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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 of the Securities Exchange Act of 1934
Year Ended December 31, 2000
Commission File Number 0-24320
NAPRO BIOTHERAPEUTICS, INC.
Incorporated in Delaware IRS ID No. 84-1187753
6304 Spine Road, Unit A
Boulder, Colorado 80301
(303) 530-3891
Securities registered pursuant to Section 12(b) of the Act:
none
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0075 par value; Preferred Stock Purchase Rights
We (1) have filed all reports required to be filed by Section 13 or 15(b) of the
Securities Exchange Act of 1934 during the preceding 12 months, and (2) have
been subject to such filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K will be
contained, to the best of our knowledge, in a definitive proxy statement
incorporated by reference in Part III of this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates was
$161,881,000 as of March 5, 2001.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 5, 2001:
Common Stock 26,374,446
Nonvoting Common Stock 395,000
Incorporated by reference in Part III of this report is certain information
contained in the Proxy Statement for our 2001 Annual Meeting of Stockholders.
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Table of Contents
Item Page
Part I 1 Business 3
2 Properties 21
3 Legal Proceedings 21
4 Matters Submitted to Stockholders' Vote 21
Part II 5 Market Information and Related Stockholder Matters 22
6 Selected Financial Data 23
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
7A Quantitative and Qualitative Disclosures about
Market Risk 30
8 Financial Statements and Supplementary Data 31
9 Changes in and Disagreements with Accountants 31
Part III 10 Directors and Executive Officers 31
11 Executive Compensation 32
12 Security Ownership of Certain Beneficial Owners and
Management 32
13 Certain Relationships and Related Transactions 32
Part IV 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 32
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Part I
Item 1
Business
General
NaPro BioTherapeutics, Inc. is a biopharmaceutical company focused on the
development, production and licensing of complex natural product pharmaceuticals
as well as the development and licensing of novel genetic technologies for
applications in human therapeutics and diagnostics, pharmacogenomics and
agribiotechnology. Natural product substances have been, and continue to be, the
primary source of new prototype chemotherapeutic anti-cancer agents. Our lead
product is paclitaxel, a naturally occurring chemotherapeutic anti-cancer agent
found in certain species of yew, or Taxus, trees. In addition to our efforts
with paclitaxel and genetics, we are also working on several types of compounds
that have promising activity as anti-cancer agents. We believe some of these
agents function by new and novel mechanisms, which may increase their likelihood
of success as new chemotherapeutics. We are also actively engaged in evaluating
the in-licensing or purchase of potential new products and/or technologies,
whether or not those products or technologies are derived from natural products.
Our evaluations of new products and technologies may involve examination of
individual molecules, classes of compounds or platform technologies, in the
cancer field and otherwise. Acquisitions of new products or technology may
involve the purchase of, or merger with, other companies.
To date, the majority of our resources have been directed toward the development
and manufacture of paclitaxel. The market for paclitaxel is dominated by
Bristol-Myers Squibb Company. Bristol's paclitaxel is widely used in the
treatment of breast and ovarian cancers, Kaposi's sarcoma, and non-small cell
lung cancer when used in combination with cisplatin. Bristol has publicly
announced that worldwide sales of its formulation of paclitaxel were $1.6
billion in 2000 and $1.5 billion in 1999. Our proprietary manufacturing
technology includes the extraction, isolation, and purification, or EIP(TM) and
the semisynthe sis of paclitaxel. We are developing renewable sources of
paclitaxel biomass. We have strong pharmaceutical company alliances and are
seeking additional such alliances. We believe the combination of our proprietary
manufacturing technologies, biomass capabilities, and pharmaceutical alliances
will allow us to participate significantly in the broad paclitaxel market. We
cannot assure, however, that we will be able to participate significantly in the
paclitaxel market. Prior to marketing paclitaxel, we must have approval of the
appropriate regulatory authorities. We must also have adequate quantities of
product available for sale.
Our strategy for advancing the development and commercialization of paclitaxel
has been to form strategic alliances through long-term exclusive agreements with
major pharmaceutical companies. On July 23, 1999, we entered into a 20-year
exclusive collaborative agreement with Abbott Laboratories for the development
and commercialization in the U.S. and Canada of one or more formulations of
paclitaxel for the treatment of a variety of cancers. In the agreement, we are
responsible for supply of bulk drug and clinical trials are conducted jointly
with Abbott. Abbott is responsible for finishing, regulatory filings, marketing,
and sale of the finished drug product. Most primary decisions related to the
paclitaxel development program are made by a joint Abbott-NaPro Development
Committee. In March 2001, we
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and Abbott filed an Abbreviated New Drug Application, or ANDA, with the U.S.
Food and Drug Administration, or FDA, for paclitaxel.
In 1992, we entered into a 20-year exclusive agreement with F.H. Faulding & Co.,
Ltd., Australia's largest domestic pharmaceutical company, for the clinical
development, sale, marketing and distribution of our paclitaxel. Faulding, with
sales in 2000 of approximately $1.2 billion, actively markets anti-cancer
pharmaceuticals and other health care products in Australia, Southeast Asia and
other countries throughout the world. In 2000, we amended the Faulding agreement
to, among other things, add additional countries to Faulding's exclusive
territory. In 2001 we entered into a separate agreement with Faulding covering
development and sale of our paclitaxel in Europe. With the new agreement, the
Faulding territory now includes substantially all of the world other than the
U.S., Canada, Japan, Israel and the former Soviet Union. Faulding has received
marketing approval for, and is selling our paclitaxel as ANZATAX(TM) in, more
than 20 countries.
In Europe, we are responsible for regulatory filings and for supplying
paclitaxel raw material exclusively to Faulding to formulate and finish the
product. We cannot assure that we will receive regulatory approval in Europe.
Should we receive approval, Faulding will then market and sell the final
proprietary paclitaxel formulation in Europe. Under the agreement, Faulding paid
an up-front licensing fee to us of $7.5 million. We will share equally the net
sales of the product in Europe.
For countries outside of Europe, we supply paclitaxel to Faulding and Faulding
formulates it into its commercial drug product, ANZATAX. Faulding obtained
regulatory approval and began marketing ANZATAX as a pharmaceutical for the
treatment of refractory breast and ovarian cancers in Australia in January 1995.
Since that time, ANZATAX has been approved in at least 20 additional countries.
We have established an exclusive supply and distribution agreement with Tzamal
Pharma for the development and distribution of our paclitaxel in Israel. In
January 2001 we received approval in Israel to sell paclitaxel under the trade
name, Biotax(TM). The Israeli Ministry of Health has approved Biotax for use in
a variety of cancers; Tzamal is currently selling Biotax.
We are in discussions with companies regarding the formation of alliances for
the development, sale, marketing and distribution of our paclitaxel in Japan. We
cannot assure, however, that we will succeed in entering into a development and
marketing agreement for Japan or that the terms of such an agreement would be
beneficial to us.
Paclitaxel is not patentable. However, Bristol owns U.S. patents covering the
administration method for FDA approved paclitaxel. Abbott and a number of other
companies have filed applications with the FDA for generic paclitaxel based upon
Bristol's initial FDA approval. Anyone obtaining FDA approval for generic
paclitaxel will rely upon a method of administration that might infringe the
Bristol patents. Bristol has sued some of those companies that are seeking FDA
approval for generic paclitaxel for infringement of its patents. The court ruled
that several key claims of the Bristol patents are invalid. However, the ruling
is being appealed by Bristol. Although Bristol has not yet sued Abbott or us
over this issue, we believe that Bristol is likely to do so if the FDA accepts
the Abbott ANDA. If the administration methods for generic paclitaxel are
determined to infringe Bristol's patents, our strategy of obtaining approval for
generic paclitaxel will not be viable.
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In November 2000 we in-licensed gene alteration technology from the University
of Delaware and Thomas Jefferson University. The license agreement grants us
exclusive, worldwide rights to intellectual property including patent
applications relating to the use of proprietary molecules designed to precisely
alter genes in humans, animals, plants, viruses and microbes. We have agreed to
provide research and patent funding, as well as issuances of shares of our
common stock. Our payments over the first year of the agreement are expected to
total at least $355,000 in research funding and consulting fees, in addition to
the issuance of 100,000 shares of our common stock. We have identified a number
of gene targets for internal development using this technology. We have also
begun actively seeking partnerships with biopharmaceutical, pharmacogenomics,
diagnostics and agricultural companies for commercial develop ment of the
products derived from the application of this technology.
One of the technologies licensed to us allows us to manufacture proprietary
oligonucleotides (DNA fragments) that can be used to make small, specifically
targeted modifications in the chromosomes of a target animal or plant. With this
technology, we are attempting to develop products that may allow us to:
cure or more effectively treat certain human genetic disorders;
improve plant traits without inserting foreign DNA into those plants; or
to detect genetic variations in a patient's genes that may indicate which
patients will better respond to medication or experience more severe side
effects.
We may also be able to construct cell lines and animal models that will help
others' medical research. This technology may permit certain control over
changes in the genome. Such control may help us to determine the function of
genes or natural variations in chromosomes.
Among other disorders, we are researching Huntington's disease, a progressive
disorder which causes nerve cells in the brain to waste away. Eventually, the
patient suffers dementia, uncontrolled movements, and death. There is no known
cure for this rare disease, that affects five of every million people. Symptoms
usually appear between the ages of 35 and 50, although younger people can also
develop the disease.
A flawed gene on chromosome #4 causes Huntington's disease. If one parent
carries this flawed gene, each child will have a 50 percent chance of inheriting
the flawed gene and later developing the disease. We are involved in genetic
research aimed at developing compounds to treat or cure the disease as well as
technologies for delivering the treatment to diseased cells. Our research is
preliminary and may never lead to effective treatments for this disease or
commercially viable products.
The following chart identifies the commercial products and several classes of
compounds we are currently researching.
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NaPro Drugs: Commercial or in Development
Product Indication(s) Development Status
- ------- ------------- ------------------
ANZATAX paclitaxel Breast, Ovarian & Non- Commercialized in Austra
(Faulding) Small Cell Lung Cancer lia, Asia, South America
and the Mideast; in develop
ment in Europe
- --------------------------------------- ---------------------------------- ----------------------------------
Biotax paclitaxel (Tzamal) Breast, Ovarian & Non- Commercialized in Israel
Small Cell Lung Cancer
- --------------------------------------- ---------------------------------- ----------------------------------
NaPro Paclitaxel (Abbott) Breast, Ovarian & Non- ANDA filed in U.S.
Small Cell Lung Cancer
- --------------------------------------- ---------------------------------- ----------------------------------
NaPro 80239 Hematological Cancer Development candidate se
lection
- --------------------------------------- ---------------------------------- ----------------------------------
NaPro 80661 Solid tumors Development candidate se
lection
- --------------------------------------- ---------------------------------- ----------------------------------
NaPro 82739 Solid tumors Development candidate se
lection
- --------------------------------------- ---------------------------------- ----------------------------------
NaPro 102339 Directed Drug Delivery Technological development
- --------------------------------------- ---------------------------------- ----------------------------------
NaPro proprietary Various genetic targets Research and technological
oligonucleotides including Huntington's dis development
ease
- --------------------------------------- ---------------------------------- ----------------------------------
Paclitaxel Overview
Cancer is the second leading cause of death in the U.S., with over one million
new cases diagnosed each year. Cancer is generally treated by surgery,
radiation, chemotherapy or a combination of these therapies. Since Bristol
received regulatory approval in December 1992, paclitaxel has become the largest
selling drug of the cancer chemotherapy drugs known as cytotoxic agents.
In 1963, the National Cancer Institute, or NCI, recognized that the natural
product paclitaxel killed leukemia cells and inhibited the development of a
variety of tumors. Over the next two decades, researchers working under grants
from the NCI conducted studies to determine paclitaxel's structure and its
mechanism of action. The NCI studies indicated that paclitaxel inhibits the
normal action of microtub- ules in cancer cell division. Microtubules, located
in the cytoplasm of cells, play a vital role in cellular division. Paclitaxel
promotes microtubule assembly and blocks normal microtubule disassembly in
cells, which stops cell division and causes the cancer cell to die. This
cytoplasmic mechanism of action contrasts with the nuclear mechanism of action
of the majority of cell killing drugs that kill the cell by attacking nuclear
components such as DNA.
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In June 1991, the NCI formalized a Collaborative Research and Development
Agreement, or CRADA, for development of paclitaxel with Bristol. Bristol assumed
development of paclitaxel, including completion of the necessary clinical trials
and manufacturing scale-up. In June 1992, Bristol submitted a New Drug
Application, or NDA, to the FDA. Bristol received approval for the sale of
paclitaxel as a treatment for refractory ovarian cancer in December 1992 and
since then has received approval for the sale of paclitaxel as a treatment for
other cancers.
Paclitaxel is one of a family of compounds, commonly referred to as taxanes,
that share a specific chemical structure. Taxanes are found naturally in many
parts of various species of yew trees. The concentration of individual taxanes
in yew trees is very small, generally less than 0.1%, and accordingly, the
process of extracting taxanes from yew biomass is complicated and challenging.
Several production approaches can be used to produce final stage paclitaxel
product for use in clinical trials and for commercialization. We believe the two
most prevalent processes used today are conventional biomass extraction and
semisynthesis.
With conventional biomass extraction, the manufacturing process is designed to
extract, isolate and purify paclitaxel from yew biomass leaving behind other
components, including non-paclitaxel taxanes. However, the extraction, isolation
and purification processes are complicated because there are more than 100
different taxanes present in yew biomass. In a semisynthesis process, the
initial extraction, isolation and purification is similar to that of the
conventional biomass extraction process, except that the process not only
isolates paclitaxel, but also other taxanes (which would otherwise be waste
byproducts) and converts these other taxanes into paclitaxel. By converting
other taxanes into paclitaxel, the semisyn- thesis process increases the yield
of paclitaxel from the same quantity of biomass. Regardless of which extraction
process is used, the final product must limit impurities meeting regulatory
criteria.
The Pacific yew tree initially was the primary source of biomass. Most species
of Taxus, including the Pacific yew, grow slowly, requiring a number of years to
reach harvestable size. As a result of its slow growth, Taxus in the wild is
generally found in old growth forests, frequently the habitat of endangered
species, including the spotted owl. Biomass from the Pacific yew tree includes
the bark, obtained only by destroying the tree. As a result, there was a
considerable amount of public debate and controversy in the U.S. and other
countries regarding the harvesting of bark from wild trees. We stopped
harvesting bark from wild Pacific yew trees in 1994.
Other companies have developed taxane products that are similar, but not
identical, to paclitaxel. For example, Aventis S.A., a large international
pharmaceutical company, has developed docetaxel which is being marketed in
various parts of the world under the trademark Taxotere(R). Taxotere has a
different toxicity profile than paclitaxel and has side effects not observed
with paclitaxel. In May 1996 the FDA approved Taxotere for treatment of
anthracycline-resistant breast cancer in patients without impaired liver
function.
Development of Paclitaxel
Under the terms of our agreement with Abbott, we are responsible for supplying
bulk drug and clinical trials are conducted jointly with Abbott.
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Under our agreements with Faulding, Faulding has primary responsibility for
pursuing regulatory approval of our paclitaxel within the Faulding territory
other than Europe. We have responsibility for supporting the regulatory
approvals in regard to information related to our manufacturing processes. In
Europe, we have primary responsibility for pursuing regulatory approval.
We continue to perform toxicity studies to complete our registration dossiers
worldwide. Existing regulatory approvals have a direct impact on the clinical
and marketing strategy we are pursuing. In December 1992 Bristol obtained NDA
approval in the U.S. for its paclitaxel product. Under the Waxman-Hatch Act, a
non-patented drug such as paclitaxel that gains approval through an NDA process
is granted a five-year period of marketing exclusivity, which prevents
submission by another party of an ANDA for generic substitutes until the
exclusivity period expires. Bristol's exclusivity period in the United States
expired in December 1997. However, additional Waxman-Hatch Act provisions may
result in an additional 30 month delay in the approval of an ANDA if the sponsor
(in this case Bristol) has listed a patent related to the product with the FDA,
and institutes a lawsuit based on that patent prior to the time that a generic
approval is received. Bristol currently has several patents related to
paclitaxel listed. In March 2001, we and Abbott filed an ANDA for paclitaxel
with the FDA. If Bristol files a lawsuit against us or Abbott based upon those
patents, Abbott's ANDA approval in the United States could be delayed. A statute
comparable to the Waxman-Hatch Act exists in Europe, although the related period
of exclusiv ity is ten years. Bristol's European exclusivity period ends in
2003.
Biomass
Paclitaxel and other taxanes used in the production of our paclitaxel are
present in many parts of various species of yew trees. Our EIP technology is
designed to allow extraction and purification of paclitaxel and extraction of
other taxanes from renewable sources of biomass such as needles and limbstock
harvested from cultivated yew trees. Taxanes other than paclitaxel can be
chemically converted into paclitaxel.
We believe we may be able to reduce our raw material cost while increasing our
yield of paclitaxel by growing a reliable and renewable biomass source. In order
to have access to such a stable, long-term supply of biomass for use in the
production of our paclitaxel, we entered into agreements with, among others, PRT
Biopharms Inc., referred to as PBI in 1993, Zelenka Nursery, Inc. in 1996 and
Cass-Mill, Inc. in 1997. We made our first demonstration harvest in 1996. In
2001, substantially all of our production for Abbott will be extracted from
cultivated biomass. We regularly conduct other research related to enhancing
paclitaxel production in yew trees.
Manufacturing
The manufacture of paclitaxel occurs in three steps. First, a crude paclitaxel
is extracted from yew trees. Second, the extracted crude paclitaxel mixture is
isolated and purified. In the final step, the resulting active drug substance is
formulated for final packaging. Faulding and Abbott are each responsible for
formulating and final packaging of paclitaxel marketed by them.
In August 2000, we commenced operation of our newly completed extraction
facility. In addition to paclitaxel manufactured from our own yew trees, we also
manufacture paclitaxel from raw material extracted from yew trees purchased from
others. We currently operate manufacturing facilities in Boulder, Colorado. Our
manufacturing facilities are subject to inspection by the regulatory agencies in
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the countries in which our paclitaxel is sold. In the past, our manufacturing
facilities have been inspected by the FDA, the Australian TGA and the European
Agency for the Evaluation of Medicinal Products, or EAEMP. Those agencies have
found our facilities to be acceptable suppliers of bulk paclitaxel. We are
expanding the manufacturing capacity of our Boulder, Colorado facilities in
anticipation of a U.S. approval. We believe that our Boulder, Colorado
facilities have adequate capacity to meet clinical and commercial requirements
for the near future, but we cannot assure such capacity.
In 2000, we redesigned a commercial manufacturing facility in Boulder, Colorado
to serve as a large-scale extraction facility and completed its construction. We
are planning a new large scale facility which would provide up to four times the
capacity of our current facilities. We cannot assure, however, that we will
succeed in adapting our EIP technology for large scale commercial manufacturing,
or that our facility and manufacturing processes will receive necessary
regulatory approvals. We also cannot assure that we will have the sales volume
to require additional capacity.
In order to diversify our supply options and increase our manufacturing
capacity, we are developing, and have applied for patent protection for, a
semisynthesis process for manufacturing our paclitaxel from other taxanes
contained in renewable biomass sources. We own, or have licensed, several
patents relating to this process and have applied for others. During 1999, we
manufactured crude paclitaxel with the semisynthesis process in a pilot-scale
contracted facility. This crude paclitaxel was then purified at our
manufacturing facility in Boulder, Colorado. The use of semisynthesis will
require regulatory approvals, which cannot be assured. Furthermore, we cannot
assure our semisynthesis process will perform as expected or that we will be
able to effectively adapt the process to commercial-scale manufacturing.
Strategic Alliances
Abbott Our strategy has been to pursue and enter into strategic alliances with
large international pharmaceutical companies. In July 1999 we entered into a 20
year exclusive collaborative agreement, which was amended in June 2000, with
Abbott Laboratories covering the U.S. and Canada to develop and commercialize
one or more formulations of paclitaxel for treatment of a variety of cancer
indications. Abbott is a large, multinational, diversified health care company
with 2000 sales of almost $14 billion. We are responsible for supplying bulk
drug and clinical trials are conducted jointly with Abbott. Abbott is
responsible for finishing, regulatory filings, marketing and sale of the
finished drug product. We have granted an exclusive license to Abbott for our
paclitaxel-related patents for intravenous and oral paclitaxel formulations. In
connection with the agreement, we may receive total funding of up to $122
million from Abbott in the form of development and marketing milestone payments,
a secured loan and equity investments. In July 1999 we received an initial $1
million fee. Through December 31, 2000, Abbott has purchased 1,111,111 shares of
our common stock for a total purchase price of $6 million. We have access to up
to $20 million under a secured loan arrangement with Abbott, of which we had
drawn $15.1 million as of December 31, 2000. The loan bears a primary interest
rate of 6.5% and is due in full on the earliest of: (i) the second anniversary
of the first sale of finished product by Abbott to a wholesaler or end-user
customer following approval of finished product by the FDA; (ii) the termination
of the agreement; or (iii) January 1, 2007. The loan is limited to a borrowing
base of collateralized assets, recomputed monthly. Under terms of the agreement,
Abbott will purchase bulk drug from us. Once the paclitaxel product is approved
and commercialized, Abbott will pay a percentage of its net paclitaxel sales to
us, less Abbott's payments to us for purchase of bulk drug. Abbott may terminate
the agreement at any
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time with or without cause. Should Abbott terminate without cause, it is
obligated to make payments to us.
The Abbott agreement grants Abbott the exclusive right to develop and market our
paclitaxel in the U.S. and Canada for intravenous and oral anti-cancer uses.
Abbott is required to purchase all of its require ments for paclitaxel from us,
except in certain circumstances when we are unable to supply Abbott's
requirements. Except for limited instances where termination is due to specific
breaches of the agreement by us, we retain exclusive rights following
termination to any clinical data generated during the course of the agreement.
We are required to indemnify Abbott for defects in our paclitaxel that is
shipped to Abbott, breaches of our warranties or obligations under the
agreement, harm caused by inappropriate co- marketing activities, and some
intellectual property and product liability claims. Abbott is required to
indemnify us for defects in a finished product containing our paclitaxel
manufactured by Abbott, breaches of Abbott's representations and warranties,
harm caused by inappropriate marketing activities, and some intellectual
property and product liability claims.
Faulding We formed a strategic alliance through a long-term exclusive agreement
with Faulding that covers substantially all of the world other than the U.S.,
Canada, Japan, Israel and the former Soviet Union. Under this agreement,
Faulding agreed to fund and, with our input, undertake the development work
required to obtain regulatory approvals for commercializing our paclitaxel in
the Faulding territory other than Europe. We are responsible for supplying
Faulding with our paclitaxel and Faulding is required to purchase all of its
paclitaxel requirements from us. Faulding pays us a substantial share of its
gross sales of paclitaxel. Faulding is currently marketing paclitaxel in more
than 20 countries. We cannot assure, however, that Faulding will succeed in
obtaining further regulatory approvals to market our paclitaxel within its
territory. Furthermore, if such approvals are received, we cannot assure that
Faulding will market our paclitaxel successfully in these additional countries.
In Europe, we are responsible for regulatory filings and for funding
development. We will supply paclitaxel raw material exclusively to Faulding to
formulate and finish the product. We cannot assure that we will receive
regulatory approval in Europe. Should we receive approval, Faulding will then
market and sell the final proprietary paclitaxel formulation in Europe. Under
the agreement, Faulding has paid us an up-front licensing fee of $7.5 million.
We will share the net product sales in Europe equally.
Faulding may terminate the agreements: (i) upon our reorganization or
insolvency; (ii) if Faulding becomes controlled by a pharmaceutical company that
sells paclitaxel in the Faulding territory; (iii) if we are controlled by Ivax
or Bristol; (iv) if we are purchased by a pharmaceutical company that sells
paclitaxel in the Faulding territory and that company refuses to be bound by the
terms of the Faulding agreement; (v) if we are unable to meet the paclitaxel
supply requirements of Faulding; or (vi) for material, uncured breach. We may
terminate the agreement: (i) upon the reorganization or insolvency of Faulding;
(ii) in certain circumstances, upon a change in control of Faulding; or (iii)
for material, uncured breach.
We are required to indemnify Faulding for any defect in our paclitaxel that is
shipped to Faulding and for uncured breaches of our warranties or obligations.
Faulding is required to indemnify us against all losses (i) resulting from a
defect in a product containing our paclitaxel manufactured by Faulding except if
the defect is our fault, (ii) resulting from a product containing our paclitaxel
formulated, stored, handled,
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promoted, distributed, registered or sold by Faulding and (iii) for uncured
breaches of Faulding's representations and warranties under the Faulding
agreement.
Tzamal We have established an exclusive supply and distribution agreement with
Tzamal Pharma for the development and distribution of our paclitaxel in Israel.
In January 2001, we received approval in Israel to sell paclitaxel under the
trade name Biotax. The Israeli Ministry of Health has approved Biotax use in a
variety of cancers and Tzamal is selling Biotax.
Ivax Until March 20, 1998, we and Ivax were parties to a long-term, exclusive
agreement, under which Ivax was responsible for performing clinical trials,
filing for regulatory approvals, and selling, marketing, and distributing
commercial formulations of our paclitaxel. In March 1998, we and Ivax entered
into an agreement terminating the long-term, exclusive agreement. Ivax has two
approved ANDA's, one of which refers to a Drug Master File, or DMF, submitted by
us. We have no obligation or intent to sell additional paclitaxel to Ivax.
Marketing and Sales
Marketing and sales of our paclitaxel in the territories covered by our
agreements with Faulding are conducted by Faulding and in Israel by Tzamal.
Anticipated marketing and sales, if any, of our paclitaxel in the U.S. and
Canada, will be conducted by Abbott. Currently, we have no sales force, have
only limited marketing capabilities and have no present intention to establish a
sales or marketing force. Sales to Faulding account for a substantial portion of
our revenue. As a result, the loss of Faulding or Abbott as a customer or the
failure of Faulding or Abbott to successfully market our paclitaxel could have a
material adverse effect on us in the absence of a comparable alternative
strategic alliance arrangement.
Competition
The biopharmaceutical industry is an expanding and rapidly changing industry
characterized by intense competition for product sales, financing, executive
talent and intellectual property. We compete with all entities developing and
producing therapeutic agents for cancer treatment, many of whom have much
greater capital resources and research and development capabilities.
Within the paclitaxel segment of the cancer treatment industry, competitors'
success in entering the paclitaxel market may reduce our market share and reduce
the price we can charge for our paclitaxel, which could have a material adverse
effect upon us. In addition, marketing is being handled exclusively by Abbott
and Faulding within their territories. Regulatory approvals are being handled by
Abbott in its territory and by Faulding in its non-European territory. Although
we believe Abbott and Faulding have capable drug development and marketing
abilities, we cannot assure that they will be capable or effective in gaining
additional regulatory approvals on a timely basis, if at all, or be able to
compete effectively with existing or new competitors within their territories.
Bristol is marketing paclitaxel commercially in the U.S., Australia, Canada,
Europe and certain other territories. In addition, Aventis has developed a
proprietary analog of paclitaxel, docetaxel, which is marketed under the
trademark Taxotere. Taxotere is approved in the U.S., the European Union,
Australia, Canada and a number of other countries. Taxotere is approved in the
U.S. for treatment of patients with locally advanced or metastatic breast cancer
after failure of prior chemotherapy, and patients
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with locally advanced or metastatic non-small cell lung cancer after failure of
prior platinum-based chemotherapy. While treatment with Taxotere may cause
certain side effects not observed with paclitaxel, Taxotere competes with
paclitaxel, and thereby may reduce overall paclitaxel sales.
In connection with the termination of the Ivax Agreement, we licensed one of our
patents to Ivax on a non-exclusive basis. The generic division of the FDA has
approved Ivax' generic paclitaxel, which Ivax is selling in the U.S. Other
generic manufacturers may enter the U.S. market as early as April 2001. In most
cases, a European exclusivity period will end in 2003, 10 years after Bristol's
initial approval. However, Ivax may begin marketing paclitaxel for Kaposi's
Sarcoma (with potential for additional "off label" uses as well) in Europe. We
are aware of several other pharmaceutical companies that are in the process of
developing generic paclitaxel in the U.S., Europe and elsewhere. Finally,
academic and research organizations and pharmaceutical and biotechnology
companies are pursuing, among other things, genetically engineered drugs,
chemical synthesis and cell-tissue culture that may compete with our products or
technology. In addition, certain companies are pursuing the production of
paclitaxel and other taxanes from natural product extraction techniques.
Many of our competitors, most notably Bristol and Aventis, have substantially
greater capital resources, research and development capabilities, manufacturing
and marketing resources and experience than we do. We expect Bristol to compete
intensely to maintain its dominance of the paclitaxel market, including pursuit
of an aggressive patent strategy. Our competitors may succeed in developing
products that are more effective or less costly than any that may be developed
by us and may receive regulatory approval before we do. Many companies and
research institutions are also seeking means to obtain paclitaxel and taxanes
from renewable biomass components of yew trees and other sources in order to
increase paclitaxel yields, avoid environmental concerns and reduce the cost of
biomass. In addition, we are aware of several potential competitors that have
developed and patented or are developing various processes for producing
paclitaxel and paclitaxel-related substances semisynthetically, which may allow
such competi tors to produce a low-cost paclitaxel. The discovery by a third
party of a cost-effective means to fully synthesize paclitaxel in commercial
quantities or the manufacture of taxane derivatives or analogs that are more
effective than paclitaxel in treating cancer could have a material adverse
effect on us.
Patents and Proprietary Technology
Our success depends in part on our ability to obtain and enforce patent
protection for our products, both in the U.S. and other countries, and operate
without infringing the proprietary rights of third parties. The scope and extent
of patent protection for our product candidates is uncertain and frequently
involves complex legal and factual questions. We cannot predict the breadth of
claims that will be allowed and issued in patents related to biotechnology or
pharmaceutical applications. Once patents have issued, we cannot predict how the
claims will be construed or enforced. In addition, statutory differences between
countries may limit the protection we can obtain on some of our inventions
outside of the U.S. For example, methods of treating humans are not patentable
in many countries outside of the U.S.
We rely on patent and other intellectual property protection to prevent our
competitors from developing, manufacturing and marketing products related to our
technology. Our patents may not be enforceable and they may not afford us
protection against competitors, especially since there is a lengthy time between
when a patent application is filed and when it is actually issued. Additionally,
there are hundreds of pharmaceutical and chemical patents issuing every week
throughout the world. Many of these have patent
- 12 -
claims that are difficult to categorize and interpret. Because of this, we may
infringe on intellectual property rights of others without being aware of the
infringement. If a patent holder believes that one of our product candidates
infringes on their patent, they may sue us even if we have received patent
protection for our technology. If another person claims we are infringing their
technology, we could face a number of issues, including the following:
defending a lawsuit, which is very expensive and time consuming;
paying a large sum for damages if we are found to be infringing;
being prohibited from selling or licensing our products or product
candidates until we obtain a license from the patent holder, who may
refuse to grant us a license or will only agree to do so on unfavorable
terms. Even if we are granted a license, we may have to pay substantial
royalties or grant cross-licenses to our patents; and
redesigning our drug so it does not infringe on the patent holder's
technology if we are unable to obtain a license. This may not be
possible and, even if possible, it could require substantial additional
capital and could delay commercialization.
The coverage claimed in a patent application can be significantly narrowed
before a patent is issued, either in the U.S. or abroad. We do not know whether
any of our pending or future patent applications will result in the issuance of
patents. To the extent patents have been issued or will be issued, some of these
patents are subject to further proceedings that may limit their scope. It is not
possible to determine which patents may provide significant proprietary
protection or competitive advantage, or which patents may be circumvented or
invalidated. Furthermore, patents already issued to us, or patents that may
issue on our pending applications, may become subject to dispute, including
interference proceedings in the U.S. to determine priority of invention. We are
currently involved in opposition proceedings in foreign countries contesting the
validity of issued patents. If our currently issued patents are invalidated or
if the claims of those patents are narrowed, our ability to prevent competitors
from marketing products that are currently protected by those patents could be
reduced or eliminated.
Paclitaxel is an unpatentable, naturally-occurring compound. Various
compositions containing paclitaxel, and also various processes and other
technologies, including those relating to extracting paclitaxel and preparing
the drug for finished formulation, are or may be patented. In addition, some
methods of administering paclitaxel are or may be patented. Some of these
patents are owned or controlled by Bristol and Aventis. Bristol's key patents
include a patent that covers stabilized paclitaxel compositions for formulation
and patents that cover paclitaxel dosing regimens, including the current
FDA-approved regimen for Taxol(R). Taxol is a registered trademark of Bristol
for an anti-cancer pharmaceutical preparation containing paclitaxel. Bristol has
obtained U.S. patents covering the administration method for paclitaxel the FDA
approved. Abbott and a number of other companies have filed applications with
the FDA for generic paclitaxel based upon Bristol's initial FDA approval. Anyone
obtaining FDA approval for generic paclitaxel will rely upon a method of
administration that might infringe the Bristol patents. Bristol has sued some of
those companies other than us that are seeking FDA approval for generic
paclitaxel for infringement of Bristol's patents. The court ruled that several
key claims of the Bristol patents are invalid. However, that ruling is being
appealed by Bristol. The appeals process could take anywhere from several months
to several years. Under U.S. laws, during the patent appeals process,
- 13 -
Bristol would retain U.S. patent rights to the disputed patents until all
appeals are exhausted. Therefore, if the appeal is ultimately resolved in
Bristol's favor, and the validity of Bristol's patents is upheld, generic
competitors that have sold product could face substantial liability for patent
infringement, and could be prevented from marketing paclitaxel in the U.S. using
the patented method of administration for the life of the patent. If the
decision of the lower court is upheld by the court of appeals, others will be
allowed to sell generic paclitaxel for uses covered by the invalidated patent
claims. Although Bristol has not yet sued Abbott or us over this issue, we
believe that Bristol is likely to do so if the FDA accepts the Abbott ANDA. If
the administration methods for generic paclitaxel are determined to infringe
Bristol's patents, our strategy of obtaining approval for generic paclitaxel
will not be viable.
In September 2000, we and Abbott filed a patent infringement suit in the U.S.
District Court for the District of Colorado against Bristol alleging
infringement by Bristol of two patents we own: U.S. Patent numbers 5,972,992 and
5,977,164 which relate to paclitaxel formulation. In November 2000 we amended
the complaint to add U.S. Patent number 6,140,359 to the suit. Bristol has
asserted defenses that, if successful, would result in the invalidity or
unenforceability of the patents. A finding of invalidity or unenforceability of
these patents could have a material adverse affect on us. The trial is set for
June 2002. We intend to vigorously prosecute the case.
We are aware of competitors and potential competitors who are pursuing patent
protection for various aspects of the extraction, preparation, formulation,
administration and production of natural, semisynthetic and synthetic
paclitaxel. If our technology, products or activities are deemed to infringe the
other companies' rights, we could be subject to damages or prevented from using
the technology that is infringing other companies rights, or we could be
required to obtain licenses to use that technology. We cannot be sure that we
would be able to obtain those licenses on terms acceptable to us, or at all. If
we were unable to obtain those licenses or were prevented from using our
technology, we could encounter significant delays in product market
introductions while we attempt to design around the patents or rights infringed,
or we could find the development, manufacture or sale of products to be
impossible, any of which would have a material adverse effect on us. In
addition, we could experience a loss of revenue and incur substantial cost in
defending ourselves and indemnifying Faulding or Abbott in patent infringement
or proprietary rights violation actions brought against them. We could also
incur substantial cost if we find it necessary to assert claims against third
parties to prevent the infringement of our patents and proprietary rights by
others. Participation in such infringement proceedings could have a material
adverse effect on us, even if the eventual outcome were favorable.
We also rely on trade secrets, know-how and continuing technological advancement
to maintain our competitive position, including for the protection of our EIP
technology, some of which is not patented. In addition, our success will depend
in part on our ability to protect our trade secrets related to extracting,
isolating and purifying paclitaxel. Although we have entered into
confidentiality agreements with employees, consultants and collaborators, which
contain assignment of invention provisions, no assurance can be given that
others will not gain access to these trade secrets, that such agreements will be
honored or that we will be able to effectively protect our rights to unpatented
trade secrets. Moreover, no assurance can be given that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets.
- 14 -
Government Regulation and Product Approvals
Research, preclinical development, clinical trials, manufacturing and marketing
activities are subject to regulation for safety, efficacy and quality by
numerous governmental authorities in the U.S. and other countries. In the U.S.,
drugs are subject to rigorous FDA regulation. The Federal Food, Drug and
Cosmetic Act and other federal and state statutes and regulations govern, among
other things, the testing, manufacture, safety, efficacy, labeling, storage,
record keeping, approval, advertising and promotion of our products. Product
development and approval within this regulatory framework take a number of years
and involve the expenditure of substantial resources.
The steps required before a pharmaceutical agent may be marketed in the U.S.
include:
preclinical laboratory tests, animal pharmacology and toxicology
studies and formulation studies;
the submission of an investigational new drug application to the FDA
for human clinical testing, which must be accepted by the FDA before
human clinical trials may commence;
the carrying out of adequate and well-controlled human clinical trials
to establish the safety and efficacy of the drug candidate;
the submission of a new drug application to the FDA; and
FDA approval of the new drug application to allow us to conduct any
commercial sale or shipment of the drug.
In addition to obtaining FDA approval for each product, each domestic drug
manufacturing establishment must be registered with the FDA. Domestic drug
manufacturing establishments are subject to regular inspections by the FDA and
must comply with FDA regulations. To supply products for use in the U.S.,
foreign manufacturing establishments must also comply with FDA regulations and
are subject to periodic inspection by the FDA, or by corresponding regulatory
agencies in their home countries under reciprocal agreements with the FDA.
Preclinical studies include the laboratory evaluation of in vitro pharmacology,
product chemistry and formulation, as well as animal studies to assess the
potential safety and efficacy of a product. Compounds for toxicology testing
must be formulated according to the FDA's regulations on Good Manufacturing
Practices and preclinical safety tests must be conducted by laboratories that
comply with FDA regulations regarding good laboratory practices. The results of
some of the preclinical tests are submitted to the FDA as part of an
investigational new drug application and are reviewed by the FDA before human
clinical trials may begin. The investigational drug application must also
contain protocols for clinical trials that will be carried out. If the FDA does
not object to an investigational new drug application, the investiga tional new
drug application becomes effective 30 days following its receipt by the FDA. At
any time during this 30 day waiting period or at any time thereafter, the FDA
may halt proposed or ongoing clinical trials until the agency authorizes trials
under specified terms. Such a halt, called a clinical hold, continues in effect
until and unless the FDA's concerns are adequately addressed. In some cases,
clinical holds are never lifted. Imposition by the FDA of a clinical hold can
delay or preclude further product development.
- 15 -
The investigational new drug application process may be extremely costly and may
substantially delay product development.
Clinical trials must be sponsored and conducted in accordance with good clinical
practice under protocols and methodologies that:
ensure receipt of signed consents from participants that inform them of
risks; detail the protocol and objectives of the study; detail the
parameters to be used to monitor safety; and detail the efficacy
criteria to be evaluated.
Furthermore, each clinical study must be conducted under the supervision of a
principal investigator operating under the auspices of an Institutional Review
Board, or IRB, at the institution where the study is conducted. The IRB will
consider, among other things, ethical factors, the safety of human subjects and
the possible liability of the institution. Sponsors, investigators and IRB
members are obligated to avoid conflicts of interests and ensure compliance with
all legal requirements.
Clinical trials typically are conducted in three sequential phases. In Phase I,
the initial introduction of the drug into a small number of healthy volunteers
is undertaken. The drug is evaluated for safety by assessing the adverse
effects, dosage tolerance, metabolism, distribution, excretion and clinical
pharma cology. The Phase I trial must provide pharmacological data that is
sufficient to devise the Phase II trials. For certain drugs such as cancer drugs
Phase I trials may be conducted in patients rather than healthy volunteers.
Phase II trials involve studies in a limited patient population in order to:
obtain initial indications of the efficacy of the drug for specific,
targeted indications;
determine dosage tolerance and optimal dosage; and
identify possible adverse affects and safety risks.
When a compound is determined preliminarily to be effective and to have an
acceptable safety profile in Phase II evaluation, Phase III trials can be
undertaken to evaluate safety and efficacy endpoints further in expanded patient
populations at geographically diverse clinical trial sites. Positive results in
Phase II are no guarantee of positive results in Phase III.
The results of the pharmaceutical development, preclinical studies and clinical
trials are submitted to the FDA in the form of a NDA, which must be complete,
accurate and in compliance with FDA regulations. The approval of a new drug
application permits commercial-scale manufacturing, marketing, distribution,
exporting from the U.S. and sale of the drug in the U.S. The testing and
approval process typically requires substantial time, effort and expense. The
FDA may deny a new drug application filed by us or our collaborators if the
applicable scientific and regulatory criteria are not satisfied and thus, we may
not be able to manufacture and sell the product in the U.S. Moreover, the FDA
may require additional testing or information, or may require post-approval
testing, surveillance and reporting to monitor the products. Notwithstanding any
of the foregoing, the FDA may ultimately decide that a new drug application
filed by us or our collaborators does not meet the applicable agency standards,
and even if approval is granted, it can be limited or revoked if evidence
subsequently emerges casting doubt on the safety or efficacy of
- 16 -
a product or if the manufacturing facility, processes or controls do not comply
with regulatory standards. Finally, an approval may involve limitations on the
uses, labeling, dosage forms, distribution and packaging of the product.
Among the conditions for new drug approval is the requirement that the
prospective manufacturer's quality control, record keeping, notifications and
reporting and manufacturing systems conform to the FDA's regulations on current
Good Manufacturing Practices, or cGMP, which requires substantial time,
attention and financial resources. In complying with the standards contained in
these regulations, manufacturers must continue to expend time, money, resources
and effort in order to ensure compliance. Thus, even if regulatory approval for
our paclitaxel is acquired, our current and any future facilities will be
subject to periodic review and inspections by the FDA or the analogous
regulatory authorities of other countries for compliance with cGMP or similar
foreign regulatory standards. The FDA, the Australian TGA and the European EAEMP
have inspected our manufacturing facilities and have found them to be in
compliance with applicable regulations and to be acceptable suppliers of bulk
paclitaxel. There can be no assurance that in the future the FDA or foreign
regulatory authorities will find our current facilities, or facilities being
constructed, to be in compliance with U.S. cGMP regulations or analogous foreign
standards. Subsequent discovery of previously unknown problems with a product or
our manufacturing facilities may result in restrictions, including withdrawal of
the product from the market. Failure to comply with the applicable regulatory
requirements by us, Faulding, Abbott, Tzamal or any future strategic partner
could, among other things, result in criminal prosecution and fines, product
recalls, product seizures and operating restrictions
When patents or other periods of exclusivity on brand-name drugs expire,
manufacturers can apply to the FDA to sell generic versions by submitting an
ANDA. An ANDA contains the data required for the review of a generic drug
product. Generic applicants submit information on the generic drug's chemistry,
manufacturing steps, stability, quality control measures, packaging and labeling
and show that the generic drug and the brand-name drug are equivalent. The FDA's
review process for an ANDA may take from 6 to 24 months. If approved, an
applicant may manufacture and market the generic drug product to provide a safe,
effective, low-cost alternative for the American public. Along with Abbott, in
March 2001 we filed an ANDA to permit us to begin marketing paclitaxel in the
United States. We do not know when, if at all, the FDA will complete its
approval process of our ANDA.
Outside the U.S., our ability to market a product is contingent upon receiving a
marketing authorization from the appropriate regulatory authority. This foreign
regulatory approval process includes many of the same steps associated with FDA
approval described above.
To the extent required by the terms of our termination agreement with Ivax, we
have supported and are required to continue to support the Ivax NDA in the U.S.
and an equivalent filing in the European Union for a period co-incident with the
original term of the Ivax Agreement. In this capacity, we have communicated with
the FDA to discuss the biomass strategy employing plantation-grown yews and
technical issues associated with our DMF submitted in support of the approval of
its bulk drug product as part of the Ivax NDA.
We are also subject to U.S. statutes and regulations applicable to exporting
drugs. Those laws authorize the export of a drug before marketing approval is
obtained in the U.S. to any country, if the drug (i) complies with the laws of
the importing country, and (ii) has valid marketing authorization by the
- 17 -
appropriate authority in a country listed by the law, one of which is Australia.
Our paclitaxel has received valid marketing authorization from Australia.
The adoption by federal, state or local governments of significant new laws or
regulations or a change in the interpretation or implementation of existing laws
or regulations relating to environmental or other regulatory matters could
increase the cost of producing products, delay regulatory approval or otherwise
adversely affect our ability to produce or sell our paclitaxel or other
products. In addition, certain paclitaxel production has been opposed by the
Oregon Natural Resources Council, or ONRC, because of their concern over Pacific
yew in old growth forests. The ONRC and the FDA have reached an agreement on the
National Environmental Policy Act, or NEPA, requirements for NDAs, ANDAs and
INDs reporting clinical trials with more than 200 patients using paclitaxel from
Pacific yew trees. The agreement provides that an applicant shall include an
Environmental Assessment, or EA, which will identify all sources of Pacific yew
which are expected to be harvested in connection with the manufacture of
paclitaxel relating to the application. The FDA is to subject such EAs to the
NEPA process and will complete and issue a Finding of No Significant Impact, or
an Environmental Impact Statement and Record of Decision as required by NEPA,
before approving any NDA or ANDA involving paclitaxel derived from or otherwise
involving the Pacific yew tree. Because we rely on plantation-grown yews, and
will not harvest any Pacific yew trees to manufacture paclitaxel for a U.S.
marketed product, we believe that the ONRC-FDA agreement requirements can be
met, and that these requirements will not jeopardize approval of any NDA that
may be filed by us in the future. However, there can be no assurance that the
ONRC and other environmental activist groups will not oppose our other
activities, which may have the effect of delaying or halting production of our
paclitaxel, which could have a material adverse effect on our business,
financial condition and results of operations.
In addition to regulations enforced by the FDA, we are also subject to, among
others, the regulations of the European Union, Canada, the Province of British
Columbia, Israel, the governments in South America, the U.S. Environmental
Protection Agency, the Department of Interior (U.S. Fish and Wildlife Services
and the Bureau of Land Management), the Department of Agriculture (U.S. Forest
Service) and other countries and regulatory agencies. Under the National
Environmental Policy Act, certain U.S. agencies have prepared an Environmental
Impact Statement that addresses the impact of harvesting wild Pacific yew trees,
including cutting down Pacific yew trees on federally-managed land. We are also
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and future federal, state or
local regulations. Our research and development activities involve the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although we believe that our safety procedures for handling and
disposing of these materials comply with the standards prescribed by state and
federal regulations, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of an accident, we could
be liable for any damages that result.
We have filed confidential DMFs and other documents describing portions of our
proprietary manufactur ing processes with regulatory agencies in the U.S.,
Australia, Canada and Europe, relating to our manufacture of our paclitaxel.
Faulding, referring to our Australian DMF, has received marketing approval in
Australia and other countries for our paclitaxel for treating refractory ovarian
and breast cancers.
- 18 -
Ivax, using our U.S. DMF, filed an IND with the FDA in June 1994, relating to
our paclitaxel and began its Phase I clinical trials relating to our paclitaxel
in the U.S. in October 1994. Ivax began Phase II/III clinical trials in May
1995. In 1997, Ivax filed the Ivax NDA seeking commercial approval to sell our
paclitaxel in the U.S.. On December 24,1997, the FDA ruled on the Ivax NDA and
determined that our paclitaxel was safe and effective in the treatment of
Kaposi's sarcoma, but denied Ivax the authority to market our paclitaxel for
seven years from the date Bristol received its Kaposi's sarcoma approval due to
Bristol's prior orphan drug approval for that indication. No assurance can be
given, however, that our paclitaxel will prove to be safe and effective in
future clinical trials, or that we will be able to obtain approval to market our
paclitaxel in the U.S. or other countries.
We filed an IND in May 1998, and initiated clinical trials of our paclitaxel for
three indications in June 1998 and March 1999. These studies were not
specifically designed to support an NDA filing. There can be no assurance that
these trials will demonstrate our paclitaxel to be safe or effective. In March
2001 we and Abbott filed an Abbreviated New Drug Application with the U.S. Food
and Drug Administration for paclitaxel.
Research and Development
During the years ended December 31, 1998, 1999 and 2000, we spent approximately
$10 million, $12 million and $14.3 million respectively, on research and
development activity and to produce paclitaxel. Research and development is
expected to remain a significant expense of our business. In the short term,
research and development is expected to concentrate on clinical trials,
improvement of paclitaxel yield, production cost reduction, development of our
semisynthesis process for paclitaxel production, and yield improvement in our
paclitaxel production methodology for processing needles, limbstock and roots.
In addition, we are actively engaged in genomics research targeted at creating
genetic therapeutics targeting human disease, technology directed at improving
plant traits and developing technology useful in functional genomics and
diagnostics. We plan to contract out research considered essential but for which
we lack facilities or staff. We continue in early stage research and development
of other potential natural product cancer chemotherapeutic drugs with novel
mechanisms of action. We are assessing late-stage pharmaceutical product
development opportunities in an effort to expand our pipeline of new products.
Foreign and Domestic Operations; Export Sales
The following table sets forth, for the past three years, revenue, profitability
(operating loss), and identifiable assets attributable to our U.S. and foreign
operations (amounts in thousand dollars):
- 19 -
Year Ended December 31,
2000 1999 1998
---- ---- ----
Sales to Unaffiliated Customers
U.S. $ 8,148 $ 7,592 $ 4,498
Canada - - 454
---------- --------- -------
Total Sales (1) 8,148 7,592 4,952
Operating Loss
U.S. $(16,128) $(10,624) $(12,852)
Canada (79) (165) (526)
Identifiable Assets
U.S. $ 34,959 $ 16,095 $ 23,260
Canada 3,042 3,162 2,406
- ------------
(1) Includes export sales to Australia of $7,720 in 2000, $5,121 in 1999 and
$2,189 in 1998.
Sales from Canada included sales of product manufactured and shipped from NaPro
Canada, our Canadian subsidiary. Such products sold by NaPro Canada to us were
then re-sold to Faulding for use outside the U.S. Such "exported" products never
physically entered the U.S.. We suspended Canadian manufacturing operations in
1998.
Sales of our paclitaxel into foreign markets accounted for approximately 48% of
our revenue for the year ended December 31, 1998, 68% of our revenue for the
year ended December 31, 1999 and 98% of our revenue for the year ended December
31, 2000. We anticipate that a lower portion of our revenue will be derived from
sales of our products in foreign markets in future years. Pending regulatory
approval, we anticipate sales to Abbott will begin in 2001.
However a substantial portion of our revenue and operations will continue to be
subject to the risks associated with foreign business, including economic or
political instability, shipping delays, fluctuations in foreign currency
exchange rates and various trade restrictions, all of which could have a
significant impact on our ability to deliver products on a competitive and
timely basis. Future imposition of, or significant increases in, the level of
customs duties, export quotas, drug regulatory restrictions or other regulatory
or trade restrictions could have a material adverse effect on us.
Employees
As of March 5, 2001, we had 121 full-time employees, 3 part-time employees, and
2 project employees. 11 of these employees hold Ph.D. or M.D. degrees. 29
employees were engaged in drug development, 26 in quality assurance, 43 in
manufacturing, 22 in administration and finance, 4 in regulatory affairs, and 2
in legal. We believe that our relations with our employees are good.
- 20 -
Item 2
Properties
We lease 54,000 square feet of space in Boulder, Colorado, that is used for
executive offices, research and development and commercial manufacturing. We
lease an additional 17,000 square feet of space in Boulder, Colorado that is
used for manufacturing and 20,000 square feet of warehouse space in Weld County,
Colorado. We anticipate that we may lease or purchase and develop additional
manufacturing capacity.
Item 3
Legal Proceedings
In September 2000 we and Abbott filed a patent infringement suit in the U.S.
District Court for the District of Colorado against Bristol alleging
infringement of U.S. Patent numbers 5,972,992 and 5,977,164 which relate to
paclitaxel. In November 2000 we amended the complaint to add U.S. Patent number
6,140,359 to our claims of patents that Brisol is infringing. Bristol has
asserted defenses that if successful, would result in the invalidity or
unenforceability of the patents. A finding of invalidity or unenforceability of
the patents would have a material adverse affect on us. The trial is set for
June 2002. We intend to vigorously prosecute the case.
Existing regulatory approvals have a direct impact on the clinical and marketing
strategy we are pursuing.
In December 1992, Bristol obtained NDA approval in the U.S. for its paclitaxel
product. Under the Waxman-Hatch Act, a non-patented drug such as paclitaxel that
gains approval through an NDA process is granted a five-year period of marketing
exclusivity, which prevents submission by another party of an ANDA for generic
substitutes until such period of exclusivity expires. Bristol's exclusivity
period in the United States expired in December 1997. However, additional
Waxman-Hatch Act provisions may result in an additional 30 month delay in the
approval of an ANDA if the sponsor (in this case Bristol) has listed a patent
related to the product with the FDA, and institutes a lawsuit based on that
patent prior to the time that a generic approval is received. Bristol currently
has several patents related to paclitaxel listed. In March 2001, we and Abbott
filed an ANDA for paclitaxel with the FDA. If Bristol files a lawsuit against us
or Abbott based upon those patents, Abbott's ANDA approval in the United States
could be delayed. A statute comparable to the Waxman-Hatch Act exists in Europe,
although the related period of exclusiv ity is ten years. Bristol's European
exclusivity period ends in 2003.
Item 4
Matters Submitted to Stockholders' Vote
None
- 21 -
Part II
Item 5
Market Information and Related Stockholder Matters
Market Information
Our common stock is traded in the Nasdaq National Market under the symbol
"NPRO." The following table sets forth, for the periods indicated, the high and
low closing sale prices for the common stock.
High Low
2000 Fourth Quarter $12 1/4 $ 5 1/4
Third Quarter 11 5 1/8
Second Quarter 8 5/8 2 1/2
First Quarter 10 1/2 2 1/2
1999 Fourth Quarter $ 3 7/16 $ 2 3/16
Third Quarter 3 7/8 1 21/32
Second Quarter 2 3/16 1 5/8
First Quarter 2 1/2 1 3/8
Stockholders
As of December 31, 2000, there were approximately 257 stockholders of record.
Dividends
To date, we have not paid any dividends on the common stock. We intend to retain
future earnings, if any, to finance the operation and expansion of our business
and, therefore, we do not anticipate paying any cash dividends in the
foreseeable future, if at all.
Recent Sales of Unregistered Securities
In November 2000 we closed a private placement of 2,000,000 shares of common
stock. As an issuance to accredited investors not involving any public offering,
the issuance was exempt under Section 4(2) of the Securities Act and Regulation
D thereunder.
In November 2000 we issued 100,000 shares of common stock in partial
consideration for the licensing of technology. As an issuance to accredited
investors not involving any public offering, the issuance was exempt under
Section 4(2) of the Securities Act and Regulation D thereunder.
In February 2000 and March 2000, we issued a total of 11,000 shares of common
stock upon exercise of stock options by our former directors.
- 22 -
Item 6
Selected Financial Data
The selected financial data presented below for each year in the five years
ended December 31, 2000, are derived from our financial statements, which have
been audited by Ernst & Young LLP, independent auditors, and are qualified by
reference to such Financial Statements and Notes thereto. The data presented
below should be read in conjunction with the consolidated financial statements
at December 31, 2000 and 1999 and for each of the three years in the period
ended December 31, 2000, the related Notes thereto, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information included elsewhere in this report.
Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands, except per share data)
Statement of Operations Data:
Product Sales $ 8,148 $ 7,592 $ 4,952 $ 3,814 $ 3,473
--------- --------- -------- -------- --------
Operating Expense:
Research, development and cost of products sold 14,335 12,047 9,973 11,769 6,837
General and administrative 7,815 6,188 6,458 5,992 3,712
(Gain) loss on retirement of assets 2,245 146 1,899 (141) 27
------------ ----------- ---------- ------------ -----------
Total operating expense 24,395 18,381 18,330 17,620 10,576
---------- ---------- --------- ---------- ---------
Operating loss (16,247) (10,789) (13,378) (13,806) (7,103)
Other income (expense):
License fees - 2,320 11,110 - -
Interest income 372 309 550 494 651
Interest expense (750) (842) (902) (2,161) (373)
----------- --------- ----------- ----------- ----------
Net loss $(16,625) $ (9,002) $ (2,620) $(15,473) $ (6,825)
========= ========= ========== ========= =========
Net loss attributable to common stockholders $(16,625) $(10,213) $ (3,212) $(15,537) $ (6,825)
========= ========= ========== ========= =========
Basic and diluted net loss per share $ (.69) $ (0.50) $ (0.22) $ (1.28) $ (0.68)
=========== ========== ========== ========== =========
Weighted average shares outstanding 23,924 20,554 14,642 12,104 9,973
========== ========== ========= ========= =========
Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term securities $ 18,982 $ 1,937 $ 7,441 $ 8,102 $ 14,767
Working capital 23,168 2,915 7,121 (2,485) 14,224
Total assets 38,001 19,257 25,666 30,358 25,021
Long term debt, net of current maturities 14,953 4,723 80 480 751
Senior convertible debt, long term portion - - 5,176 - -
Senior convertible redeemable preferred stock - - 3,805 4,344 -
Minority interest - 622 622 2,574 3,715
Accumulated deficit (69,245) (52,620) (43,618) (40,998) (25,525)
Stockholders' equity 18,587 11,133 10,884 7,262 16,569
- 23 -
Item 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis provides information that management
believes is relevant to an assessment and understanding of the results of
operations of NaPro BioTherapeutics, Inc. You should read this discussion in
conjunction with the Financial Statements and Notes included elsewhere in this
report. Special Note: Certain statements set forth below constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, referred to as the "Reform Act".
See "Special Note Regarding Forward Looking Statements."
General
We are a biopharmaceutical company focused on the development, production and
licensing of complex natural product pharmaceuticals as well as the development
and licensing of novel genetic technologies for applications in human
therapeutics and diagnostics, pharmacogenomics and agribiotechnology. Natural
product substances have been, and continue to be, the primary source of new
prototype chemotherapeutic anti-cancer agents. Our lead product is paclitaxel, a
naturally occurring chemotherapeutic anti-cancer agent found in certain species
of yew, or Taxus trees. In addition to our efforts with paclitaxel and genetics,
we are also working on several types of compounds which have promising activity
as anti-cancer agents. We believe some of these agents function by new and novel
mechanisms, which may increase their likelihood of success as new
chemotherapeutics. We are also actively engaged in evaluating the in- licensing
or purchase of potential new products and/or technologies, whether or not those
products or technologies are derived from natural products . Our evaluations of
new products and technologies may involve examination of individual molecules,
classes of compounds or platform technologies, in the cancer field and
otherwise. Acquisitions of new products or technology may involve the purchase
of, or merger with, other companies.
We continue to incur substantial expense for research and development related to
preclinical and clinical studies, improving manufacturing processes and other
development activity. Accordingly, we have incurred significant operating
losses, including operating losses of approximately $16.2 million, $10.8 million
and $13.4 million for the years ended December 31, 2000, 1999 and 1998,
respectively, resulting in an accumulated deficit of $69.2 million as of
December 31, 2000. We expect that we will continue to have a high level of
operating expense and will be required to make significant up-front expenditures
in connection with our paclitaxel biomass procurement, product development and
research and development activities. We anticipate that operating losses will
continue until such time, if ever, as we are able to generate sufficient revenue
to support our operations.
In March 1998, we and Ivax Corporation terminated marketing between the two
companies.
Primarily, our ability to generate sufficient revenue to support our operations
depends upon the successful completion of our paclitaxel development program.
Our strategy for that program has been to form strategic alliances through
long-term exclusive agreements with major pharmaceutical companies. On July 23,
1999, we entered into an exclusive collaborative agreement of up to 20 years
covering the U.S. and Canada with Abbott Laboratories to develop and
commercialize one or more formulations of paclitaxel for the treatment of a
variety of cancers. Under our agreement with Abbott, we are responsible for
supply
- 24 -
of bulk drug and clinical trials are conducted jointly. Abbott is responsible
for finishing, regulatory filings, marketing, and sale of the finished drug
product. Most primary decisions related to the paclitaxel development program
are made by a joint Abbott-NaPro Development Committee. In March 2001 we and
Abbott filed an ANDA with the FDA for paclitaxel.
In connection with the Abbott agreement, we may receive total funding of up to
$122 million in the form of development and marketing milestone payments, a
secured loan and equity investments. In July 1999 we received an initial $1
million fee. Through December 31, 2000, Abbott has purchased 1,111,111 shares of
our common stock for a total purchase price of $6 million.
Contingent upon our successful achievement of all development milestones,
including the payments received through 2000, we could receive up to $45 million
consisting of $34 million in development fees and up to $11 million for the
purchase of 2 million shares of our common stock.
In addition, we have access to a total of $20 million under a secured loan
arrangement with Abbott, including draws through 2000 of $15.1 million. The loan
bears a primary interest rate of 6.5% and is due in full on the earlier of: (i)
the second anniversary of the first sale of finished product by Abbott to a
wholesaler or end-user customer following approval of finished product by the
FDA; (ii) the termination of the Abbott agreement; or (iii) January 1, 2007. The
loan is limited to a borrowing base of collateral ized assets, recomputed
monthly. Substantially all of our hard assets are collateralized as security for
the loan.
Contingent upon receiving regulatory approval and achieving certain commercial
sales thresholds over several years, we may receive additional milestone
payments from Abbott in the range of zero up to $57 million. We cannot assure
that regulatory approval or sales thresholds will be achieved.
Under terms of the agreement, Abbott will purchase bulk drug from us. If the
paclitaxel product is approved and commercialized, Abbott will pay a percentage
of its net paclitaxel sales to us, less Abbott's payments for purchase of bulk
drug. Abbott may terminate the agreement at any time with or without cause.
Should Abbott terminate without cause, it is obligated to make payments to us.
In 1992 we entered into a 20-year exclusive agreement with F.H. Faulding & Co.,
Ltd., Australia's largest domestic pharmaceutical company, for the clinical
development, sale, marketing and distribution of our paclitaxel. Faulding, with
2000 sales of approximately $1.2 billion, actively markets anti-cancer
pharmaceuticals and other health care products in Australia, Southeast Asia and
other countries throughout the world. In 2000, we amended the Faulding agreement
to, among other things, add additional countries to Faulding's exclusive
territory. In 2001 we entered into a separate agreement with Faulding covering
development and sale of our paclitaxel in Europe. Including the new agreement
for Europe, the Faulding territory includes substantially all of the world other
than the U.S., Canada, Japan, Israel and the former Soviet Union. Faulding has
received marketing approval for, and is selling our paclitaxel as ANZATAX in,
more than 20 countries.
In Europe, we are responsible for regulatory filings and will supply paclitaxel
raw material exclusively to Faulding to formulate and finish the product. We
cannot assure that we will receive regulatory approval in Europe. Should we
receive approval, Faulding will then market and sell the final proprietary
paclitaxel
- 25 -
formulation in Europe. Under the agreement, Faulding paid an up-front licensing
fee to us of $7.5 million. We will share equally the net sales of the product in
Europe.
In anticipation of final FDA approval for commercial sales, we have completed
construction of our redesigned manufacturing facilities in Boulder, Colorado. We
cannot assure, however, that our paclitaxel will receive regulatory approval or
be successfully marketed.
Results of Operations
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
- ---------------------------------------------------------------------
Sales. 2000 sales were $8.1 million, up $500,000 from 1999. Sales to Faulding
for 2000 were $7.7 million, up $2.6 million from 1999. The increase was mainly
due to an increase in the number of countries in which Faulding is licensed to
sell paclitaxel. Sales to Ivax, as a result of the termination agreement, ended
in the third 1999 quarter. We plan no future paclitaxel sales to Ivax. Pending
regulatory approval, we anticipate sales to Abbott will commence in 2001.
Research and Development and Cost of Products Sold. Research and development
expense and cost of product sold for 2000 was $14.3 million, up by $2.3 million
from 1999. The increase resulted primarily from a one-time charge of $800,000
for the startup cost of our Boulder, Colorado paclitaxel extraction facility and
an increased cost of clinical trials, partially offset by decreased cost
associated with develop ment of the semisynthetic manufacturing process. Our
production process is not distinct from our research and development processes.
Accordingly, the cost of products sold is included in our research and
development expense.
General and Administrative Expense. General and administrative expense for 2000
was $7.8 million, up $1.6 million from 1999. The increase is attributable
primarily to increased compensation, increased regulatory expense and increased
recruiting expense.
Loss on Disposal of Assets. Loss on disposal of assets for 2000 was $2.2
million, up $2.1 million from 1999. The increase was attributable to prior
construction cost that had no applicability in the redesign of the manufacturing
facilities in Boulder, Colorado.
License Fee Income. License fees for 1999 were $2.3 million. There was no
similar amount in 2000. The 1999 amount included $1 million in milestone
payments under the Abbott agreement. The remainder of the 1999 license fees were
paid under the terms of the Ivax termination agreement. We expect no further
payments under the Ivax agreement. Although license fees and milestone payments
are unusual and may be non-recurring, $7.5 million was received under the
Faulding European agreement in the first quarter of 2001.
Interest Income. Interest income for 2000 was $400,000, up $100,000 from 1999.
The increase is primarily attributable to higher overall balances of interest
bearing investments.
Interest Expense. Interest and other expense for 2000 was $800,000, the same as
1999. Decreased interest on the senior convertible debt because of the final
conversion was offset by interest on the Abbott loan.
- 26 -
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
- ---------------------------------------------------------------------
Sales. 1999 sales were $7.6 million, up $2.6 million from 1998. Sales to
Faulding for 1999 were $5.1 million, up $2.9 million from 1998. The increase was
partially due to an increase in the number of countries in which Faulding is
licensed to sell paclitaxel. The increase was also partially due to the timing
of product shipments and to inventory fluctuations of our strategic partners.
Sales to Ivax, as a result of the termination agreement, ended in the third 1999
quarter.
Research, Development and Cost of Products Sold. Research and development
expense and cost of products sold for 1999 was $12 million, up by $2 million
from 1998. The increase resulted primarily from an increase in clinical trial
activity and increased cost associated with development of the semisynthetic
manufacturing process. Our production process is not distinct from our research
and development processes. Accordingly, the cost of products sold is included in
our research and develop ment expense.
General and Administrative Expense. General and administrative expense for 1999
was $6.2 million, down $300,000 from 1998. The decrease is attributable
primarily to a decrease of $700,000 in legal expense related to European patent
litigation, partially offset by increased compensation and increases in
retirement plan contributions.
Loss on Disposal of Assets. Loss on disposal of assets for 1999 was $100,000,
down $1.8 million from 1998. The decrease was attributable to the losses in 1998
resulting from the suspended construction on the Boulder, Colorado manufacturing
facilities and from the closure of the contract extraction facility on Prince
Edward Island, Canada.
License Fee Income. License fees for 1999 were $2.3 million, down $8.8 million
from 1998. The 1999 amount included $1 million in milestone payments under the
Abbott agreement. The remainder of the 1999 license fees and all of the 1998
license fees were paid under the terms of the Ivax termination agreement.
License fees and milestone payments are unusual and may be non-recurring. We
expect no further payments under the Ivax agreement.
Interest Income. Interest income for 1999 was $300,000, down $200,000 from 1998.
The decrease is primarily attributable to lower overall balances of interest
bearing investments.
Interest Expense. Interest and other expense for 1999 was $800,000, down
$100,000 from 1998. The decrease is primarily attributable to the decreased
interest on senior convertible debt that was converted into shares of our common
stock, partially offset by interest on the Abbott loan.
Liquidity and Capital Resources
Our capital requirements have been, and will continue to be, significant. As of
December 31, 2000, we had a working capital balance of $23.2 million compared to
a working capital balance of $2.9 million as of December 31, 1999. We have a $20
million secured borrowing arrangement with Abbott, of which $15.1 million had
been drawn as of December 31, 2000. To date, we have funded our capital require
ments primarily with the net proceeds of public offerings of our common stock of
approximately $21.1 million, with private placements of our equity securities of
approximately $49.8 million, with the exercise
- 27 -
of warrants and options of $6.5 million, with net borrowings of $15.1 million,
and with loans and advances from our stockholders and strategic partners.
Our existing capital, projected 2001 sales, anticipated license fees and
milestone payments, and available borrowing under the Abbott loan are expected
to provide adequate capital to fund our operations and capital expenditures in
2001. However, pharmaceutical development is a costly and time consuming
process. We are actively pursuing additional partners to assist in the
development and marketing of our products, and may seek other forms of long-term
financing should such financing become available on acceptable terms. We may
in-license or purchase new products or technologies. The cost of acquiring and
developing such resources, and related capital expenditures, may be very large.
As a result, we may need to attract substantial amounts of capital. We cannot
assure that we will be able to do so.
In November 2000, we completed a private placement to accredited investors of 2
million shares of our common stock for an aggregate purchase price of $17.5
million; we received net proceeds of $16.3 million. We registered the resale of
the stock with the SEC.
Working Capital and Cash Flow Cash and cash equivalents increased $17.1 million
to $19 million for the year ended December 31, 2000 from $1.9 million at
December 31, 1999. Net cash used by 2000 operations of $10.5 million and by
investing activity of $3.6 million was offset by financing activity of $31.2
million.
Inventory was $6.3 million at December 31, 2000. The amount of work-in-progress
inventory and finished goods inventory is dependent on a number of factors,
including the shipping requirements of our strategic partners and its production
planning for meeting those needs. Inventory balances may vary significantly
during product development and launch periods.
We anticipate that the level of our accounts receivable may increase
significantly as we anticipate the regulatory approval to sell paclitaxel in the
U.S.
Capital Expenditures We spent $3.6 million during 2000 for capital projects.
These expenditures primarily included the extraction facility, plantation cost
and laboratory equipment.
The amount and timing of future capital expenditures will depend upon numerous
factors, including:
the cost of manufacturing scale-up for paclitaxel; the development of new
products; the cost of manufacturing resources for new products; the nature
of our relationship with our strategic partners; the establishment of
additional strategic relationships; the progress of our research and
development programs; the magnitude and scope of these activities;
the cost of preparing, filing, prosecuting, maintaining and enforcing
patent claims and other intellec tual property rights; competing
technological and marketing developments; and changes in or terminations of
existing strategic relationships.
- 28 -
For 2001 we are anticipating significant expenditures for improving efficiency
and expanding capacity at our existing facilities. We are also expecting to
complete the design for, and begin construction of, a new large-scale facility
during 2001. The expanded scope of our research and development activity will
require significant additions to laboratory equipment. All of these factors, and
others, lead us to expect a significant increase in capital expenditures in
2001. Although we may seek additional long-term financing to fund the increases
in capital expenditures, there can be no assurances that we can obtain such
financing on terms which are economically viable for us.
Net Operating Loss Carryforwards As of December 31, 2000, we had approximately
$59 million of net operating loss carryforwards to offset future taxable income.
The Tax Reform Act of 1986 contains provisions that limit the utilization of net
operating loss carryforwards if there has been a "change of ownership" as
described in Section 382 of the Internal Revenue Code. Such a change of
ownership may limit our utilization of our net operating loss carryforwards, and
could be triggered by sales of securities by us or our stockholders.
Special Note Regarding Forward-looking Statements
This report contains forward-looking statements that involve known and unknown
risks, including, without limitation, statements containing the words
"believes", "anticipates", "estimates", "may" and words of similar import or
statements of management's opinion or statements that are not historical fact.
Such forward-looking statements include, among others:
statements concerning our plans, objectives and future economic prospects,
such as matters relative to seeking and obtaining additional strategic
partners and developing new products; the availability of patent and other
protection for our intellectual property; the completion of preclinical
studies, clinical trials and regulatory filings; the prospects for, and
timing of, regulatory approvals; the need and plans for, and availability
of, additional capital; the amount and timing of capital expenditures; the
timing of product introductions and sales; the availability of raw
materials; prospects for future operations; and other statements of
expectations, beliefs, future plans and strategies, anticipated events or
trends and similar expressions concerning matters that are not historical
facts.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual results, performance or
achievements, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
following:
the inability to obtain regulatory approvals for paclitaxel or a delay in
such approvals; competition from Bristol and other existing and new
producers of paclitaxel and other drugs; technological advances in cancer
treatment and drug development that may obsolesce paclitaxel; the risks
associated with patent litigation; the ability to obtain rights to
technology; the ability to obtain and enforce patents;
- 29 -
the ability to maintain trade secrets;
the ability to obtain raw materials and commercialize manufacturing
processes; the effectiveness of our paclitaxel and other pharmaceuticals we
develop in treating disease; the results of preclinical and clinical
studies; the results of research and development activities; the ability to
purchase or license new products; the successful development of new
products; the business abilities and judgment of our management and other
personnel; the ability to hire skilled personnel to perform research and
development and to run our manufacturing operations; the ability of
contract manufacturers to perform adequately under anticipated contracts;
changes in and compliance with governmental regulations; the
decision-making processes of regulatory agencies; the effect of capital
market conditions and other factors on capital availability for us and
other biopharmaceutical companies; the ability of Abbott, Faulding and
Tzamal to perform their obligations under their existing agree ments with
us; our ability to perform our obligations under our existing agreements
with Abbott, Faulding and Tzamal; our ability to establish a relationship
with a capable strategic partner to develop and market our paclitaxel in
Japan; our limited relevant operating history upon which an evaluation of
our prospects can be made; the effect on our revenue, cash flow and
earnings from foreign exchange rate fluctuations; adverse economic and
general business conditions; and other factors referenced in this report
and in our registration statement filed December 1, 2000.
These factors are not intended to be an all-inclusive enumeration of the
business risks we face. Reference is also made to the risk factors discussed in
our registration statement filed with the Securities and Exchange Commission on
December 1, 2000. The forward-looking statements included in this report
represent our view as of the date of this report. The reader should not assume
that the statements made herein remain accurate at any future date. We do not
intend to update these statements and undertake no duty to any person to make
any update under any circumstance.
Item 7A
Quantitative and Qualitative Disclosures about Market Risk.
During 2000, virtually all of our revenue resulted from sales of our paclitaxel
to Faulding. We anticipate sales to Abbott in 2001; however, sales to Faulding
will remain significant.
Faulding purchases our paclitaxel from us at a price that varies in proportion
to the price at which Faulding sells our paclitaxel. Under our agreement with
Faulding, we are paid a fixed percentage of Faulding's sales price for
paclitaxel supplied for commercial use. In March of each year, Faulding
estimates the sales price it will receive for paclitaxel sales in the upcoming
year, and, based upon that estimate, we determine the price we will charge
Faulding for paclitaxel. We recognize the corresponding
- 30 -
revenue at the time of shipment of our paclitaxel to Faulding, based upon the
intended use indicated by Faulding on its purchase orders. However, Faulding may
or may not use the product in accordance with the original use stated on its
purchase orders. Additionally, Faulding's actual selling price may differ from
the amounts originally budgeted and indicated to NaPro on its purchase orders.
On or about May 31, 2001, Faulding will communicate to us the final amount and
type of sales made during the period beginning on April 1, 2000 and ending on
March 31, 2001, and an adjustment will be calculated that may increase or
decrease our revenue from sales of products to Faulding during this period.
Faulding's sales are made in the currencies of each of the countries in which it
sells our paclitaxel. As a result, our revenue from sales is affected by
fluctuations in the value of these various foreign currencies relative to the
U.S. dollar. One of Faulding's largest single markets is Australia, accounting
for approximately 24% of Faulding's commercial sales during the period beginning
March 31, 1999 and ending March 31, 2000. In the past, fluctuations in various
currencies, especially the Australian dollar, were a significant factor in
reductions in the price we charge Faulding. If changes in foreign currency
markets continue to cause a decrease in the price per gram we receive from
Faulding, there could be a material adverse effect on our earnings and cash
flow.
To the extent our efforts in developing additional international markets are
successful, we may face similar foreign currency exchange risk as that described
above for Faulding.
Certain statements set forth in Item 7A may constitute "forward-looking
statements" within the meaning of the Reform Act. See "Special Note Regarding
Forward-looking Statements."
Item 8
Financial Statements and Supplementary Data
The information required by this item begins at Page F-1.
Item 9
Changes in and Disagreements with Accountants
None
Part III
Item 10
Directors and Executive Officers
The information concerning our directors and executive officers is incorporated
by reference to the section entitled "Election of Directors" in our definitive
Proxy Statement with respect to our 2001 Annual Meeting of Stockholders (the
"Proxy Statement").
- 31 -
Item 11
Executive Compensation
The section entitled "Executive Compensation" appearing in our Proxy Statement
is incorporated herein by reference, except for such information as need not be
incorporated by reference under rules promul gated by the SEC.
Item 12
Security Ownership of Certain Beneficial Owners and Management
The section labeled "Security Ownership of Directors and Executive Officers and
Certain Beneficial Owners" appearing in our Proxy Statement is incorporated
herein by reference.
Item 13
Certain Relationships and Related Transactions
The section labeled "Certain Relationships and Related Transactions" appearing
in our Proxy Statement is incorporated herein by reference.
Part IV
Item 14
Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements
The Financial Statement Index is on Page F-1.
Financial Statement Schedules
All schedules are omitted because they are not applicable or not required or
because the information is included in the consolidated financial statements or
the notes thereto.
Exhibits and Reports on Form 8-K
We filed a Current Report on Form 8-K dated October 31, 2000 which included a
report on Item 5.
- 32 -
Exhibit
Number Description of Exhibit
3.1 Amended and Restated Certificate of Incorporation of the Company, as amended August 2, 1996 (1)
3.2 Certificate of Amendment dated September 29, 1998 to the Amended and Restated Certificate of
Incorporation of the Company (2)
3.3 Certificate of Amendment dated September 13, 2000 to the Amended and Restated Certificate of
Incorporation of the Company (3)
3.4 Certificate of Designation for Convertible Preferred Stock, Series A (4)
3.5 Certificate of Designation for Series B Junior Participating Preferred Stock (5)
3.6 Certificate of Designation of Series C Senior Convertible Preferred Stock (6)
3.7 Bylaws of the Company as amended through December 2000
4.1 Common Stock Certificate (7)
4.2 Rights Agreement dated as of November 8, 1996 between the Company and
American Stock Transfer and Trust Company, as Rights Agent (8)
4.3 The Certificate of Incorporation and Bylaws of the Company are included as Exhibits 3.1 - 3.7.
10.1* Company's 1993 Stock Option Plan (7)
10.2* Amendment dated December 11, 2000 to the Company's 1993 Stock Option Plan.
10.3* Company's 1994 Long-Term Performance Incentive Plan, as amended May 28, 1998 (2)
10.4* Amendment dated December 11, 2000 to the Company's 1994 Long-Term Performance Incentive Plan
10.5* Employment Agreement effective October 5, 1998 between the Company and Leonard P. Shaykin (9)
10.6* Employment Agreement effective October 5, 1998 between the Company and Sterling K. Ainsworth (9)
10.7* Employment Agreement effective October 5, 1998 between the Company and Patricia A. Pilia (9)
10.8* Employment Agreement effective October 5, 1998 between the Company and Gordon H. Link (9)
10.9* Employment Agreement effective October 5, 1998 between the Company and David L. Denny (9)
10.10* Employment Agreement effective October 5, 1998 between the Company and Kai P. Larson (10)
10.11* Employment Agreement effective October 5, 1998 between the Company and James D. McChesney (9)
10.12* Stock Option Agreement with Sterling K. Ainsworth (7)
10.13* Stock Option Agreement with Patricia A. Pilia (7)
10.14 Second Amended and Restated Master Agreement dated June 5, 2000 between the Company and
F.H. Faulding & Co., Ltd. (11)
10.15+ European Agreement dated March 2, 2001 between the Company and F.H. Faulding & Co., Ltd.
10.16 Development, License and Supply Agreement dated July 23, 1999 by and between the Company
and Abbott Laboratories. (15)
10.17 Loan and Security Agreement dated July 23, 1999 by and between the Company and Abbott
Laboratories. (15)
10.18 Stock Purchase Agreement dated July 23, 1999 by and between the Company and Abbott
Laboratories. (15)
10.19 Amendment dated June 23, 2000 to Development, License and Supply Agreement by and between
the Company and Abbott Laboratories. (16)
- 33 -
10.20 Amendment dated June 23, 2000 to Stock Purchase Agreement by and between the Company and
Abbott Laboratories. (16)
10.21+ License Agreement dated November 21, 2000 by and between the Company and The University
of Delaware and Thomas Jefferson University.
10.22 Lease dated October 16, 1995 between the Company and Gunbarrel Facility L.L.C. (12)
10.23 First Amendment to Lease November 27, 1995 between the Company and Gunbarrel Facility L.L.C. (12)
10.24 Services and Supply Agreement dated as of December 1, 1993 between the Company and Pacific
BioTechnologies Inc. (7)
10.25 Agreement dated March 29, 1996 between the Company and Pacific BioTechnologies Inc. (12)
10.26 Letter Agreement dated August 14, 1999 between the Company and Pacific BioTechnologies Inc. (10)
10.27 Culture Agreement dated March 1, 1996 between Zelenka Nursery, Inc. and the Company (13)
10.28 Agreement for Sale, Harvest and Storage of Nursery Stock dated May 1, 1996 between Zelenka
Nursery, Inc. and the Company (13)
10.29 Culture Agreement dated March 1, 1997 between Zelenka Nursery, Inc. and the Company (14)
10.30 Lease Agreement dated March 1, 1997 between Zelenka Nursery, Inc. and the Company (14)
10.31 Agreement for Sale, Harvest and Storage of Nursery Stock dated March 1, 1997 between Zelenka
Nursery, Inc. and the Company (14)
10.32 Culture Agreement dated July 26, 1997 between Cass-Mill, Inc. and the Company (10)
10.33 Lease Agreement dated April 28, 2000 between Cass-Mill, Inc. and the Company
10.34 Form of Subscription Agreement including Registration Rights
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP
- --------------------------------------------------------------
* A management compensation plan.
+ The Company is applying for confidential treatment with respect to portions of
these exhibits.
(1) Incorporated herein by reference to the Company's Annual Report on Form
10-K filed with the Commission for the year ended December 31, 1996 (File
No. 0-24320).
(2) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 (File No. 0-24320).
(3) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period
ending September 30, 2000. (File No. 0-24320).
(4) Incorporated herein by reference to the Company's Quarterly Report on
Form 10-Q filed with the Commission for the quarter ended June 30, 1995
(File No. 0-24320).
(5) Incorporated herein by reference to the Company's November 8, 1996 Current Report Form 8-K
(File No. 0-24320).
(6) Incorporated herein by reference to the Company's Registration Statement on Form S-3, filed on
December 16, 1997 (No. 333-42419).
(7) Incorporated herein by reference to the Registration Statement on Form S-1 of the Company, filed
with the Commission on July 24, 1994 (No. 33-78016).
(8) Incorporated herein by reference to the Registration Statement of the Company on Form 8-A, filed
with the Commission on November 26, 1996 (File No. 0-24320).
(9) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period
ending September 30, 1998 (File No. 0-24320).
- 34 -
(10) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year
ending December 31, 1999 (File No. 0-24320).
(11) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period
ending June 30, 2000 (File No. 0-24320).
(12) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (File No. 0-24320).
(13) Incorporated herein by reference to the Registration Statement on Form S-1 of the Company filed
with the Commission on August 1, 1996 (No. 333-3051).
(14) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 (File No. 0-24320).
(15) Incorporated herein by reference to the Company's Current Report on Form 8-K, dated July 23,
1999 (File No. 0-24320).
(16) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period
ending June 30, 2000 (File No. 0-24320).
- 35 -
Signatures
Pursuant to Section 13 of the Securities Exchange Act of 1934, NaPro caused this
report on Form 10-K to be signed on its behalf.
NAPRO BIOTHERAPEUTICS, INC.
By: /s/ Leonard P. Shaykin March 30, 2001
- ----------------------------
Leonard P. Shaykin
Chairman of the Board of Directors,
Chief Executive Officer
Pursuant to the Exchange Act, this report has been signed on behalf of NaPro and
in the capacities indicated.
/s/ Leonard P. Shaykin Chairman of the Board of Directors, March 30, 2001
- ----------------------------------- Chief Executive Officer
Leonard P. Shaykin
/s/ Sterling K. Ainsworth Vice Chairman, President, March 30, 2001
- ----------------------------------- Chief Scientific Officer, Director
Sterling K. Ainsworth, Ph.D.
/s/ Patricia A. Pilia Executive Vice President, March 30, 2001
- --------------------------------------- Director
Patricia A. Pilia, Ph.D.
/s/ Gordon H. Link, Jr. Vice President, March 30, 2001
- ----------------------------------- Chief Financial Officer
Gordon H. Link, Jr. (Principal Financial Officer)
/s/ Robert L. Poley Controller March 30, 2001
- ------------------------------------- (Principal Accounting Officer)
Robert L. Poley
/s/ Edward L. Erickson Director March 30, 2001
- ----------------------------------
Edward L. Erickson
/s/ Arthur H. Hayes, Jr. Director March 30, 2001
- -----------------------------------
Arthur H. Hayes, Jr., M.D.
/s/ Marc J. Ostro Director March 30, 2001
- --------------------------------------
Marc J. Ostro
/s/ Richard N. Perle Director March 30, 2001
- -------------------------------------
The Honorable Richard N. Perle
/s/ Robert E. Pollack Director March 30, 2001
- -------------------------------------
Robert E. Pollack, Ph.D.
- 36 -
NaPro BioTherapeutics, Inc. and Subsidiaries
Financial Statements
Years ended December 31, 2000, 1999 and 1998
Index to Financial Statements
Report of Independent Auditors...........................................F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheet...............................................F-3
Consolidated Operations Statement........................................F-5
Consolidated Stockholders' Equity Statement..............................F-6
Consolidated Cash Flow Statement.........................................F-10
Notes to Consolidated Financial Statements ..............................F-12
F-1
Report of Independent Auditors
The Board of Directors and Stockholders
NaPro BioTherapeutics, Inc.
We have audited the accompanying consolidated balance sheet of NaPro
BioTherapeutics, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated operations statement, stockholders' equity statement, and
cash flow statement for each of the three years in the period ended December 31,
2000. These financial statements are the responsibility of the Company's
management.