losing control to others. In addition, our Board of Directors
has adopted a stockholder rights plan, commonly known as a "poison pill," that
may delay or prevent a change of control.
ITEM 2. Properties.
We have ongoing operations in both Salt Lake City, Utah and Toronto,
Ontario. In Salt Lake City, we lease approximately 54,000 square feet of
laboratory, support and administrative space in the Research Park of the
University of Utah. Our lease in Salt Lake City expires in September 2004, but
may be extended for three additional three-year terms. In Toronto, we own a
building
21
consisting of approximately 90,000 square feet of laboratory, support and
administrative space. We currently anticipate that our existing space will meet
our needs for at least the next two years.
ITEM 3. Legal Proceedings.
From time to time, we are involved in certain litigation arising out of our
operations. We maintain liability insurance, including product liability
coverage, in amounts our management believes is adequate. We are not currently
engaged in any legal proceedings that we expect would materially harm our
business or financial condition.
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to the stockholders during the fourth quarter of
2001.
Executive Officers of the Registrant.
The following table sets forth certain information concerning our executive
officers and directors as of December 31, 2001:
Name Age Position
===============================================================================================================================
Hunter Jackson, Ph.D. ............... 52 Chief Executive Officer, President and Chairman of the Board
David L. Clark ...................... 48 Vice President, Operations, Business Development and Corporate Communications
N. Patricia Freston, Ph.D. .......... 61 Vice President, Human Resources
G. Thomas Heath ..................... 52 Senior Vice President, Sales and Marketing
James U. Jensen, J.D ................ 57 Vice President, Corporate Development and Legal Affairs, and Secretary
Thomas B. Marriott, Ph.D. ........... 53 Vice President, Development Research
Robert K. Merrell ................... 46 Vice President, Finance, Chief Financial Officer and Treasurer
Alan L. Mueller, Ph.D. .............. 47 Vice President, Discovery Research
Edward F. Nemeth, Ph.D. ............. 48 Vice President and Chief Scientific Officer
Hunter Jackson, Ph.D. has been Chief Executive Officer and Chairman of our
board since founding NPS in 1986. He was appointed to the additional position of
President in January 1994. Before founding NPS, he was an Associate Professor in
the Department of Anatomy at the University of Utah School of Medicine. Dr.
Jackson received a Ph.D. in Psychobiology from Yale University. He received
postdoctoral training in the Department of Neurosurgery, University of Virginia
Medical School.
David L. Clark has been Vice President, Business Development and Corporate
Communications since January 2000 and Vice President, Operations since March
2000. Before being appointed to these positions, he served as Director of
Business Development and Corporate Communications for us from September 1998 to
December 1999. He served as Director of Corporate Communications for us from
March 1996 to September 1998. From 1988 to 1996 he served as Vice President,
Business Development for Agridyne Technologies Inc., a publicly held
biotechnology company. Mr. Clark received an M.S. in Plant Genetics from the
University of Illinois. He received an M.B.A. from the University of Utah.
N. Patricia Freston, Ph.D. has been Vice President, Human Resources since
March 1997. From 1980 to February 1997, she served as Manager of Personnel
Services, Questar Corporation, a publicly held, integrated energy company. From
1977 to 1980, Dr. Freston was Assistant Director of Training for Mountain Fuel
Supply, a subsidiary of Questar. From 1971 to 1977, she was Director of Academic
Programming for the Division of Continuing Education, University of Utah. Dr.
Freston received a Ph.D. in Industrial Psychology from the University of Utah.
G. Thomas Heath, has been Senior Vice President, Sales and Marketing since
November 2001. In 1997, Mr. Heath co-founded Echelon Research Laboratories Inc.,
where he served as President and continues to serve as a director. From 1976 to
1996, Mr. Heath served in various marketing and sales positions at Pfizer Inc.,
where he managed the pre-launch planning and successful introductions of a
number of new pharmaceutical products. Mr. Heath also served as Vice President,
Sales and Marketing at Pfizer Canada, where he managed a force of over 250
salespeople. Mr. Heath received B.A. and M.B.A. degrees from the University of
Utah.
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James U. Jensen, J.D. has been Vice President, Corporate Development and
Legal Affairs and Secretary since August 1991. He has been Secretary of NPS
since 1987, and served as a director from 1987 to 2001. From 1986 to July 1991,
he was a partner in the law firm of Woodbury, Jensen, Kesler & Swinton, P.C., or
its predecessor firm, concentrating on technology transfer and licensing and
corporate finance. From July 1985 until October 1986, he served as Chief