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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1997
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ to _______
Commission File No. 0-18728
INTERNEURON PHARMACEUTICALS, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 043047911
-------- ---------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Ledgemont Center, 99 Hayden Avenue, Lexington, MA 02173
- ----------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 861-8444
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001
par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such report(s)), and (2) has been subject to the filing
requirements for the past ninety (90) days. YES X NO
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the voting and non-voting common equity (excluding
preferred stock convertible into and having voting rights on certain matters
equivalent to 622,222 shares of common stock) held by non-affiliates of the
registrant was approximately $222,000,000 based on the last sales price of the
Common Stock as of December 22, 1997.
As December 22, 1997, 41,170,810 shares of Common Stock, $.001 par value, of the
registrant were issued and outstanding (excluding treasury shares).
DOCUMENTS INCORPORATED BY REFERENCE
See Part III hereof with respect to incorporation by reference from the
registrant's definitive proxy statement for the fiscal year ended September 30,
1997 to be filed pursuant to Regulation 14A under the Securities Exchange Act of
1934 and the Exhibit Index hereto.
2
PART I
Statements in this Form 10-K that are not statements or descriptions of
historical facts are "forward-looking" statements under the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward looking statements and other forward looking
statements made by the Company or its representatives are based on a number of
assumptions and actual results could differ materially from those currently
anticipated due to a number of factors, including those set forth under "Risk
Factors" and elsewhere in, or incorporated by reference into, this Form 10-K
including, in particular, risks relating to withdrawal of Redux and
Redux-related litigation, uncertainties relating to CerAxon, uncertainties
relating to regulatory approvals and clinical trials, product liability, risks
relating to funding requirements, manufacturing and marketing, managing growth,
contractual arrangements, government regulation, competition, patents and
proprietary rights, dependence on third parties, dependence on key personnel,
uncertainty regarding pharmaceutical pricing and reimbursement and other risks.
See "Risk Factors".
Redux(TM) is a trademark of Les Laboratoires Servier, licensed to the
Company and American Home Products Corp. ("AHP"). Bextra(TM), CerAxon(TM),
Melzone(TM), PMS Escape(R), ProHydrator(TM), ProEnhancer(TM) and Race Day(TM)
are trademarks of the Company. LidodexNS(TM) is a trademark of Algos
Pharmaceutical Corp., licensed to the Company. All other trademarks or trade
names referred to in this report are the property of their respective owners.
Item 1. Business.
(a) General Development of Business
Interneuron Pharmaceuticals, Inc. (the "Company") is a diversified
biopharmaceutical company engaged in the development and commercialization of a
portfolio of products and product candidates primarily for neurological and
behavioral diseases. The Company seeks to acquire, develop and commercialize
products with international market experience or that are in clinical or late
pre-clinical development. The Company is currently developing four therapeutics:
CerAxon for stroke, pagoclone for panic and anxiety, LidoDexNS for migraine
headache and, through Intercardia, Bextra for congestive heart failure. The
Company's four subsidiaries (the "Subsidiaries") include: Intercardia, Inc.
("Intercardia") focused on cardiovascular disease; InterNutria, Inc.
("InterNutria") focused on dietary supplement products and Transcell
Technologies, Inc. ("Transcell") focused on carbohydrate-based drug discovery
(all of which are majority-owned subsidiaries) and Progenitor, Inc.
("Progenitor"), a minority- owned unconsolidated subsidiary focused on
functional genomics.
On September 15, 1997, the Company announced the withdrawal of its
first prescription product, the weight loss medication Redux (dexfenfluramine
hydrochloride capsules) C-IV, which had been launched by AHP, the Company's
licensee, in June 1996. Simultaneously, Wyeth-Ayerst Laboratories
("Wyeth-Ayerst"), a division of AHP, announced withdrawal of the weight loss
medication Pondimin (fenfluramine hydrochloride tablets) C-IV. Interneuron has
been named, together with other pharmaceutical companies, as a defendant in
approximately 200 legal actions, many of which purport to be class actions, in
federal and state courts involving the use of Redux and other weight loss drugs.
On December 10, 1997, the federal Judicial Panel on Multidistrict Litigation
issued an Order allowing for the transfer or potential transfer of the federal
actions to the Eastern District of Pennsylvania for coordinated
3
or consolidated pretrial proceedings. The Company has also been named as a
defendant in several lawsuits filed by alleged purchasers of the Company's
common stock, purporting to be class actions, claiming violation of the federal
securities laws. The withdrawal of Redux and the related litigation may
materially adversely affect the Company and its financial condition. See "Legal
Proceedings" and "Risk Factors".
Unless the context indicates otherwise, "Interneuron" refers to
Interneuron Pharmaceuticals, Inc., the "Company" refers to Interneuron and its
Subsidiaries, "Intercardia" refers to Intercardia, Inc. and its subsidiaries,
and "Common Stock" refers to the common stock, $.001 par value, of Interneuron.
The Company was originally incorporated in New York in October 1988 and
in March 1990 was reincorporated in Delaware. The Company's executive offices
are located at One Ledgemont Center, 99 Hayden Avenue, Lexington, Massachusetts
02173. The Company's telephone number is (781) 861-8444, its fax number is (781)
861-3830, and its Internet address is http://www.interneuron.com.
(b) Financial Information about Industry Segments
The Company operates in only one business segment.
4
(c) Narrative Description of Business
PRINCIPAL PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
INTERNEURON(1):
COMMERCIAL
PRODUCT INDICATION/USE STATUS(2) RIGHTS
- ------- -------------- --------- ------
CerAxon Stroke New Drug Applica- U.S. and Canada
(citicoline) tion (NDA) submitted
December 1997
Pagoclone Anxiety/Panic Phase 2/3 trial Worldwide, except for
disorders initiated France, where Rhone-
November 1996 Poulenc Rorer Pharmaceuticals,
Inc. ("RPR") retains rights
LidodexNS Migraine headache Pre IND (Investiga- Worldwide;
tional New Drug development and marketing
Application) collaboration with
Algos Pharmaceutical Corp.
("Algos")
- -------------------------
(1) Excludes Redux, which was licensed to AHP and withdrawn from the market in
September 1997. See "Interneuron Products - Redux," "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Risk Factors."
(2) See "Government Regulation"
5
SUBSIDIARIES
INTERCARDIA:
PRODUCT OR INDICATION/ COMMERCIAL
TECHNOLOGY USE STATUS(2) RIGHTS
- ---------- --- --------- ------
Bextra Congestive Phase 3 Worldwide; twice-daily
(bucindolol) heart failure formulation licensed
in U.S. to Astra Merck
Inc. ("Astra Merck"); licensed in
Europe and other areas out-
side the U.S. and Japan to
BASF Pharma/Knoll AG ("Knoll")
Antioxidant Diseases Preclinical Worldwide
small molecules associated with
oxygen free
radicals
Hepatic stem cell Diseases of the liver Research Worldwide
technology
TRANSCELL:
POTENTIAL CORE COMMERCIAL
APPLICATION TECHNOLOGY STATUS(2) RIGHTS
- ----------- ---------- --------- ------
Drug discovery Combinatorial Research; Worldwide; Rights to two
carbohydrate Preclinical distinct structural classes
chemistry of anti-bacterial agents
licensed to Merck & Co.,
Inc. ("Merck"); option to
expand license by Merck to
include all antibacterial
agents
INTERNUTRIA:
COMMERCIAL
PRODUCT USE STATUS RIGHTS
- ------- --- ------ ------
PMS Escape Dietary supplement National launch Worldwide
for pre-menstrual initiated in
syndrome September 1997
Pro Enhancer and Dietary supplements Targeted test Worldwide
Race Day for replacement of launches initiated
certain dietary September 1997
nutrients and enhance-
6
ment of athletic
performance
and reduction of
fatigue
Pro Hydrator Dietary supplement Targeted test Worldwide
for prevention of launch initiated
of dehydration in September 1997
athletes
Melzone Dietary supplement Regional test launch Worldwide
(low-dose for normal initiated in fiscal 1997
melatonin) sleep
PROGENITOR:
RESEARCH AND COMMERCIAL
DEVELOPMENT PROGRAMS STATUS(2) RIGHTS
- -------------------- --------- ------
HFE Hereditary Hemochromatosis Market launch expected Worldwide; licensed certain
Diagnostic 1998 rights to SmithKline Beecham
Clinical Laboratories ("SBCL")
HFE Therapeutic Protein Preclinical Worldwide
B219 Leptin Receptor Preclinical Worldwide; licensed
certain rights to Amgen, Inc.
("Amgen")
Del-1 Blood Vessel Gene Research Worldwide; Interneuron owns
Gene and del-1 Protein option to acquire certain rights
BFU-e Blood Cell Research Worldwide; licensed certain rights
Growth Factor to Novo Nordisk A/S ("Novo
Nordisk")
T7T7 Gene Therapy Preclinical Worldwide; licensed certain rights
to Chiron Corporation ("Chiron")
7
INTERNEURON PRODUCTS
Redux
Product Withdrawal and Legal Proceedings: On September 15, 1997, the
Company announced the withdrawal of the weight loss medication Redux and,
simultaneously, Wyeth-Ayerst announced withdrawal of the weight loss medication
Pondimin. On September 12, 1997, the Food and Drug Administration ("FDA")
provided the Company and Wyeth-Ayerst and manufacturers and marketers of
phentermine with new, preliminary and summary information (which has recently
been updated and revised by the FDA) concerning potential abnormal
echocardiogram findings in patients using these drugs. These patients had been
treated with Pondimin or Redux for up to 24 months, most often in combination
with phentermine. Redux was launched in June 1996.
These observations presented by the FDA reflected a preliminary
analysis of pooled information rather than results of a formal clinical
investigation, and are difficult to evaluate because of the absence of matched
controls and pretreatment baseline data for these patients. Nevertheless, the
Company believes it was prudent, in light of this information, to have withdrawn
Redux from the market.
As reported in the original preliminary information provided by the
FDA, abnormal echocardiogram findings were reported in 92 of 291 subjects
evaluated. As originally reported, 271 of the 291 patients had taken
fenfluramine in combination with phentermine (commonly referred to as the
"fen/phen" combination), 11 had taken Redux alone and nine had taken a
combination of Redux and phentermine. As originally reported, of the 20 who took
Redux alone or in combination with phentermine, six had abnormal
echocardiograms, and two of the six took Redux alone.
The FDA has continued to evaluate the data from the original 291 cases.
In a recent update, the FDA has reported to the Company that, revising the
originally reported data, of the 291 cases, 15 patients had taken Redux alone
and 21 had taken Redux plus phentermine. Of the 15 taking Redux alone, two
patients had abnormal echocardiograms and of the 21 taking Redux plus
phentermine, 13 patients had abnormal echocardiograms. The FDA-approved
prescribing information (label) for Redux recommended against using Redux in
combination with other appetite suppressants. The Company believes, based on
industry databases, that over 90% of prescriptions written for Redux
were for Redux alone (without combination with another appetite suppressant).
Additional adverse event reports of abnormal heart valve findings in
patients using Redux or fenfluramine alone or in combination with other weight
loss agents continue to be received by Interneuron, Wyeth-Ayerst, and the FDA.
These reports have included symptoms such as shortness of breath, chest pain,
fainting, swelling of the ankles or a new heart murmur.
Additional echocardiogram studies are being supported by Wyeth-Ayerst
to compare patients who had taken either Redux or the "fen/phen" combination
with a matched group of obese patients who did not receive any anti-obesity
drugs. The study is being conducted and will be analyzed by an independent,
blinded panel of cardiologists to compare the incidence of significant heart
valve abnormalities in treated compared to non-treated groups. In addition,
Interneuron has initiated a separate study that is comparing echocardiograms of
patients who took Redux alone to echocardiograms of a control group of patients
who
8
did not take any anti-obesity medication to measure the prevalence and severity
of abnormal cardiac valvular findings among the two sets of patients. At least
an estimated 300 patients will be included in each of the Redux and control
groups. The costs of this Company-supported study are estimated at up to
approximately $4,000,000. A number of other clinical studies relating to the
prevalence of abnormal echocardiogram findings in patients who took Redux (and
other anti-obesity agents) compared to non- treated patients have been and may
be conducted by others.
On November 13, 1997, the U.S. Department of Health and Human Services
("HHS") issued preliminary recommendations for the medical management of people
who took Pondimin or Redux. HHS recommended, until more complete information is
available, that patients who took either drug should see their physician to
determine whether there are signs or symptoms of heart or lung disease and if
such person has signs or symptoms of heart or lung disease, such as a new heart
murmur or shortness of breath, have an echocardiogram performed; and that
physicians strongly consider performing an echocardiogram before a patient who
has taken either drug has any invasive procedure for which antibiotic
prophylactic treatment is recommended to prevent the development of bacterial
endocarditis.
Interneuron has been named, together with other pharmaceutical
companies, as a defendant in approximately 200 legal actions, many of which
purport to be class actions, in federal and state courts involving the use of
Redux and other weight loss drugs. On December 10, 1997, the federal Judicial
Panel on Multidistrict Litigation issued an Order allowing for the transfer or
potential transfer of the federal actions to the Eastern District of
Pennsylvania for coordinated or consolidated pretrial proceedings. The Company
has also been named as a defendant in several lawsuits filed by alleged
purchasers of the Company's common stock, purporting to be class actions,
claiming violation of the federal securities laws. The withdrawal of Redux and
related litigation may materially adversely affect the Company and its financial
condition. See "Legal Proceedings" and "Risk Factors - Risks Relating to
Withdrawal of Redux and Legal Proceedings".
Background; Regulatory Approval, Labeling and Safety Issues: Redux
(dexfenfluramine) is chemically related to Pondimin (fenfluramine). Fenfluramine
is a drug made up of two mirror-image halves - a "right-handed" half (d-isomer)
and "left-handed" half (l-isomer) - and dexfenfluramine is the right-handed
isomer of fenfluramine (the left-handed half is "levofenfluramine").
Dexfenfluramine alone is a separate drug from the combined
dexfenfluramine/levofenfluramine molecule that is fenfluramine.
Redux received clearance on April 29, 1996 by the FDA for marketing as
a twice-daily prescription therapy to treat obesity. The approved indication was
for the management of obesity, including weight loss and maintenance of weight
loss in patients on a reduced calorie diet who have a body mass index ("BMI") of
greater than or equal to 30 kg/m2 or greater than or equal to 27 kg/m2 in the
presence of other risk factors, such as hypertension, diabetes and elevated
cholesterol. BMI, a relationship between height and weight, is a widely-used
measure of obesity. Under license and copromotion agreements, Redux was marketed
in the U.S. until its withdrawal by Wyeth-Ayerst and copromoted by the Company.
Marketing clearance of Redux by the FDA followed a second meeting of
the Endocrinologic and Metabolic Advisory Committee (the "Advisory Committee")
of the FDA on November 16, 1995 at which
9
time the Advisory Committee recommended, by a vote of 6 to 5, the approval of
Redux to treat obesity. The Advisory Committee also recommended, and the Company
agreed, that Phase 4, or post-marketing, studies be conducted and that certain
labeling guidelines be implemented. Included in the FDA-approved labeling for
Redux were references to certain risks that may be associated with
dexfenfluramine and which were highlighted during the FDA's review of the drug.
One issue relates to whether there is an association between appetite
suppressants, including dexfenfluramine, and the development of primary
pulmonary hypertension ("PPH"), a rare but serious lung disorder estimated to
occur in the general population at one to two cases per million adults per year.
An epidemiologic study conducted in Europe known as IPPHS (International Primary
Pulmonary Hypertension Study) examined risk factors for PPH and showed that
among other factors, weight reduction drugs, including dexfenfluramine, and
obesity itself were associated with a higher risk of PPH. In the final report of
IPPHS, published in the New England Journal of Medicine (August 29, 1996), the
authors re-classified and included certain previously excluded cases of PPH,
resulting in an increase in the estimated yearly occurrence of PPH for patients
taking appetite suppressants for greater than three months' duration to be
between 23 and 46 cases per million patients per year. The revised labeling for
Redux disclosed this revised estimate.
The FDA-approved labeling for Redux also includes discussion as to
whether dexfenfluramine is associated with certain neurochemical changes in the
brain. Certain studies conducted by third parties related to this issue purport
to show that very high doses of dexfenfluramine cause prolonged serotonin
depletion in certain animals, which some researchers believe is an indication of
neurotoxicity. The Company has presented data relating to the lack of
neurocognitive effects in patients taking Redux to the FDA and believes that, as
demonstrated in human trials, these animal studies are clinically irrelevant to
humans because of pharmacokinetic differences between animals and humans and
because of the high dosages used in the animal studies. In connection with the
approval of Redux, the Company and Wyeth- Ayerst agreed with the FDA to conduct
a Phase 4, or post marketing, study with patients taking Redux. Following the
withdrawal of Redux, this study was terminated.
In July 1997, the Mayo Clinic reported observations of heart valve
abnormalities in 24 patients taking the combination of Pondimin and phentermine.
The Mayo Clinic cases were subsequently reported in an article appearing in the
August 28, 1997 issue of The New England Journal of Medicine. This article was
accompanied by a letter to the editor from the FDA reporting additional cases of
heart valve disease in 28 patients taking the combination of phentermine and
fenfluramine, two patients taking fenfluramine alone, four patients taking Redux
alone and two patients taking Redux and phentermine.
Redux Revenues; Charges to Operations: A significant portion of
Interneuron's revenues had been derived from Redux sales and, accordingly, will
not recur as a result of the product's withdrawal. The Company's revenues
relating to Redux were derived primarily from: (1) royalties paid by AHP to the
Company based on the net sales of Redux capsules by AHP to distributors; (2)
profit sharing between the Company and AHP on Redux sales by the Company's sales
force and financial support of the Company's sales force provided by AHP; and
(3) sales of Redux capsules to AHP. In connection with the withdrawal of Redux,
the Company incurred charges to operations in the fourth quarter and fiscal year
ended September 30, 1997, aggregating approximately $10,800,000. See
- --"Agreements", "Legal Proceedings", "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Risk Factors - Risks
Relating to Withdrawal of Redux and Legal Proceedings".
10
CerAxon (citicoline)
General: CerAxon (cytidyl diphosphocholine, or citicoline) is under
development by the Company as a potential treatment for ischemic stroke. An
ischemic stroke occurs when brain tissue dies or is severely damaged as the
result of interrupted blood flow caused by a clogged artery which deprives an
area of the brain (the "infarct") of blood and oxygen. This loss of blood flow
and oxygen causes, among other events, a breakdown of brain cell membranes, and
places the surrounding tissue (the "penumbra") at risk for death, leading to an
extension of the size of infarct believed to result from the release and
oxidation of such compounds as free fatty acids. This release is likely caused
in part by the inappropriate release of glutamate and other neurotransmitters.
Mechanism of Action: CerAxon is believed to have multiple mechanisms of
action in diminishing the effects of stroke. CerAxon is believed to prevent the
accumulation of fatty acids, which would otherwise yield toxic oxidation
products, by incorporating them into membrane constituents. CerAxon is also
believed to promote the formation of additional membrane elements needed by
damaged neurons to restore functional activity by raising blood levels of
choline and cytidine, substrates believed to be essential for the formation of
the nerve cell membrane. CerAxon is thereby believed to help stabilize the cell
membrane and, as a result, decrease edema, or brain swelling, caused when blood
flow to brain cells is stopped, and re-establish normal neurochemical function
in the brain. Also, CerAxon is believed to increase levels of acetylcholine, a
neurotransmitter believed to be associated with learning and memory functions.
NDA Submission: On December 15, 1997, the Company submitted to the FDA
an NDA for CerAxon to treat ischemic stroke. Data in the NDA include the results
of Phase 3 trials conducted by Interneuron in the U.S., supporting data from a
Japanese clinical trial conducted by Takeda Chemical Industries, Ltd. ("Takeda")
and supportive clinical and post-marketing data from more than 30 countries
where CerAxon has already been approved. The Company is unable to predict
whether or when the NDA will be accepted for filing by the FDA or whether the
FDA will grant authorization to market CerAxon in the U.S. See "Risk Factors --
Uncertainties Related to CerAxon."
The Company is also conducting several Phase 3b clinical trials to
study CerAxon's effect on stroke recovery and reduction in infarct size in
ischemic stroke patients. These studies are expected to enroll up to an
aggregate of approximately 800 patients and to be completed in fiscal 1999. The
Company may initiate further studies beginning in fiscal 1998 or fiscal 1999 to
explore areas such as post-stroke learning and memory, combination with
thrombolytic therapies and other clinical paradigms such as treatment or
prevention of peri-operative strokes and treatment of head trauma.
Review of Pivotal (Phase 3) trial: During fiscal 1997, the Company
completed its second pivotal clinical trial in the U.S. with CerAxon to treat
patients suffering from ischemic stroke. The results of this trial were
announced in July 1997.
In this study, 267 patients received CerAxon and 127 patients received
placebo. The primary outcome analysis of this double-blind, placebo-controlled
trial was improvement in the Barthel Index, a 100 point rating scale of
functional capabilities in neurological patients, at a time point three
11
months after an ischemic stroke. Patients were considered to have achieved
complete or near-complete functional recovery if they achieved a Barthel score
of 95 or 100 at three months.
There was an unexpected highly significant baseline imbalance in the
percentage of placebo versus CerAxon-treated patients who had mild strokes on
study entry (34 percent for placebo vs. 22 percent for CerAxon (p = 0.006)), due
to chance. The study was influenced by the significant preponderance of mild
cases in the placebo group. As a result of this imbalance and other statistical
factors, the primary analysis of the study, the distribution of Barthel Index
scores in CerAxon vs. placebo-treated patients as a function of baseline
National Institutes of Health ("NIH") Stroke Scale scores, did not achieve
statistical significance. However, this primary analysis was statistically
invalid because the patient imbalance and other statistical factors failed to
satisfy the requirements for the correct operation of the statistical model.
Therefore, a protocol-defined responders analysis, percentage of patients who
achieve a Barthel Index greater than or equal to 95, among patients with
moderate to severe strokes, was employed.
In the responders analysis, 41 percent of CerAxon-treated patients with
an NIH stroke scale on entry of greater than or equal to eight (moderate to
severe strokes) achieved a Barthel Index of greater than or equal to 95 compared
to 25 percent of placebo-treated patients (OC (observed cases) analysis, p =
0.02). Thus, patients with moderate to severe stroke treated with CerAxon had a
64 percent greater chance of complete or near-complete recovery relative to
patients with moderate to severe stroke treated with placebo. In the LOCF (last
observation carried forward) analysis, 33 percent of moderate to severe CerAxon
patients and 21 percent of moderate to severe placebo patients achieved a
Barthel Index of greater than or equal to 95, a 57 percent increased chance of
improvement in recovery (p = 0.05).
Overall, patients who had mild strokes on entry into the study (NIH
Stroke Scale 5 through 7) had an excellent clinical outcome regardless of
placebo or CerAxon treatment. For example, approximately 80 percent of patients
with mild strokes who received placebo and a similar percentage of
CerAxon-treated patients with mild strokes achieved a Barthel score of greater
than or equal to 95 at three months.
In another protocol-defined measure of functional clinical outcome, the
6-point Rankin scale of physician-rated global assessment was utilized. A Rankin
score of 0 or 1 at study completion indicated complete or near-complete lack of
disability. Among patients with moderate to severe strokes, 24 percent of
CerAxon-treated patients vs. 11 percent of placebo treated patients achieved a
Rankin score of 0 or 1, a 127% improvement in outcome (OC analysis, p = 0.02).
In the LOCF analysis, 19 percent of moderate to severe CerAxon patients and 11
percent of moderate to severe placebo patients had a Rankin scale of 0 or 1, a
73% improvement in outcome (p = 0.08).
A preliminary safety review indicated that CerAxon was well tolerated.
There did not appear to be any adverse events that differed in frequency from
placebo-treated patients. The mortality rates for drug- treated and
placebo-treated patients were identical (18 percent in each group).
Review of Pivotal (Phase 2/3) trial: Interneuron's initial pivotal
study of CerAxon in stroke was reported in 1996. Findings from that trial were
published in Neurology in July 1997.
12
The primary efficacy outcome in this study of 259 patients was
improvement in neurological function, as assessed by the Barthel Index. Among
all patients who received 500 milligrams daily of CerAxon, 53% achieved a score
of greater than or equal to 95 on the Barthel Index at 12 weeks, indicative of
complete or near-complete recovery from stroke, compared with 33% of
placebo-treated patients, a 61% improvement in outcome (p less than 0.04).
Patients in both the 500 milligram and 2000 milligram groups exhibited
significantly greater (p less than 0.05) improvement on the Barthel Index at
week 12 than placebo-treated patients. In addition, more patients in the 500
milligram and 2000 milligram groups exhibited normal or near normal scores in
mental function (p less than 0.04), as measured by the Mini-Mental State Exam,
which grades the cognitive state of patients.
Patients who received 500 milligrams of CerAxon daily were more than
twice as likely to manifest minimal or no disability at 12 weeks following
stroke as patients who received placebo, as measured by the NIH Stroke Scale.
The NIH Stroke Scale analysis showed that 34% of all CerAxon-treated patients
versus 16% of placebo-treated patients achieved complete or near-complete
normalization of function, as indicated by scores 0 to 1, at 12 weeks following
stroke, a 125% of improvement in outcome (p less than 0.04).
In addition, global neurologic status, assessed by the Rankin Scale
mean scores, was significantly improved (p less than 0.04) with CerAxon
treatment compared to placebo.
Efficacy outcome measures for the 1000 milligram daily group did not
reach statistical significance in this trial. Patients in the 1000 milligram
group had a higher proportion of chronic pre-existing cardiac and pulmonary
disorders. These confounding variables may explain the performance of the 1000
milligram group in the trial.
A small subgroup of patients were studied at the Beth Israel Hospital
in Boston with a specialized imaging technique to measure the size of the
infarct, or damage caused by the stroke. Analysis of this group of patients
suggests that CerAxon treatment limited the size of infarct following
interrupted blood flow. The Company is studying CerAxon's effect on reduction of
infarct size in Phase 3b clinical trials currently in progress.
There was no significant difference in the incidence of death among the
four treatment groups in the trial. All doses of CerAxon were well tolerated, as
indicated by analyses of adverse events and laboratory findings. The only
statistically significant differences among CerAxon-treated patients versus
placebo-treated patients were an increase in accidental injuries, e.g., falling
down. However, the 500 milligram dose CerAxon group did not significantly differ
from the placebo group in these parameters.
Given the degree of effectiveness of the 500 milligram daily dose and
the absence of significant differences in adverse events between this dosage
level and placebo, 500 milligrams daily appears to be the optimal dose derived
from this study and was the dose chosen by the Company for additional clinical
testing.
13
Takeda Clinical Data: In April 1997, Interneuron entered into a data
transfer pact with Takeda that provided Interneuron with primary data from a
previously unpublished clinical trial demonstrating improved functional recovery
and reduced mortality among stroke patients who received citicoline as compared
to those who received placebo in a double-blind fashion.
Takeda, which markets citicoline in Japan and other countries under
various trade names, conducted the study among 267 ischemic stroke patients to
evaluate functional improvement up to four months and mortality rates within one
year after a stroke. The study demonstrated significant functional improvement
at four months after stroke as measured by a physician-based global assessment
ratings similar to the Rankin scale used in the U.S. studies (p < 0.05) and a
reduction in mortality within one year of approximately 50 percent in the
citicoline group (p = 0.01).
The Company believes the Takeda well-controlled clinical trial data
will be an important supportive study to complement Interneuron's two U.S.
pivotal trials of CerAxon in ischemic stroke. In the Takeda study, citicoline
was given at a dose of 1000 milligrams per day intravenously for two weeks.
While there are differences in the dosage, route of administration and duration
of therapy of citicoline in the Japanese study compared to the U.S. studies, the
Company believes the efficacy and mortality benefit in the Takeda trial supports
the utility of CerAxon in stroke.
Manufacturing and Marketing: The Company is currently evaluating the
commercialization strategy for CerAxon, subject to required regulatory
approvals. The Company is currently planning to conduct sole direct marketing of
the product but may consider a combined marketing strategy which includes
contracting with certain companies for the copromotion of the product and/or
establishing a contract salesforce for certain market segments. The Company
expects that it will be required to expand its sales force by an additional
approximately 200 representatives, to hire additional headquarters-based
medical, marketing and administrative support personnel and to establish
distribution arrangements. In the event the Company markets CerAxon directly,
significant funds would be required for manufacturing, distribution, marketing
and selling efforts.
The Company is dependent upon third party suppliers of citicoline bulk
compound and finished product for manufacturing in accordance with the Company's
requirements and U.S. Good Manufacturing Practices ("GMP") regulations. Supplies
of citicoline finished product used for clinical purposes have been produced on
a contract basis by a third party manufacturer. The Company is subject to an
agreement with Grupo Ferrer ("Ferrer"), a Spanish pharmaceutical company which
licensed certain patent rights relating to citicoline to the Company, requiring
the Company to purchase from Ferrer citicoline bulk compound for commercial
purposes at fixed prices, subject to certain conditions. To date, Ferrer's
manufacturing facility has not been inspected by the FDA for a U.S. marketed
product, but is expected to undergo such an inspection in conjunction with the
FDA's review of the CerAxon NDA submitted by the Company. There can be no
assurance the Company can or will establish on a timely basis, or maintain,
manufacturing capabilities of bulk compound or finished product required to
obtain regulatory approval or that any facilities used to produce citicoline
will have complied, or will be able to maintain compliance, with GMP. See "Risk
Factors -- Uncertainties Relating to CerAxon" and "Funding Requirements".
14
Licensing and Proprietary Rights: In January 1993, the Company licensed
exclusive marketing and manufacturing rights based on certain patent rights
relating to the use of citicoline, including certain patent and know-how rights
in the U.S. and know-how rights in Canada, from Ferrer. The compound citicoline
is not covered by a composition of matter patent. The licensed U.S. patent
covering the administration of citicoline to treat patients afflicted with
certain conditions associated with the inadequate release of brain acetylcholine
expires in 2003. As described in the licensed U.S. patent, the inadequate
release of acetylcholine may be associated with several disorders, including the
behavioral and neurological syndromes seen after brain traumas and peripheral
neuro-muscular disorders, and post-stroke rehabilitation. Although the claim of
the licensed patent is broadly directed to the treatment of inadequate release
of brain acetylcholine, there can be no assurance this patent will afford
protection against competitors of CerAxon to treat ischemic stroke. In addition
to any proprietary rights provided by this patent, the Company expects to rely
on certain marketing exclusivity regulations of the FDA.
In December 1997, the Company received a notice of allowance of claims
pending in a patent application relating to the use of citicoline as a
neuro-protectant. Additional domestic and international patent applications have
been filed by the Company. See "Patents and Proprietary Rights", "Government
Regulation" and "Agreements - CerAxon."
Pagoclone
Pagoclone is under development by the Company as a drug to treat
panic/anxiety disorders. These disorders are believed to be related to excess
activity of certain neurons, resulting from the decreased action of the
neurotransmitter GABA (gamma amino butyric acid). The Company believes that
pagoclone increases the action of GABA, thus reducing excess neuronal activity
and alleviating symptoms of panic and anxiety. Pre-clinical and early clinical
data suggest that pagoclone may offer advantages over traditional benzodiazepine
anti-anxiety agents, including reduced drowsiness, lower addiction and
withdrawal potential and less potential for alcohol interactions.
Current pharmacological treatments for anxiety and panic disorders include
serotonin agonists such as BuSpar, and benzodiazepines, such as Valium and
Xanax, as well as the serotonin reuptake inhibitor, Paxil, approved for the
treatment of panic disorders. Serotonin agonists have been shown to have limited
effectiveness in treating anxiety and panic disorders. Although benzodiazepines
help to regulate GABA in the brain, they may cause side effects such as
sedation, hangover, dizziness and tolerance with continuing use and have the
potential for addiction. In addition, the sedative/hypnotic effects of
benzodiazepines are generally increased by alcohol intake, which may lead to
serious side effects that may include coma.
In November 1997, the Company announced that data from a pilot study among
16 patients suffering from panic attacks showed that those who were treated with
three doses per day, orally, of pagoclone experienced a marked reduction in the
number of their panic attacks compared to those who received placebo. This
double-blind, placebo controlled crossover study was conducted by a team of
researchers in the U.K. Pagoclone produced a significant reduction (40 percent,
p=0.012) in the total number of panic attacks over a two week treatment period
and a reduction (40 percent, p=0.006) in the average number of panic attacks per
day compared to
15
the pre-treatment period. No significant change in the total number of
panic attacks was observed during placebo treatment.
In November 1996, the Company initiated its first Phase 2/3 trial of
pagoclone in patients suffering from panic disorder. The Company designates a
trial as Phase 2/3 if it is a well-controlled trial which the Company may
utilize, depending upon results, as either a pivotal or supporting trial in an
NDA submission. This national, multi-center dose-response trial will eventually
include an estimated 280 patients and will compare the effects of three doses of
pagoclone to placebo in treating panic disorder during a 10-week period. As of
December 18, 1997, 221 patients had been enrolled. Primary outcome measures will
include the frequency and severity of panic attacks experienced by patients.
In 1994, the Company licensed from RPR exclusive worldwide rights to
pagoclone, in exchange for licensing, milestone and royalty payments to RPR. See
"Patents and Proprietary Rights." The Company currently intends to seek to
sublicense marketing rights to this product.
LidodexNS
In December 1996, the Company and Algos entered into an agreement for the
development and commercialization of LidodexNS, a combination of lidocaine and
the N-methyl-D-aspartate antagonist, dextromethorphan, that may offer the
potential for rapid and prolonged relief of acute migraine headache through
intranasal administration. A significant unmet need among patients suffering
from acute migraine headache is acute relief and treatment of the severe initial
"break-through" pain associated with migraine.
The agreement establishes a multi-stage development collaboration between
Algos and Interneuron and licenses to Interneuron rights, co-exclusive with
Algos, to manufacture and market the combined agent. This collaboration will
include certain pre-clinical studies, clinical trials and regulatory review
activities overseen by a joint steering committee and, assuming regulatory
approval, sharing the marketing and profits of LidodexNS.
Results of an 81-patient trial (Journal of the American Medical
Association, Vol. 276, No. 4, July 24/31, 1996) showed that intranasal lidocaine
relieved headache pain in 55% of patients with migraine, with relief usually
occurring within five minutes but with relapse occurring commonly and early
after treatment. Pre-clinical studies with dextromethorphan suggest that the
LidodexNS combination may improve the potency and duration of action of
lidocaine.
The Company is completing pre-clinical studies in support of an IND and
anticipates filing an IND in 1998 pending successful completion of toxicological
studies.
Other Potential Products
During 1997, the Company obtained an exclusive option to license a product
for the treatment and prevention of liver diseases. The option grants
Interneuron the right to license, on specified terms, North American and Asian
marketing rights to an issued U.S. patent and pending international patents,
following
16
Interneuron's review of future clinical data. This orally-administered compound
is being studied in a large U.S. government-sponsored Phase 3 study. Several
hundred patients have been enrolled in the study, which is expected to be
completed in 2 1/2 to 3 years. The study is designed to have periodic interim
analyses which could lead to earlier termination if a significant positive drug
effect is identified.
During 1997, the Company also obtained an exclusive option to acquire, on
specified terms, a private company engaged in development of a product in a
Phase 1 clinical trial which may have application for diabetes and related
disorders.
THE SUBSIDIARIES
INTERCARDIA, INC.
Overview
Intercardia, a majority-owned subsidiary of Interneuron, was formed in 1994
and completed its initial public offering in February 1996. Intercardia focuses
on the discovery and development of therapeutics for the treatment of
cardiovascular and pulmonary disease, as well as earlier stage technology in
other areas.
Bextra (bucindolol)
Through Intercardia, the Company is developing Bextra (bucindolol), a drug
in Phase 3 clinical trials for the treatment of congestive heart failure
("CHF"), a syndrome of progressive degeneration of cardiac function which is
generally defined as the inability of the heart to pump sufficient volume of
blood for proper functioning of vital organs. CHF is caused by a number of
conditions that produce a primary injury or stress to the heart muscle.
Regardless of the cause of the primary damage, the body will activate
compensatory mechanisms in an attempt to maintain cardiac output. These
mechanisms include activation of the cardiac adrenergic systems resulting in
stimulation of beta-adrenergic receptors on cells located in the heart and
vascular system. Chronic stimulation of these receptors is believed to
contribute to the continual worsening of cardiac function and high mortality.
Intercardia licensed worldwide rights to Bextra through its 80% owned
subsidiary, CPEC, Inc. ("CPEC") (the remaining 20% of which is owned by
Interneuron). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." Originally developed by Bristol-Myers Squibb Company
("BMS") and licensed by BMS to CPEC in exchange for royalties based on sales,
bucindolol is a non-selective beta-blocker with mild vasodilating properties
that works by blocking beta- adrenergic receptors on cells located in the heart
and vascular system. The Company believes that vasodilating beta-blockers such
as bucindolol possess potential advantages over earlier beta blockers and
represent a promising approach to the treatment of CHF. Bextra is expected to be
used in addition to other drugs for the treatment of CHF.
17
Coreg (carvedilol), also a vasodilating non-selective beta-blocker, owned
by Boehringer Mannheim GmbH and licensed in the U.S. and certain other countries
to SmithKline Beecham PLC, was approved by the FDA in May 1997 and is currently
marketed in the U.S. for the treatment of CHF. Carvedilol has been approved for
the treatment of CHF in approximately 15 countries, including the U.S. and
Canada. See "Competition."
The U.S. composition of matter patent on bucindolol expired in November
1997. Assuming FDA approval is obtained, Intercardia intends to pursue up to
five years' market exclusivity under the Drug Price Competition and Patent Term
Restoration Act of 1984 (commonly referred to as the Waxman-Hatch Act).
Intercardia also intends to seek to enhance its competitive position with Bextra
by developing a once-daily formulation and is conducting studies with Jago
Pharma AG designed to determine the feasibility of developing a once-daily
formulation. See "Government Regulation" and "Risk Factors - Uncertainty
Regarding Waxman Hatch Act." Intercardia may seek additional partners for the
development and marketing of this formulation.
BEST Study: A Phase 3 clinical trial began in June 1995 among patients with
CHF, to test whether the addition of bucindolol to optimal therapy for CHF will
reduce mortality in patients with moderate to severe CHF. Known as BEST
(Beta-blocker Evaluation of Survival Trial), the bucindolol study is being
conducted by the National Institutes of Health ("NIH") and the Department of
Veterans Affairs ("VA"). The BEST study is designed to include up to 2,800
patients (of which at least 33% are recommended to be female), having moderate
to severe symptoms (NYHA classes III and IV), at approximately 90 clinical
centers throughout the U.S. and Canada. As of November 30, 1997, approximately
2,070 patients have been enrolled in the BEST study. All patients are expected
to receive a minimum follow-up of 18 months or more, giving a potential maximum
duration for the study of approximately four and one half years. The study is
designed so that in the event that significant mortality improvement is evident
to an independent Data and Safety Monitoring Board during the course of the
study, the study could be stopped early. See "Risk Factors - Uncertainties
Generally Related to Clinical Trials."
The NIH and VA have committed up to $15,750,000 primary funding for BEST,
with specific levels of NIH/VA funding to be based upon patient enrollment
milestones. Intercardia has agreed to commit up to $2,000,000 over the course of
the study (of which $1,750,000 has been paid as of September 30, 1997), in
addition to supplying the drug and providing monitoring services estimated to
cost an additional $2,500,000.
Bextra Marketing: In December 1995, Intercardia entered into an agreement
with Astra Merck for the development, commercialization and marketing in the
U.S. of a twice-daily formulation of bucindolol for the treatment of CHF. Under
the agreement, Astra Merck made a $5,000,000 initial payment to Intercardia and
agreed to fund up to $15,000,000 of U.S. development costs for the twice-daily
formulation of bucindolol, including Intercardia's costs related to the BEST
study. Astra Merck obtained the right to market a twice daily formulation of
bucindolol, with Intercardia retaining certain copromotion rights. Astra Merck
agreed to make milestone payments to Intercardia upon FDA approval, except under
certain conditions, and the achievement of specified levels of sales. CPEC is
entitled to royalties of 15% of the first $113,000,000 of annual net sales and
30% of annual net sales above $113,000,000, adjusted for inflation, and Astra
Merck agreed to pay royalties due BMS. Intercardia and CPEC paid Astra Merck
18
an aggregate of $10,000,000 in December 1997 (of which a portion was paid by
Interneuron, reflecting its percentage ownership interest in CPEC, as a loan to
CPEC) and CPEC and/or Intercardia has agreed to reimburse one-third of the
product launch costs through the first 12 months of commercial sales, up to a
total launch cost reimbursement of $11,000,000. In the event these payments are
not made, the royalty payable by Astra Merck declines to 7% of net sales. See
"Agreements" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In December 1996, Intercardia entered into an agreement with Knoll ("the
Knoll Collaboration") relating to the development, manufacture and marketing of
bucindolol for the treatment of CHF in all countries with the exception of the
U.S. and Japan (the "Territory"). The Knoll Collaboration relates to both the
twice-daily bucindolol formulation and the once-daily bucindolol formulation
currently under development. Under the terms of the Knoll Collaboration, Knoll
made total payments to CPEC of $3,480,000 in fiscal 1997 which were recognized
as contract and license fee revenue. Knoll agreed to make future payments to
CPEC upon the achievement of product approval and sales milestones.
Intercardia and Knoll agreed to share the development and marketing costs
of bucindolol in the Territory. In general, Knoll agreed to pay approximately
60% of the development and marketing costs prior to product launch, and
Intercardia agreed to pay approximately 40% of such costs, subject to certain
maximum dollar limitations. CPEC will be entitled to a royalty equal to 40% of
net profits, as defined in the Knoll Collaboration, and would be responsible
for, and pay to Knoll, 40% of any net loss, as defined.
Proposed Transcell Acquisition
On November 5, 1997, Intercardia, Interneuron and Transcell, a
majority-owned subsidiary of Interneuron, executed a letter of intent ("Letter
of Intent") relating to the proposed acquisition by Intercardia of Transcell and
certain related technology rights owned by Interneuron (the "Proposed Transcell
Acquisition") in exchange for Intercardia common stock with an aggregate market
value as of November 5, 1997 of approximately $15,000,000 and the issuance of
options to purchase Intercardia common stock to Transcell employees and
consultants, with an aggregate market value as of November 5, 1997 of
approximately $3,000,000 to $4,000,000. Under the terms of the Letter of Intent,
the purchase price will be paid in three installments. The first installment,
representing approximately $6,000,000 as of November 5, 1997, will be made upon
closing the transaction (the "Closing"). The number of shares of Intercardia
common stock to be received by Transcell stockholders at the Closing will be
determined by Intercardia's stock price during the week prior to Closing. The
minimum Intercardia stock price to be used for determining the number of shares
to be issued for the initial installment will be $19.00 per share and the
maximum will be $25.00 per share. The second and third installments will each
consist of approximately $3,000,000 of Intercardia common stock, as valued at
each date, and will be issued 15 and 21 months after Closing. The purchase price
includes $3,000,000 of Intercardia common stock (subject to the price range
described above) to be issued to Interneuron at Closing in exchange for the
transfer by Interneuron to Intercardia of certain license and technology rights,
and for Interneuron's continuing guarantee of certain of Transcell's lease
obligations. Intercardia will also pay Interneuron a royalty on certain products
that may result from a research collaboration originally entered into among
Transcell, Interneuron and Merck. The Proposed Transcell Acquisition is subject
to final due diligence, execution
19
of definitive agreements and approval by Transcell and Intercardia stockholders.
In connection with the Proposed Transcell Transaction, Intercardia and
Interneuron will incur charges to operations during the period in which the
Closing occurs currently estimated to range from approximately $6 to $8 million
and will incur additional future charges relating to certain stock options to be
issued pursuant the Proposed Transcell Transaction. The Company will allocate a
portion of such charges to minority interest. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Early-Stage Programs
Intercardia has established and may establish additional subsidiaries in
specific areas. Intercardia's 66%-owned subsidiary, Aeolus Pharmaceuticals, Inc.
is focused on the preclinical development of antioxidant small molecules. These
compounds target diseases involved with toxicities associated with excess oxygen
free radicals including neonatal respiratory distress syndrome.
In September 1997, Intercardia acquired approximately 80% of Renaissance
Cell Technologies, Inc. ("Renaissance") for $500,000. Renaissance is an early
stage company conducting research in the area of hepatic stem cells. Renaissance
entered into an agreement with the University of North Carolina at Chapel Hill
("UNC") to sponsor research on hepatic stem cells in exchange for an option to
an exclusive license to products resulting from the research. Renaissance has
agreed to pay the UNC an amount not to exceed $450,000 per year for a minimum of
two years.
Clayton I. Duncan is President and Chief Executive Officer of
Intercardia, which had 18 full-time employees as of September 30, 1997. As of
September 30, 1997, Interneuron owned approximately 61% of the outstanding
common stock of Intercardia, and approximately 51% on a fully diluted basis. In
certain circumstances, Interneuron has the right to purchase additional shares
of Intercardia common stock at fair market value so that Interneuron's equity
ownership in Intercardia does not fall below 51%. It is expected that
Interneuron will continue to own a majority of the outstanding common stock of
Intercardia upon completion of the proposed Transcell acquisition.
TRANSCELL TECHNOLOGIES, INC.
Transcell is a majority owned subsidiary of Interneuron engaged in research
and development of core drug discovery technologies in the field of
combinatorial carbohydrate chemistry. Transcell's core technology is directed
toward drug discovery based on the chemical synthesis of complex carbohydrate
compounds known as oligosaccharides and glycoconjugates. Transcell has
exclusive, worldwide licenses to certain of its core technologies from Princeton
University, where Daniel Kahne, Ph.D., and Suzanne Walker-Kahne, Ph.D.,
consultants to Transcell, performed Transcell's founding scientific research.
Transcell's technology is focused primarily on drug discovery, which
involves methods of synthesizing oligosaccharides, or carbohydrate molecules,
for therapeutic use. Oligosaccharides are present on all cell surfaces and, in
different configurations, are integral to virtually all inter-cellular
reactions, including viral, bacterial and immune system interactions. This
technology is also directed toward adding carbohydrate components to existing
molecules to make glycoconjungates to improve the overall efficacy and toxicity
20
profile of the parent compound. The Company believes this novel carbohydrate
synthesis technology may reduce the obstacles associated with traditional
methods for making carbohydrates, such as lack of specificity, low yields and
relatively long production periods, producing unique libraries of
oligosaccharide compounds and glycoconjugates more efficiently and in fewer
steps, with both solution and the solid phase methods.
Transcell is applying this technology to produce libraries of carbohydrates
and glycoconjugates for screening as drug candidates. Transcell's combinatorial
chemistry approach in this area is based upon investigating the synthesis of
both random libraries of carbohydrates and carbohydrates directed to a specific
therapeutic target. Transcell has rights under several patents and patent
applications that are pending in the U.S. and several foreign jurisdictions and
which cover various aspects of the synthesis of oligosaccharides. Two U.S.
patents have issued and a Notice of Allowance has been received for a third
patent application relating to this technology.
Merck Agreement: On July 7, 1997, Transcell, Interneuron and Merck entered
into a Research Collaboration and License Agreement (the "Merck Agreement")
relating to the discovery, development and commercialization of novel
antibacterial agents. The initial focus of this collaboration will be the
discovery and biological evaluation of analogues of anti-bacterial compounds
selected from two distinct structural classes and the license to Merck of any
products arising out of the two research programs. Transcell agreed to utilize
its combinatorial technologies to prepare libraries of carbohydrate derivative
compounds for biological evaluation and further development. Merck has an option
to extend the field of the collaboration and license to include all
antibacterial pharmaceutical products.
Under the Merck Agreement, Transcell received from Merck an initial
licensing payment and Merck agreed to provide research support over two years.
In addition, Merck agreed to provide additional payments based upon the
achievement of defined milestones for each program. While there is no assurance
these milestones will be reached, these additional payments, combined with the
initial licensing payment and research support, could total approximately
$48,000,000 if products from both programs were approved by the FDA. In
addition, Merck agreed to pay royalties on net sales of any products that may be
developed based on the research programs.
Certain of the rights licensed to Merck are based on exclusive licenses or
rights held by Transcell and Interneuron from Princeton University, which will
be entitled to varying percentages of certain payments and royalties received
from Merck.
At September 30, 1997, Interneuron owned approximately 79% of the
outstanding common stock of Transcell and Transcell had 32 full-time employees.
INTERNUTRIA, INC.
In April 1995, Interneuron formed InterNutria to develop and market
nutritional products for the dietary management of medical and non-medical
conditions. InterNutria's product strategy is based on initial research
conducted at MIT by scientific founder Judith Wurtman, Ph.D., which examined the
connection between food, behavior and the brain, and how modifications of food
intake can enhance the
21
synthesis and release of certain neurotransmitters and thus enhance control over
behavior, performance and disease states.
InterNutria's strategy is to acquire, develop and commercialize dietary
supplements and other proprietary nutritional products that are clinically
evaluated and regulated pursuant to the Dietary Supplement Health Education Act
of 1994 ("DSHEA") for the dietary management of physiological processes. The
marketing of InterNutria's products is consumer-oriented. See "Government
Regulation."
PMS Escape
In November 1995, InterNutria acquired technology, including a patent
application and know-how, from AVAX Technologies, Inc., formerly Walden
Laboratories, Inc. ("AVAX"), relating to InterNutria's first product, PMS
Escape, in exchange for $2,400,000 payable in two installments of Interneuron
Common Stock, the first in late 1996 and the second in late 1997, at the
then-prevailing market price. Certain affiliates of Interneuron are or were
stockholders of AVAX but will not receive any of the purchase price. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PMS Escape, a dietary supplement for women with pre-menstrual syndrome, is
a powdered beverage mix that contains a special formulation of natural
carbohydrates specifically designed to help manage the normal emotional and
appetite changes associated with PMS. In October 1996, InterNutria expanded a
regional test launch of PMS Escape in New England, where the product was
available at certain retail outlets, while continuing clinical evaluation of the
product. The New England test market area was expanded in March 1997 to the
middle Atlantic states. A national rollout of PMS Escape began in September
1997. InterNutria currently has an approximately 43-person sales force, retained
on a contract basis, targeting obstetricians and gynecologists, as well as
retail accounts. In addition, Interneuron's sales force, numbering approximately
25, is currently under contract to InterNutria in connection with the national
marketing of PMS Escape. Any broader commercial marketing, including
distribution and order fulfillment, is similarly expected to be conducted on a
contract basis.
Other Products
InterNutria is developing a line of sports drinks as dietary supplements
for enhancement of athletic performance, reduction of fatigue and prevention of
dehydration which InterNutria test launched on a targeted basis in fiscal 1998.
These products include ProEnhancer, Race Day and ProHydrator.
In addition, InterNutria is test marketing Melzone, a dietary supplement
which contains a low dose form of melatonin, a naturally occurring hormone
produced by the pineal gland that may play a key role in regulating the body's
circadian rhythm, or biologic clock. The Company's melatonin is believed to
induce restful sleep while offering advantages over currently available sleeping
aids, many of which may have undesirable side effects, such as amnesia or
"hangover." Although melatonin is available, generally at much higher strengths,
as a dietary supplement in health food stores and other outlets, the Company
believes that lower strengths, which are intended to mimic normal nighttime
levels, and which are manufactured in accordance with good manufacturing
practices, can offer an innovative inducement of sleep with a reduced risk of
adverse side effects that may be associated with higher doses.
Regional test-marketing of Melzone began in December 1996 in the greater
Boston area as a dietary supplement containing 0.3 milligram of melatonin for
inducing a normal sleep. This product is based upon research leading to a patent
licensed by the Company from MIT in September 1995 that covers the use of
22
low dose amounts (less than one milligram) of melatonin for the induction of
sleep, in exchange for royalties based on sales.
James F. Pomroy is Chairman and Chief Executive Officer and Lewis D. Lepene
is President of InterNutria, which had six full-time employees as of September
30, 1997. As of September 30, 1997, Interneuron owned 100% of the outstanding
capital stock of InterNutria. In October 1997, Interneuron agreed to sell an
aggregate of 10% of its InterNutria common stock to four executive officers of
Interneuron for nominal consideration.
PROGENITOR, INC.
Overview: Progenitor was formed in February 1992 and completed its initial
public offering in August 1997. Progenitor is engaged in the discovery and
functional characterization of genes to identify and validate targets for the
development of new pharmaceuticals. Progenitor's initial focus is on the
identification of genes important in cancer, blood and immune system disorders
and inherited diseases. Progenitor develops and plans to commercialize its
discoveries through partnerships with biopharmaceutical firms.
Technology: Progenitor's genomics system focuses on understanding gene
function in order to accelerate the discovery of genes with medical relevance.
The system combines core expertise in the fields of developmental biology, human
disease genetics and bioinformatics , using developing systems and rigorously
screened patient populations as unique discovery resources. Developmental
biology provides access to fundamental genes involved in cell growth and
specialization, while disease genetics methods facilitate evaluation of
developmental genes, and provide disease-associated genes for functional
characterization through developmental biology. Progenitor's bioinformatics
capabilities and integrated genomics technologies are used to capture, integrate
and analyze data generated through its genomics system, and data from additional
sources. Progenitor's current programs include gene discovery and
characterization in asthma, cancer and blood vessel formation, and development
of bioinformatics databases and tools.
Initial Public Offering: In August 1997, Progenitor completed an initial
public offering (the "Progenitor IPO") of 2,875,000 units, at $7.00 per unit,
each unit consisting of one share of Progenitor common stock and one five-year
warrant to purchase one share of Progenitor common stock at $10.50 per share.
The Progenitor IPO resulted in proceeds to Progenitor, net of offering-related
costs, of approximately $17,200,000. Interneuron purchased 500,000 units of the
Progenitor IPO for a total of $3,500,000. Concurrently with the Progenitor IPO,
Progenitor (i) sold 1,023,256 shares of Progenitor common stock to Amgen
pursuant to a stock purchase agreement for a purchase price of $4,500,000 in
cash and a $1,000,000 promissory note and (ii) completed the acquisition (the
"Mercator Acquisition") of Mercator Genetics, Inc., a privately held genomics
23
company, ("Mercator") for an aggregate purchase price of approximately
$24,000,000, including related transaction costs, paid with the issuance of
approximately 3,443,000 shares of Progenitor common stock, plus the assumption
of Mercator liabilities, forgiveness of debt relating to advances made by
Progenitor to Mercator and the issuance of stock options and warrants. As a
result of the Mercator Acquisition, the Company incurred approximately
$7,800,000 of charges to operations in the fourth quarter and fiscal year ended
September 30, 1997 relating to Interneuron's share in Progenitor's charge for
acquired in-process research and development. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Amgen Agreement: In December 1996, Progenitor entered into an agreement
with Amgen (the "Amgen Agreement"), granting Amgen certain exclusive rights for
the development and commercialization of products using Progenitor's leptin
receptor technology. Amgen paid Progenitor a $500,000 initial license fee in
fiscal 1997. Progenitor may also receive from Amgen certain development and
regulatory milestone payments and potential royalties on sales. As provided by
the Amgen Agreement, Amgen purchased Progenitor common stock concurrently with
the Progenitor IPO.
Principal Genomics Discoveries
HFE Hereditary Hemochromatosis Gene/SBCL Agreement: In September, 1997,
Progenitor entered into an agreement with SBCL granting SBCL exclusive rights to
develop and perform in the U.S. and several international markets clinical
laboratory diagnostic testing for hereditary hemochromatosis (HH) under
Progenitor's patent applications covering the HFE gene and its specific
mutations. Hereditary hemochromatosis is a common inherited iron overload
disease that allows various organs in the body to absorb and accumulate too much
iron. Under the agreement, Progenitor will receive annual fees as well as
payments on a per test basis.
B219 Leptin Receptor/Amgen Agreement: Abnormalities in the expression of
the protein hormone leptin and in the function of the receptor for leptin have
been implicated in obesity, diabetes and other metabolic disorders. Progenitor
has applied its proprietary receptor discovery technology, its system for gene
expression analyses, and its murine developmental tissue resources to identify
gene sequences that encode various forms of the B219 leptin receptor. In July
1997, Progenitor received one issued patent for claims relating to genes
encoding the leptin receptor. Progenitor also has received two notices of
allowance for claims relating to genes encoding the leptin receptor, and for a
disease-associated leptin receptor variant and a method for detecting this
variant. In December 1996, Progenitor licensed certain aspects of its leptin
receptor technology to Amgen for human therapeutic, diagnostic and prophylactic
uses. Progenitor has retained exclusive rights to the leptin receptor technology
for certain other uses.
Del-1 Gene: Drugs designed to inhibit the growth of new blood vessels
represent a therapeutic approach to treating cancer. Progenitor, in
collaboration with Vanderbilt University, discovered the
developmentally-regulated endothelial locus-1 ("del-1") gene, which encodes a
protein (Del-1) involved in the early growth and development of blood vessels
and bone. Since del-1 is not expressed in most normal adult tissues, and the
del-1 protein is accessible in the lining of blood vessels, Del-1 shows promise
as a highly specific, accessible and stable target for the development of cancer
therapeutics, diagnostics and imaging agents. Interneuron owns an option to
acquire an exclusive license to manufacture, use and sell certain aspects of
Del-1. Subject to such option, Progenitor is seeking collaborators to pursue
research, development and commercialization of del-1 and Del-1.
24
Additional Programs: In March 1995, Progenitor entered into an agreement
with Chiron for the potential development and commercialization of Progenitor's
T7T7 gene delivery system for selected applications. In May 1995, Progenitor
entered into a research, development and commercialization agreement with Novo
Nordisk relating to the BFU-e red blood cell growth factor. See "Agreements -
Progenitor Agreements."
Progenitor's research is at a very early stage and requires significant
additional funds to complete development, conduct pre-clinical and clinical
testing and pursue regulatory review of any potential products. Progenitor is
seeking to enter into additional collaborations or business combinations to
pursue development of its technologies and/or to obtain independent equity
financing. There can be no assurance that Progenitor's efforts to obtain such
additional funding or collaborations will be successful, in which case
Progenitor would be required to reduce or eliminate certain operations.
Douglass B. Given, M.D., Ph.D. is President and Chief Executive Officer of
Progenitor, which had 47 full-time employees as of September 30, 1997.
Interneuron's ownership in Progenitor's outstanding capital stock decreased from
approximately 76% at September 30, 1996 to approximately 37% at September 30,
1997 (approximately 29% on a fully-diluted basis) principally due to the
Progenitor IPO and the Mercator Acquisition. As a result of the Company's
decreased percentage of ownership in Progenitor, the Company will no longer
consolidate the financial statements of Progenitor but will include Progenitor
in the Company's financial statements using the equity method of accounting. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MANUFACTURING AND MARKETING
General
The Company has no manufacturing facilities and limited marketing
capabilities. In general, the Company intends to rely primarily on third parties
for manufacturing and for marketing products requiring broad marketing
capabilities and for overseas marketing. For certain products, including,
CerAxon and InterNutria's dietary supplement products, the Company is conducting
and may
25
conduct certain marketing or copromotional activities in the United States
directly. Such activities may include a combination of educational programs to
professional audiences, sales force activities or direct advertising and
promotion.
To the extent the Company enters into collaborative arrangements with
pharmaceutical and other companies for the manufacturing or marketing of
products, these collaborators are generally expected to be responsible for
funding or reimbursing all or a portion of the development costs, including the
costs of clinical testing necessary to obtain regulatory clearances, and for
commercial-scale manufacturing. These collaborators are expected to be granted
exclusive or semi-exclusive rights to sell specific products on a disease
application or market-specific basis in exchange for a royalty, joint venture,
equity investments, co-marketing or other financial interest. Such collaborative
arrangements could result in lower revenues than if the Company marketed a
product itself.
In the event the Company establishes its own manufacturing or marketing
capabilities, it may require additional funds for manufacturing, facilities,
equipment and personnel. The Company may seek to market certain products, by
developing its internal sales force or through contract sales representatives,
directly to selected groups of physician specialists likely to prescribe or
recommend the product. In such event, the Company would be responsible for all
costs associated with developing, manufacturing and marketing the product. For
ongoing or planned regional and national launches of dietary supplement
products, including PMS Escape, ProEnhancer, Race Day and ProHydrator, and
Melzone the Company is or will be responsible for these costs.
Redux
With respect to the marketing and manufacture of Redux, the Company
sublicensed its exclusive U.S. marketing rights to AHP, while retaining
copromotion rights. Redux was launched in June 1996 and withdrawn in September
1997. The Company relied on AHP to target the obesity market and for
distribution and advertising and promotional activities. The Company copromoted
Redux through an approximately 30-person sales force to selected diabetologists,
endocrinologists, bariatricians, nutritionists and weight management
specialists, subject to certain restrictions. Under a contract manufacturing
agreement Boehringer produced on behalf of Interneuron commercial scale
quantities of the finished dosage formulation of Redux in capsule form. See
"Interneuron Products - Redux", "Agreements - Redux Agreements" and "Legal
Proceedings".
26
CerAxon
The Company is currently evaluating the commercialization strategy for
CerAxon. Subject to required regulatory approvals, the Company is currently
planning to conduct sole marketing of the product but may consider a combined
marketing strategy which includes contracting with certain companies for the
copromotion of the product and/or establishing a contract salesforce for certain
market segments. The Company expects that it will be required to expand its
sales force by an additional approximately 200 representatives, to hire
additional headquarters-based medical, marketing and administrative support
personnel and to establish distribution arrangements. In the event the Company
markets CerAxon directly, significant funds would be required for manufacturing,
distribution, marketing and selling efforts.
The Company is dependent upon third party suppliers of
citicoline bulk compound and finished product for manufacturing in accordance
with the Company's requirements and U.S. Good Manufacturing Practices ("GMP")
regulations. The Company is subject to an agreement with Ferrer requiring the
Company to purchase from Ferrer citicoline bulk compound for commercial purposes
at fixed prices, subject to certain conditions. To date, Ferrer's manufacturing
facility has not been inspected by the FDA for a U.S. marketed product, but is
expected to undergo such an inspection in conjunction with the FDA's review of
the CerAxon NDA submitted by the Company. Further, although the supplies of
citicoline finished product for clinical trials have been obtained from a
contract manufacturer, the Company has not finalized an agreement with such
manufacturer providing for commercial manufacturing and supply of citicoline
finished product and there can be no assurance such agreement can be obtained on
terms favorable to the Company or at all, which could adversely affect the
Company's ability to commercialize CerAxon on a timely or cost-effective basis.
There can be no assurance the Company can or will establish on a timely basis,
or maintain, manufacturing capabilities of bulk compound or finished product
required to obtain regulatory approval of CerAxon or that any facilities used to
produce citicoline will have complied, or will be able to maintain compliance,
with GMP. See "Risk Factors -- Uncertainties Relating to CerAxon" and "Funding
Requirements".
Bextra
Intercardia has an agreement with Astra Merck for the U.S. development and
marketing of bucindolol. A steering committee consisting of representatives of
Intercardia and Astra Merck will select a third party manufacturer for
bucindolol for the U.S. Astra Merck agreed to conduct sales and marketing of
bucindolol in the U.S., with Intercardia retaining co-promotion rights. See
"Agreements - Intercardia Agreements."
Intercardia has entered into an agreement with Knoll for the international
development and commercialization of bucindolol. Territory covered by this
agreement includes all countries except the U.S. and Japan. Intercardia will be
responsible for 40% of development and marketing costs and will receive 40% of
net profits, or pay 40% of net losses, as defined in the agreement.
Additionally, Knoll made approximately $3 million in payments up front and will
make payments of up to $20 million upon reaching specific regulatory approval
and sales milestones.
COMPETITION
27
General
The pharmaceutical and biotechnology industries are characterized by
rapidly evolving technology and intense competition. Many companies, including
major pharmaceutical companies and specialized biotechnology companies, are
engaged in research and development of technologies and therapies similar to
those being pursued by the Company. Many of the Company's competitors have
substantially greater financial and other resources, larger research and
development staffs and, unlike the Company, have significant experience in
pre-clinical testing, human clinical trials and other regulatory approval
procedures.
In the event the Company markets any products directly, it will compete
with companies with well-established distribution networks and market position.
See "Manufacturing and Marketing" and "Government Regulation."
There can be no assurance that products under development or introduced by
others will not render the Company's products or potential products obsolete or
uneconomical or result in treatments or cures superior to any therapy developed
by the Company or that any therapy developed by the Company will be preferred to
any existing or newly developed products or technologies. Other companies may
succeed in developing and commercializing products earlier than the Company
which are safer and more effective than those proposed for development by the
Company. Further, it is expected that competition in these fields will
intensify. Colleges, universities, governmental agencies and other public and
private research organizations continue to conduct research and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for use of technology that they have developed, some of which may be
directly competitive with those of the Company. In addition, these institutions
may compete with the Company in recruiting highly qualified scientific
personnel. The Company expects technological developments in its fields of
product development to occur at a rapid rate and expects competition to
intensify as advances in these fields are made. Accordingly, the Company will be
required to continue to devote substantial resources and efforts to research and
development activities.
CerAxon
Activase, a genetically engineered version of the naturally occurring
tissue plasminogen activator (t- PA), is marketed by Genentech, Inc. for the
treatment of acute ischemic stroke within three hours of symptom onset. Activase
is the first therapy to be indicated for the management of stroke. A number of
other drugs in clinical trials are also being developed for this indication,
including Prosynap (lubeluzole) by Janssen Pharmaceutical NV. and Boehringer
Ingelheim GmbH. Although, to the Company's knowledge, an NDA for Prosynap was
filed with the FDA, an FDA advisory committee hearing scheduled to review the
drug was recently cancelled. Based on existing clinical data on CerAxon, the
Company believes CerAxon may be an attractive post-stroke therapy, particularly
in patients with moderate to severe strokes, due to its potentially broader,
24-hour post-stroke therapeutic window.
Bextra
The cardiovascular drug market is highly competitive with many drugs
marketed by major multi-national and integrated pharmaceutical companies having
substantially greater technical, marketing and financial resources than
Intercardia. In particular, Coreg (carvedilol), a non-selective beta-blocker
with vasodilating properties owned by Boehringer Mannheim GmbH and licensed in
the U.S. and certain other countries to SmithKline Beecham, has been launched by
SmithKline Beecham following its approval by the FDA in May 1997 with a claim
"to reduce the progression of disease as evidenced by cardiovascular death,
cardiovascular hospitalization, or the need to adjust other heart failure
medications." Since 1991, carvedilol has been approved as a treatment for
hypertension in several European countries, and in September 1995, it was
approved by the FDA for commercial marketing in the U.S. as a twice-daily
treatment for hypertension. The Company is aware that carvedilol has been
approved for the treatment of CHF in approximately 15 countries. Beta-blockers
have not historically been accepted by the medical community to treat congestive
heart failure, and substantial educational efforts may be required to convince
physicians of the therapeutic benefits of bucindolol notwithstanding its action
as a beta-blocker. The Company is also aware of other drugs and devices under
development for the treatment of heart failure. German-based Merck KGaA is
testing bisoprolol, a beta-1 selective beta-blocker marketed in the U.S. by
Lederle, a division of AHP, for hypertension, as a treatment in CHF patients in
Europe. The
28
Company believes that Astra AB has initiated a large mortality study for the
beta-1 selective beta-blocker metoprolol.
Pagoclone
Current therapy for anxiety generally includes the prescription of
bezodiazepine-class and serotonergic compounds. In addition, the Company is
aware of competitors which market certain prescription drugs for indications
other than anxiety who are planning to seek an expansion of labeling to include
anxiety as an indication. The Company believes it is likely there are also
several compounds for anxiety that are in an early stage of preclinical or
clinical development.
AGREEMENTS
Redux Agreements
AHP Agreements: In November 1992, the Company entered into a series of
agreements (the "AHP Agreements") which granted American Cyanamid Company the
exclusive right to manufacture and market dexfenfluramine in the U.S. for use in
treating obesity associated with abnormal carbohydrate craving, with the Company
retaining copromotion rights. In 1994 AHP acquired American Cyanamid Company.
The agreement is for a term of 15 years commencing on the date dexfenfluramine
is first commercially introduced by AHP, subject to earlier termination.
Under the AHP Agreements, AHP purchased preferred stock of the Company for
an aggregate purchase price of $3,500,000. As of September 30, 1997, AHP owned
shares of Interneuron preferred stock convertible into an aggregate of 622,222
shares of Common Stock. The agreement requires AHP to reimburse the Company for
50% of certain expenditures related to clinical development, Phase 4 studies and
market surveillance for abuse potential.
29
The AHP Agreements provide for base royalties to the Company of 11.5% of
AHP's net sales (equal to the royalty required to be paid by the Company to
Servier) and for "additional" royalties, the applicable rates of which during
fiscal 1997 ranged from 5% of the first $50,000,000 of net sales to 10% of net
sales over $150,000,000.
The Company also agreed to sell to AHP and AHP agreed to purchase from the
Company for five years from commercial introduction of dexfenfluramine all of
AHP's requirements for dexfenfluramine in bulk chemical form at a purchase price
equal to the price required to be paid by the Company to Servier.
AHP has the right to terminate its sublicense upon 12 months notice to the
Company. The AHP Agreements provide that Servier has the right to withdraw its
consent to the sublicense in the event that any entity acquires stock in AHP
sufficient to elect a majority of AHP's Board of Directors or otherwise obtains
control of AHP, provided that no such termination shall occur if AHP or its
successor achieves minimum net sales of $75,000,000 in the first marketing year
or $100,000,000 thereafter or pays Servier amounts it would have been entitled
to if AHP had achieved such minimum net sales. Servier consented to the AHP
acquisition of American Cyanamid Company.
The AHP Agreement provides that AHP could continue to market Pondimin but
agreed that so long as Redux remains commercially viable, AHP will differentiate
Redux for promotional and marketing purposes and will not promote or market
Pondimin or any other product for the anti-obesity indication which competes
directly with Redux in a manner which negatively affects the future market for
Redux.
Effective June 1996 the Company entered into a three year copromotion
agreement with Wyeth-Ayerst (the "Copromotion Agreement"). The agreement
provides for Interneuron to promote Redux to certain diabetologists,
endocrinologists, bariatricians and weight management specialists, subject to
certain restrictions, and receive payments from AHP for a portion of the
Company's actual costs for up to 33 salespersons during the first and second
years. Under the Copromotion Agreement, Interneuron was entitled to varying
percentages of profit derived from sales generated by its sales force, after
deducting costs, including cost of product revenue, royalties to Interneuron,
and Interneuron's proportionate share of advertising and promotion costs. Under
the Copromotion Agreement, Interneuron agreed, if requested by AHP, to promote
other products of Wyeth-Ayerst that fit within the physician specialists
targeted by Interneuron's sales force. Interneuron's Redux sales force cannot
promote another company's products except under certain conditions. The
Copromotion Agreement may be terminated by Wyeth-Ayerst under certain conditions
including if sales generated by Interneuron do not exceed a specified level per
year. Interneuron is able to terminate the agreement at any time on six month's
notice.
Under certain circumstances, the Company is required to indemnify AHP, and
the Company is entitled to indemnification by AHP against certain claims,
damages or liabilities incurred in connection with Redux. The cross
indemnification between the Company and AHP generally relates to the activities
and responsibilities of each company. See "Risk Factors -- Risks Relating to
Withdrawal of Redux and Legal Proceedings".
During fiscal 1997, the Company entered into agreements with AHP and
Servier for the development and commercialization in the U.S. of a sustained
release, once-a-day form of Redux. Interneuron paid
30
Servier $2,000,000 in connection with the signing of the agreement. Following
the withdrawal of Redux, this program has been discontinued. Under terms of the
agreement between Interneuron and AHP, these two companies were to have shared
the costs of clinical development, including Phase 3 clinical trials and related
studies, and costs of submitting an NDA for a once-a-day formulation of Redux.
Servier Agreements: The Servier Agreements, entered into in February 1990
and as subsequently amended, grant the Company an exclusive right to market
dexfenfluramine in the U.S. to treat obesity associated with abnormal
carbohydrate craving for a term of 15 years from the date dexfenfluramine is
first marketed in the U.S. The agreements provide for royalties of 11.5% of net
sales, with certain required minimum royalties. The license includes rights to
Servier's Redux trademark.
Servier has the right to terminate the license agreement upon the
occurrence of certain events, including a sale or transfer of a substantial part
of the Company's assets or a majority of its stockholdings (other than in
connection with a public offering), an acquisition by any party (other than
existing stockholders or their affiliates as of the date of the Servier
Agreements) of a 20% beneficial interest in the Company, or if the Company
manifests an intent to market a substantially similar pharmaceutical product.
An affiliate of Servier supplied the Company with all of the Company's bulk
chemical requirements for dexfenfluramine for incorporation into the finished
dosage formulation. Interneuron agreed to indemnify Servier under certain
circumstances.
Boehringer Ingelheim Agreement: In November 1995, the Company entered into
an exclusive manufacturing agreement with Boehringer Ingleheim Pharmaceuticals,
Inc. ("Boehringer") under which Boehringer supplied, and the Company purchased
all of its requirements for Redux capsules from Boehringer. The contract, which
expires December 31, 1998, contains certain minimum purchase and insurance
commitments by the Company and requires conformance by Boehringer to the FDA's
GMP regulations. The agreement provides for the Company to be able to qualify a
second source manufacturer under certain conditions. Interneuron agreed to
indemnify Boehringer under certain circumstances.
CerAxon
In January 1993, the Company entered into a license and supply agreement
with Ferrer (the "Ferrer Agreement") granting the Company the exclusive right to
make, use and sell any products or processes developed under patent rights
relating to certain uses of CerAxon in exchange for an up-front license fee to
be credited against royalties based on sales. The Company's license includes
patent and know-how rights in the U.S. and know-how rights in Canada, and is for
a period coextensive with Ferrer's license from MIT. The underlying U.S. patent
expires in 2003. See "Patents and Proprietary Rights". The Ferrer Agreement also
provides that Ferrer shall, subject to certain limitations, be the exclusive
supplier at a fixed price of raw materials required for the manufacture of any
product developed under such patent rights. The agreement provides that Ferrer
may terminate the agreement under certain circumstances, including in the event
more than 50% of the ownership of Interneuron is transferred to a non-affiliated
third party or in the event FDA approval of citicoline is not obtained by
January 1999, which date shall be extended if the Company provides information
to Ferrer which tends to establish that the Company has carried out
31
the steps for obtaining such approval and if such approval has not been obtained
for reasons beyond the Company's control.
Pagoclone
In February 1994, the Company licensed from RPR exclusive worldwide rights
to pagoclone, a patented compound, for use as an anti-anxiety drug, together
with related know-how, in exchange for license fees, milestone payments and
royalties based on sales.
Lidodex
In December 1996, the Company entered into an agreement with Algos for the
development and commercialization of a combination pharmacological product known
as LidodexNS, for the treatment of acute migraine headache. The agreement
establishes a multi-stage development collaboration between Algos and
Interneuron and licenses to Interneuron rights, co-exclusive with Algos, to
manufacture and market the combined agent. This collaboration will include
certain pre-clinical studies, clinical trials and regulatory review activities
overseen by a joint steering committee. The companies will also share in the
marketing and profits of LidodexNS.
MIT Licenses
In March 1994, the Company entered into a license agreement with MIT
granting the Company an exclusive worldwide license to a number of patent rights
and related technology, including a patent covering the use of a low-dose
formulation of melatonin for inducing sleep, in exchange for an initial license
fee and royalties based on sales.
The Company also licensed from MIT in February 1992, a number of other
patent rights with respect to which Dr. Richard Wurtman was the inventor or
co-inventor in exchange for a license fee and royalties based on sales (the "MIT
License"). The Company's license is exclusive for the longer of the first 12
years following commercialization of an individual licensed product or 2007. The
patents underlying the MIT License expire at various times commencing in 1997.
The MIT License includes a patent covering the use of a choline source to
reduce fatigue caused by intense exercise. This license is subject to, and
limited by, a license previously granted by MIT to another company, which
licensed two U.S. patents relating to the use of lecithin in capsule, granular
or liquid form (but not in food form or as part of a prescription drug) for
raising blood choline levels. As the Company's sports drinks, under development
by InterNutria, are in a food form (e.g., a drink), the Company does not believe
this license will materially restrict its ability to market this proposed
product. Although the Company believes this product will be considered a food or
a dietary supplement, there can be no assurance that the FDA will not regulate
it as a drug, thereby requiring the filing and approval of an NDA.
Lilly License
32
In June 1997, the Company entered into an agreement with Eli Lilly and
Company and Eli Lilly S.A. ("Lilly") relating to the sublicense by the Company
to Lilly of a U.S. patent and worldwide patent application rights covering the
use of fluoxetine to treat disturbances of appetite and mood associated with
premenstrual syndrome. Prozac (fluoxetine hydrochloride), Lilly's
antidepressant, is not currently approved to treat this indication. The Company
received an up-front license fee of $1,000,000, and is entitled to additional
payments based upon the achievement of development and regulatory milestones and
royalties based upon net sales.
The patent rights to the use of fluoxetine in treating premenstrual
syndrome are licensed by the Company from MIT and are based upon discoveries
about the relationship between brain serotonin deficiency and unwanted weight
gain and mood symptoms. The use of fluoxetine to treat PMS was discovered by
Judith Wurtman, Ph.D., and Richard J. Wurtman, M.D., scientific founder of
Interneuron, both of MIT.
Intercardia Agreements
Astra Merck Agreement: In December 1995, Intercardia entered into the Astra
Merck Collaboration, a development and marketing collaboration and license
agreement with Astra Merck which provides for the development, commercialization
and marketing of a twice-daily formulation of bucindolol for the treatment of
congestive heart failure in the U.S. Astra Merck made a $5,000,000 payment to
Intercardia and agreed to fund development costs, including Intercardia's
obligations relating to the BEST study and to pay royalties to BMS. Astra Merck
agreed to market bucindolol in the U.S., with Intercardia retaining certain
co-promotion rights. Astra Merck may terminate the Astra Merck Collaboration at
any time in order to enter into a contract relating to, or to launch, a
competing product if it first makes a payment to Intercardia. If a termination
occurs more than five years after FDA approval of an NDA for bucindolol, no
payment would be required.
The agreement calls for Intercardia to receive additional payments based
upon milestones related to FDA approval and the achievement of specified levels
of sales. Astra Merck agreed to pay the Company $5,000,000 within 10 days of the
grant by the FDA of marketing approval for a twice-daily formulation of
bucindolol, unless such an approval has previously been granted for another
beta-blocker based upon a reduction in heart failure mortality claims.
Intercardia is entitled to royalties of 15% of the first $113,000,000 of annual
net sales and 30% of annual net sales above $113,000,000, adjusted for
inflation. Intercardia and CPEC paid Astra Merck an aggregate of $10,000,000 in
December 1997 and agreed to reimburse one-third of the launch costs through the
first 12 months of commercial sales, up to $11,000,000. In the event Intercardia
does not make these payments, the royalty rate declines to 7% of net sales.
BASF Pharma/Knoll, AG Agreement: In December 1996, Intercardia executed an
agreement with Knoll (the "Knoll Collaboration") to provide for the development,
manufacture and marketing of bucindolol for the treatment of CHF in all
33
countries with the exception of the U.S. and Japan. The Knoll Collaboration
relates to both the twice-daily bucindolol formulation and the once-daily
bucindolol formulation currently under development. Under the terms of the Knoll
Collaboration, Knoll made $3,480,000 in payments in fiscal 1997 to CPEC which
were recognized as contract and license fee revenue . Knoll agreed to make
future payments to CPEC upon the achievement of product approval and sales
milestones.
Intercardia and Knoll agreed to share the development and marketing costs
of bucindolol in the Territory. In general, Knoll agreed to pay approximately
60% of the development and marketing costs prior to product launch, and
Intercardia agreed to pay approximately 40% of such costs, subject to certain
maximum dollar limitations. CPEC will be entitled to a royalty equal to 40% of
net profits, as defined in the Knoll Collaboration, and would be responsible
for, and pay to Knoll, 40% of any net loss, as defined.
Renaissance Cell Technologies Agreement: In September 1997, Intercardia
acquired approximately 80 percent of Renaissance for $500,000. Renaissance is an
early stage company conducting research in the area of hepatic stem cells.
Renaissance has entered into an agreement with the University of North Carolina
at Chapel Hill to sponsor research on hepatic stem cells in exchange for an
option to an exclusive license for products resulting from the research.
Renaissance has agreed to pay the university an amount not to exceed $450,000
per year for a minimum of two years.
Bristol-Myers Squibb Agreement: Through CPEC, Intercardia has an exclusive
worldwide license to bucindolol from BMS for pharmaceutical therapy for
congestive heart failure and left ventricular function. The license requires
Intercardia to conduct all appropriate and necessary clinical trials and to take
all actions that are reasonably necessary for the preparation and filing of an
NDA and a comparable application in at least one Western European country.
Intercardia is obligated to pay royalties on net product sales. Unless earlier
terminated, the bucindolol license continues, with respect to each country,
until the later of patent expiration, or 15 years after first commercial sale of
bucindolol (subject to two five-year renewals at Intercardia's option).
Duke License: In July 1995, Aeolus, Intercardia's 66% owned subsidiary,
obtained from Duke University ("Duke") an exclusive worldwide license (the "Duke
License") to products using catalytic antioxidant small molecule technology and
compounds. The Duke License also provides the Company a 180-day option and
negotiation period to license certain future discoveries in the field of
antioxidant research.
The Duke License requires Aeolus to use its best efforts to diligently
pursue development of products using the licensed technology and compounds and
to have the licensed technology cleared for marketing in the U.S. by the FDA and
other countries. Duke owns 7.3% of the outstanding shares of Aeolus capital
stock, which was issued in connection with the Duke License. Aeolus will pay
royalties to Duke on net product sales and milestone payments upon the
occurrence of certain events.
34
Transcell Agreements
Merck Agreement: In July 1997, Transcell, Interneuron and Merck entered
into a Research Collaboration and Licensing Agreement effective as of June 30,
1997, relating to the discovery and commercialization of certain novel
antibacterial agents. Merck has an option to extend the field of the
collaboration and license to include all antibacterial pharmaceutical products.
The agreement provides for Merck to make initial license and option payments
totaling $2,500,000 (which were received in July 1997) plus research support
during the first two years of the agreement. Additionally, Transcell is entitled
to payments based upon achievement of defined late-stage clinical development
and regulatory milestones and royalties based upon net sales of products
resulting from the collaboration. Fifty percent of certain milestone payments
are creditable against royalties. Certain of the rights licensed to Merck are
based on exclusive licenses or rights held by Transcell and Interneuron from
Princeton University, which will be entitled to varying percentages of certain
payments and royalties received from Merck.
Princeton Licenses: In January 1992 and October 1993, Transcell entered
into license agreements with Princeton pursuant to which Transcell was granted
exclusive worldwide licenses to specified patent applications and any patents
that issue therefrom, including any derivative patent applications or patents
that issue, relating to certain technology funded by Transcell and any licensed
products, in exchange for an up-front license fee and royalties based on sales.
The license agreements provide for Transcell to use its best efforts to
commercialize the licensed products or processes, including satisfying
milestones. In addition, Interneuron has an agreement to license certain
technologies and related patent rights from Princeton, in exchange for certain
milestone payments and royalties based on sales, a portion of which was
sublicensed to Merck.
Progenitor Agreements
SBCL Agreement: In September 1997, Progenitor entered into an agreement
with SBCL granting SBCL an exclusive right and license to develop and perform a
genetic test for a common inherited disease, hereditary hemochromatosis.
Hereditary hemochromatosis is an iron overload disease that allows various
organs in the body to absorb and accumulate too much iron. The agreement gives
SBCL certain exclusive rights in the U.S. and several international markets to
develop and perform clinical laboratory testing under Progenitor's patent
applications covering the gene for hereditary hemochromatosis (HFE) and its
specific mutations. This gene was discovered in 1996 by a team of researchers at
Mercator. Under terms of the agreement, Progenitor will receive annual fees as
well as payments on a per test basis from each test from which SBCL derives
revenue.
Amgen Agreement: In December 1996, Progenitor entered into a license
agreement with Amgen granting Amgen certain exclusive rights for the development
and commercialization of products using Progenitor's leptin receptor technology.
Amgen paid Progenitor a $500,000 license fee in January 1997. In the event Amgen
develops products relating to the licensed technology, Progenitor may also
receive from Amgen certain development and regulatory milestone payments and
potential royalties on product sales. Amgen purchased $5,500,000 of Progenitor
common stock in Progenitor's initial public offering, at a price of $5.375 per
share in connection with a stock purchase agreement entered into at the same
time as the license agreement.
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Novo Nordisk/ZymoGenetics Agreement: In May 1995, Progenitor and Novo
Nordisk, through its subsidiary ZymoGenetics, entered into a research,
development and commercialization agreement under which Novo Nordisk received an
exclusive, worldwide license to any and all rights of Progenitor related to the
BFU-e red blood cell growth factor activity identified by Progenitor, for use in
any and all human therapeutic and small molecule drug design uses. An amended
and restated agreement was executed between the parties in January 1997. Under
the agreement, the development effort is divided into two stages. During the
first stage, Novo Nordisk and Progenitor are attempting to purify, clone and
sequence a BFU-e red blood cell growth factor and other growth factors with
similar hematopoietic functions. If this stage is successfully completed, Novo
Nordisk will have the right to decide whether to proceed to the second stage, in
which Progenitor may conduct research to establish the biological function of
the growth factor. During the second stage, if commenced, Novo Nordisk has the
option to engage Progenitor for additional research, which may entitle
Progenitor to receive up to $4.0 million in research fees from Novo Nordisk. If
Novo Nordisk decides to develop any licensed products, it will be obligated to
pay Progenitor a one-time license fee of $2.0 million and up to an additional
$22.0 million for each product if certain clinical testing, regulatory and
marketing approval milestones are met. In addition, Progenitor has the right to
receive royalties for sales of any resulting products. Novo Nordisk has the
right to manufacture and market any such products on an exclusive worldwide
basis.
Chiron Agreement: In March 1995, Progenitor entered into an agreement with
Chiron for the development and commercialization of Progenitor's T7T7 gene
delivery technology for selected applications in cancer, infectious diseases and
cardiovascular disorders. All rights to product applications of the technology
that are not specifically included in the agreement are retained by Progenitor.
Under the agreement, Progenitor received payments of $3,000,000, of which
$750,000 was then paid by Progenitor to Chiron to reimburse Chiron for certain
start-up manufacturing costs. Progenitor may receive additional payments based
upon the achievement of defined, mostly late-stage clinical development and
regulatory milestones. Progenitor also would receive royalties from commercial
sales of any products resulting from the collaboration.
Other Progenitor Agreements
Progenitor entered into license agreements with Ohio University in January
1992 and April 1993, as amended in October 1993. The license agreements grant
Progenitor the exclusive worldwide rights to yolk sac stem cells, gene delivery
technologies, and related technologies in exchange for royalties based on net
sales and an equity investment in Progenitor. Two U.S. patents and several
foreign patents have been issued, and two patent applications are pending in the
U.S. and certain foreign countries.
In July 1995, Progenitor obtained from Vanderbilt University exclusive
worldwide rights to Vanderbilt's rights under two jointly owned patent
applications utilizing technology relating to a gene, del- 1, that may play a
role in the development and growth of blood vessels. The gene was co-discovered
by Progenitor and Vanderbilt. The license was granted in exchange for royalties
based on sales. Vanderbilt may terminate the license after three years if
Progenitor has not made adequate efforts to commercialize products based on the
gene. In July 1997, Progenitor granted Interneuron an option and right of first
refusal to acquire an exclusive worldwide license to manufacture, use and sell
certain aspects of Del-1,
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the protein encoded by the del-1 gene, on the terms to be negotiated, in
exchange for waivers of certain rights by Interneuron to additional shares of
Progenitor common stock.
In September 1996, Progenitor entered into sponsored research agreements
with the National Jewish Center for Immunology and Respiratory Medicine and with
Vanderbilt University. Under the separate agreements, Progenitor will fund
genomic research to characterize the genes that are active early in the
formation of blood and immune cells and in the development of blood vessels.
Each agreement provides Progenitor first rights to license discoveries and
technologies arising from the research programs.
PATENTS AND PROPRIETARY RIGHTS
Redux
Under the Servier Agreements, the Company has an exclusive license to sell
dexfenfluramine in the U.S. under a patent covering the use of dexfenfluramine
to treat abnormal carbohydrate craving, which has been sublicensed by the
Company to AHP. The compound patent on dexfenfluramine, which was discovered by
Servier, has expired. Use of dexfenfluramine for the treatment of abnormal
carbohydrate craving was patented by Drs. Richard Wurtman and Judith Wurtman,
consultants to the Company and directors of Interneuron and InterNutria,
respectively. This use patent was assigned to MIT and licensed by MIT to
Servier, and pursuant to the Servier Agreements was licensed to the Company. The
Drs. Wurtman have advised the Company that, in accordance with MIT policy, they
are entitled to 50% of the royalties received by MIT in connection with MIT's
licensing of dexfenfluramine to Servier.
CerAxon
The compound CerAxon is not covered by a composition of matter patent. The
licensed U.S. patent covering the administration of CerAxon to treat patients
afflicted with conditions associated with the inadequate release of brain
acetylcholine expires in 2003. As described in the licensed patent, the
inadequate release of acetylcholine may be associated with several disorders,
including the behavioral and neurological syndromes seen after brain traumas and
peripheral neuro-muscular disorders and post-stroke rehabilitation. Although the
claim of the licensed patent is broadly directed to the treatment of inadequate
release of brain acetylcholine, there can be