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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2000
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 NUMBER: 0-28494
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MILLENNIUM PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3177038
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
75 SIDNEY STREET, CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (617) 679-7000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $0.001
PAR VALUE
(Title of class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of voting Common Stock held by non-affiliates of
the registrant was $7,101,754,245 based on the last reported sale price of the
Common Stock on the Nasdaq Stock Market on February 28, 2001.
Number of shares outstanding of the registrant's class of Common Stock as of
February 28, 2001: 215,652,754.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the definitive Proxy Statement for the 2001 Part III
Annual Meeting of Stockholders
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TABLE OF CONTENTS
Item 1. Business.................................................... 1
Overview.................................................... 1
Key Transactions and Developments in 2000................... 1
Industry Background......................................... 3
Our Strategy................................................ 4
Our Technology.............................................. 6
Therapeutics--Clinical Programs............................. 8
Therapeutics--Research and Development Programs............. 9
Predictive Medicine......................................... 11
Alliances................................................... 12
Research and Development.................................... 15
Patents and Proprietary Rights.............................. 16
Government Regulation....................................... 16
Manufacturing............................................... 21
Sales and Marketing......................................... 21
Competition................................................. 22
Employees................................................... 22
Risk Factors That May Affect Results..................................... 23
Regulatory Risks............................................ 23
Risks Relating to Our Industry, Business and Strategy....... 24
Risks Relating to Our Financial Results and Structure and
Need for Financing........................................ 25
Risks Relating to Collaborators............................. 26
Risks Relating to Intellectual Property..................... 27
Risks Relating to Product Manufacturing, Marketing and
Sales..................................................... 28
Item 2. Properties.................................................. 30
Item 3. Legal Proceedings........................................... 30
Item 4. Submission of Matters to a Vote of Security Holders......... 30
Executive Officers of the Company........................................ 31
Item 5. Market for the Company's Common Equity and Related
Stockholder Matters....................................... 33
Item 6. Selected Financial Data..................................... 34
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 35
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 42
Item 8. Financial Statements and Supplementary Data................. 44
Report of Independent Auditors.............................. 44
Consolidated Balance Sheets................................. 45
Consolidated Statements of Operations....................... 46
Consolidated Statements of Cash Flows....................... 47
Statements of Stockholders' Equity.......................... 48
Notes to Consolidated Financial Statements.................. 49
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 71
Item 10. Directors and Executive Officers............................ 71
Item 11. Executive Compensation...................................... 71
Item 12. Stock Ownership of Certain Beneficial Owners and
Management................................................ 71
Item 13. Certain Relationships and Related Transactions.............. 71
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 71
Signatures............................................................... 73
Exhibit Index............................................................ 74
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PART I
ITEM 1. BUSINESS
OVERVIEW
Our goal is to become the biopharmaceutical company of the future. We plan
to develop breakthrough drugs and predictive medicine products that ultimately
enable physicians to more closely customize medical treatment by combining
knowledge of the genetic basis for disease and the genetic characteristics of a
particular patient. We plan to achieve this goal of delivering personalized
medicine to patients by building on our broad scientific and technological
capabilities and methods, which we call our "technology platform." We use many
of the elements of our technology platform throughout our business, from the
discovery of disease-related genes, to the development of drugs to specifically
address these diseases, to the development of predictive medicine products and
services to enable clinicians and pharmaceutical researchers to make better
informed decisions about drug treatment for patients affected by these diseases.
As a result, we speak of our technological approach as being applicable from
"gene to patient."
We have entered into research, development and commercialization
arrangements with major pharmaceutical and biotechnology companies relating to a
broad range of therapeutic and predictive medicine products and services. These
alliances provide us with the opportunity to receive royalties and/or share
profits if our collaborations are successful in developing and commercializing
products. In many cases, we also retain product rights for ourselves from these
alliances. We have also entered into technology development and technology
transfer arrangements with major pharmaceutical and biotechnology companies.
Under each of these arrangements we work cooperatively with the other party to
enhance our technology platform or provide such party a license to use our
technology platform in exchange for fees and, in some cases, the opportunity to
receive royalties if the other party is successful in developing and
commercializing products using our technology platform.
References in this Annual Report on Form 10-K to we, us, our, and the like
include, where applicable, references to our Millennium Predictive Medicine
division, or MPMx, and its predecessor entity, Millennium Predictive
Medicine, Inc., which was a wholly-owned subsidiary of ours before it was merged
with and into Millennium Pharmaceuticals, Inc. in January 2001.
In this Annual Report on Form 10-K, we incorporate by reference certain
information from parts of other documents filed with the Securities and Exchange
Commission. The SEC allows us to disclose important information by referring to
it in that manner. Please refer to such information.
We were incorporated in Delaware in 1993 and our principal executive offices
are located at 75 Sidney Street, Cambridge, Massachusetts 02139.
KEY TRANSACTIONS AND DEVELOPMENTS IN 2000 AND 2001
STRATEGIC ALLIANCES
AVENTIS. In June 2000, we formed an alliance with Aventis
Pharmaceuticals Inc., the pharmaceutical subsidiary of Aventis S.A., by signing
agreements covering:
- joint development and commercialization of drugs for the treatment of
specified inflammatory diseases;
- a five-year program for the joint development of new drug discovery
technologies;
- the grant to Aventis of rights to our drug discovery technologies in
exchange for payments of up to $200 million over a five-year period; and
- an investment by Aventis of $250 million in our common stock, of which:
- Aventis made an investment on July 27, 2000 of $150.0 million to purchase
2,516,356 shares of our common stock,
- Aventis made an investment on January 4, 2001 of $50.0 million to
purchase 753,522 shares of our common stock, and
- Aventis has agreed to make a final investment of $50.0 million later in
2001.
ABBOTT. In March 2001, we formed an alliance with Abbott Laboratories by
signing agreements covering:
- joint development and commercialization of drugs and predictive medicine
products for the treatment and management of specified metabolic diseases;
- an exchange of rights to certain components of each party's drug discovery
technologies and a program for the development of a new drug discovery
technology; and
- an investment by Abbott of $250 million in our common stock, of which:
- Abbott has agreed to make an initial investment of $50.0 million in
April 2001, and
- Abbott has agreed to make additional investments totalling $200 million
in seven quarterly installments from later in 2001 through 2003.
REACQUISITION OF MINORITY INTEREST IN MPMX AND RESTRUCTURING OF MPMX
On June 2, 2000, we reacquired the outstanding minority equity interest in
Millennium Predictive Medicine, Inc., through a merger of MPMx into a
newly-organized, wholly-owned subsidiary of Millennium. In the merger, we issued
an aggregate of approximately 2,240,760 shares of our common stock to the former
MPMx shareholders, including Becton Dickinson and Company. In addition, we
assumed MPMx's outstanding employee stock options, which are exercisable for
444,214 shares of our common stock. As a result of the merger, we were able to
align more closely our therapeutic and predictive medicine discovery and
development efforts.
We recently restructured MPMx, and we now operate MPMx as an unincorporated
division of our business.
ACQUISITION OF CAMBRIDGE DISCOVERY CHEMISTRY
On July 27, 2000, we acquired Cambridge Discovery Chemistry Ltd., a
subsidiary of Oxford Molecular Group, plc, by purchasing all of the issued and
outstanding share capital of CDC for $50.0 million in cash. We renamed CDC
"Millennium Pharmaceuticals Limited." Through this acquisition we added
approximately 85 expert chemists, many with significant pharmaceutical chemistry
experience, to our drug discovery team, bringing our total chemistry capability
to over 150 scientists at completion of the acquisition. By substantially
increasing our capabilities in medicinal and computational chemistry, we expect
this acquisition to accelerate our downstream drug discovery efforts. We believe
that it also establishes a presence for us in one of the strongest and most
innovative pharmaceutical and technology centers in Europe.
CONVERTIBLE NOTE OFFERING
On January 14, 2000, we completed a Rule 144A offering to qualified
institutional buyers of $400 million of 5.5% Convertible Subordinated Notes due
January 15, 2007. The notes are convertible into our common stock at a price
equal to $42.07 per share. We can redeem the notes at any time after
January 15, 2003. The holders of the notes can, under specified circumstances,
require us to repurchase the notes if a change of control occurs. During 2000,
we paid an aggregate of $54.9 million to induce the early conversion by holders
of $304.1 million of notes. As a result, on December 31, 2000, $95.9 million of
these notes remained outstanding.
COMMON STOCK OFFERING
On October 11, 2000, we completed a public offering of 11,000,000 shares of
our common stock at a purchase price of $64.00 per share. On October 17, 2000,
we sold an additional 1,465,500 shares of our common stock pursuant to the
underwriters' exercise of their over-allotment option. We realized
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net proceeds of $767.4 million from the offering, after deducting the
underwriting discount and our offering-related expenses.
INDUSTRY BACKGROUND
The discovery and development of new drugs typically involves several steps
and many years of work. The first step is the identification of a drug "target"
for therapeutic intervention--a molecule or structure somewhere in the body,
inside or on the surface of cells, which is either directly related to the
disease or lies in a biochemical pathway involved in the disease. The next step
is to identify compounds which interact with this drug target and modulate the
drug target's activity in a manner that might help reverse, inhibit or prevent
the disease process. This step is normally accomplished by screening large
collections, referred to as libraries, of synthetic chemicals and natural
products in a trial-and-error process designed to identify those compounds that
can interact with the drug target.
The most promising compounds to emerge from this time-consuming process are
advanced to the next stage, in which synthetic derivatives of these compounds
are generated and tested to arrive at one or a few so-called lead compounds.
Positive interactions of these lead compounds with the drug target and the
subsequent activity in animal or cellular models of the disease may suggest that
these compounds can be developed successfully into new drugs. The best of these
lead compounds are then subjected to rigorous testing, first in animals and then
in humans, to establish their safety and efficacy as drugs.
The selection of new targets for drug discovery historically has been an
inefficient process because of the lack of knowledge of the underlying disease
causes. Drug targets have often been selected based on speculation that they
might be involved in disease processes, rather than because of any clear,
well-documented association with specific diseases. As a result, many drug
candidates fail during clinical trials because they turn out to be ineffective
or unsafe. Moreover, many drugs that do reach the market treat only the symptoms
of diseases rather than their underlying causes.
In recent years, however, the drug discovery process has changed, beginning
with the process for discovering drug targets. Fueled by a broad interest in
determining the entire DNA sequence of the human genome, scientists have made
major improvements in the technologies available for identifying and cataloguing
genes in complex organisms. These technologies include high-throughput methods
for sequencing genes, for monitoring and comparing the expression of genes in
different situations and for following the inheritance of genes in families
prone to particular diseases. The integration of molecular biology with
robotics, information technology and analytical instrumentation is crucial to
these technologies. The combination of these disciplines provides powerful
capabilities for generating, capturing and analyzing large volumes of data
concerning genes and their expression, making it possible for the first time to
mount a systematic search to discover and characterize the genes and biochemical
pathways which underlie human diseases.
Major advances have also recently been made in the technologies available
for screening synthetic chemical and natural-product libraries to identify
compounds active against specific drug targets and for the subsequent generation
of lead compounds optimized for their activity against these drug targets. As
with the advances in target discovery, the advances in drug discovery depend
heavily on robotics, information technology and analytical instrumentation,
coupled with novel combinatorial approaches to the synthesis of chemical
libraries.
Another important recent development in biotechnology has been the emergence
of monoclonal antibody-based drugs as successful therapeutics. Monoclonal
antibodies, which are specially produced proteins that play a role in the immune
system, have long held great potential as drugs because, by their nature, they
recognize and interact with target molecules in a highly specific way. However,
early therapeutic monoclonal antibodies were generated in non-human animals and,
therefore, were recognized by the body as foreign and neutralized by the immune
system. Recently, it has become possible to produce humanized monoclonal
antibodies that appear less foreign to the body, and even to
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produce completely human monoclonal antibodies in quantity. As a result,
monoclonal antibodies are now realizing their potential as drugs, with several
successfully on the market, and many more in advanced clinical development.
We believe that the combined effect of these developments has reduced and
will continue to reduce the risk, time and expense associated with the
development of new drugs. These developments have created an opportunity for
biopharmaceutical companies with cutting edge technologies to deliver new
classes of drugs which are safe and effective for treating a broad range of
important diseases in diverse individuals.
OUR STRATEGY
We combine a variety of proprietary and non-proprietary technologies and
know-how to systematically study genes in the context of disease and to discover
and develop proprietary therapeutic and diagnostic human healthcare products and
services. We believe that our platform is unique in the breadth and diversity of
the technologies that it encompasses, and the degree to which we have integrated
these technologies. We use advanced capabilities in information technology,
robotics, genetics, genomics, molecular biology, cell biology, immunology,
biochemistry, chemistry, microfluidics and analytical instrumentation. By
combining these capabilities, we have created a series of high-throughput
processes that we believe have the potential to improve the efficiency of the
discovery and development of therapeutic and diagnostic products, as well as the
quality of these products. We believe that these products will change the
practice of medicine.
Our business is built around three principal areas of focus:
TECHNOLOGY. We use many technologies in each step of the therapeutic and
diagnostic product discovery and development processes. We seek the most
advanced methods available to integrate into our technology platform, whether
developed internally or licensed from third parties, in order to increase the
efficiency and productivity of these processes. We believe that our platform
will enable us to:
- identify commercially important genes;
- elucidate their functions;
- validate targets for product development;
- identify and develop drug and diagnostic candidates for clinical
development; and
- bring novel personalized medicines to the market.
THERAPEUTICS. We have three fields of major emphasis: cancer, metabolic
diseases, including obesity, and inflammation. We also have significant programs
in infectious diseases, cardiovascular diseases and diseases of the central
nervous system. We seek to discover disease-related genes, produce validated
drug targets and drug leads, and develop and commercialize new, proprietary
drugs to treat major human illnesses. We direct these efforts at both
small-molecule drugs, which are typically formulated into pills for oral
consumption, as well as monoclonal antibodies and proteins, which are typically
only available in injectable form.
PREDICTIVE MEDICINE. We seek to develop products and services that will
provide clinicians and pharmaceutical researchers with information that enables
them to make better informed decisions about drug treatment and other aspects of
patient management. Our core areas of focus include
Diagnomics-Registered Trademark- products and pharmacogenomics. A
Diagnomics-Registered Trademark- product is a gene-based diagnostic test to
determine the patient's medical status and facilitate cost-effective treatment.
Pharmacogenomics is the identification of genes, or their activity, associated
with responsiveness to particular drugs. We believe that predictive medicine
products and services will enable physicians to customize medical treatment by
providing them with the ability to identify the genetic basis for a patient's
disease and select the most appropriate drugs and treatment regimen for the
particular patient.
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The key initiatives to implement our strategy are:
ESTABLISH AND EXPAND STRATEGIC ALLIANCES. Based on the strength of our
technology platform and product development pipeline, we have established a
series of strategic alliances with major pharmaceutical and biotechnology
companies. These alliances provide us with substantial revenues and other
financing, furnish us with access to important technology, broaden our product
development pipeline and reduce our product development risks. These alliances
also enhance our ability to bring products to market because of our
collaborators' substantial resources and expertise in research, preclinical and
clinical development, regulatory issues, manufacturing and marketing.
EXPAND DOWNSTREAM PIPELINE AND OTHER SKILLS THROUGH ACQUISITIONS. We
continually consider joint development, merger and other acquisition
opportunities that may provide us with access to products currently on the
market or which are in later stages of commercial development or may bring us
scientific or other skills that enhance our existing capabilities. For example,
through our merger with LeukoSite, Inc. in December 1999, we obtained six drug
candidates in clinical development and more than 12 preclinical development
programs. In addition, as a result of the LeukoSite merger, we augmented our
capabilities in the areas of immunology, preclinical and clinical development
and regulatory affairs. Our acquisition of Cambridge Discovery Chemistry Ltd. in
July 2000 added approximately 85 expert chemists, many with significant
pharmaceutical chemistry experience, to our drug discovery team, substantially
increasing our capabilities in medicinal and computational chemistry. We believe
that integrating these acquired capabilities with our other resources will
facilitate bringing our internally developed products to market quickly and
efficiently.
ENHANCE PROPRIETARY TECHNOLOGY PLATFORM. We are committed to continually
enhancing our technology platform by incorporating the latest technological
advances. Our technology enhancement activities are based on our own internal
development efforts and our program to identify, evaluate and integrate
technologies licensed from third parties. The quality of our technology platform
has been central to our ability to attract a broad range of strategic alliances
with major pharmaceutical and biotechnology companies. Our platform also has
enabled us to create a technology transfer alliance in the area of agriculture
with Monsanto Company, and a broad technology transfer alliance with Aventis.
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OUR TECHNOLOGY
Our comprehensive and industrialized technology platform is based on
multiple, parallel approaches to high-throughput product discovery and
development which are integrated through the latest advances in enabling
technologies and informatics. The enabling technologies include robotics,
fluidics, miniaturization and analytical instrumentation. Informatics consists
of the tracking, synthesizing and interpretation of the enormous volumes of data
generated in high-throughput discovery of genes, drug targets and drugs.
The following chart illustrates how we apply various processes of our
technology platform to the principal steps in the discovery and development of
drugs, spanning from gene to patient.
[Graphic depiction of a chart which summarizes the application of various
processes of our technology platform (described on page 6 and 7) to the
principal steps in the drug discovery and development process]
- HUMAN, MOUSE AND MICROBIAL GENETICS involve the identification of genes
associated with diseases or with the ability of microbes to survive.
- HIGH-THROUGHPUT SEQUENCING enables the rapid determination of DNA sequence
information from large numbers of genes.
- EXPRESSION CLONING means the isolation and identification of genes
according to the biological properties of the proteins they encode.
- TRANSCRIPTIONAL PROFILING is the rapid identification of genes whose
activity in the body changes under disease conditions.
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- FUNCTIONAL GENOMICS are the assignment of biochemical functions and
disease roles to gene products and the selection of the relatively small
number of gene products that will be appropriate targets for therapeutic
intervention.
- PROTEOMICS constitutes the identification of proteins, or changes to
proteins, associated with particular diseases.
- COMPUTATIONAL BIOLOGY is the rapid analysis of the DNA sequences of genes
to identify those which encode potential targets for drugs.
- BENCH BIOLOGY, using cellular and animal models, is utilized for the
experimental confirmation of hypotheses that particular genes or proteins
could be good targets for drugs.
- PATHWAY PROFILING identifies multiple genes that may be involved in the
initiation, progression or maintenance of a disease.
- PHARMACOGENOMICS constitutes the identification of genes, or their
activity, associated with responsiveness to particular drugs.
- CHEMISTRY is utilized for the identification and optimization of
small-molecule compounds active against particular drug targets.
- COMPUTATIONAL CHEMISTRY is employed to enable the modeling and analysis of
chemical structures and their interactions with drug targets.
- PREDICTIVE PHARMACOLOGY enables the prediction of likely behaviors of drug
candidates when they are administered to humans.
- CLINICAL RESEARCH is conducted to assess the safety and efficacy of drugs
in humans.
- REGULATORY AFFAIRS is the process of gaining necessary approvals from the
appropriate governmental agencies that regulate the testing and marketing
of drugs.
7
THERAPEUTICS--CLINICAL PROGRAMS
We have six drug candidates in clinical development. The following chart
identifies each of these clinical drug candidates, and the respective disease
indication, our partners or collaborators for these clinical programs and the
current phase of the clinical programs.
DISEASE
PRODUCT INDICATION PARTNER/COLLABORATOR CLINICAL PHASE
- ------- --------------------- --------------------- ---------------------
CAMPATH-Registered Trademark- Cancer (Chronic 50/50 partnership Biologics License
(alemtuzumab) lymphocytic leukemia) between Millennium Application submitted
monoclonal antibody and ILEX Products, December 1999; on
Inc.; distribution December 14, 2000,
agreement with the Oncologic Drugs
Schering AG/Berlex Advisory Committee to
Laboratories the FDA recommended
accelerated approval
for patients with
chronic lymphocytic
leukemia who have
been unsuccessfully
treated with
alkylating agents and
have not responded to
therapy with the drug
fludarabine; on
February 20, 2001,
the FDA issued a
Class I complete
response letter
CAMPATH-Registered Trademark- Multiple sclerosis Same as above Phase II
(alemtuzumab)
monoclonal antibody
CAMPATH-Registered Trademark- Transplantation Same as above Phase II
(alemtuzumab)
monoclonal antibody
LDP-02 Inflammatory bowel Genentech Phase IIb
disease
LDP-977 Asthma Marketing agreement Phase IIa
with Taisho in Asia
and Europe
LDP-01 Stroke none Phase IIa
LDP-341 Cancer none Phase II
LDP-519 Stroke none Phase I
Human clinical trials typically are conducted in three sequential phases,
although phases may overlap. Phase I trials consist of testing the product in a
small number of patients or healthy volunteers, primarily for safety, in one or
more dosages, as well as characterization of a drug's pharmacokinetic or
pharmacodynamic profile. In Phase II, in addition to safety, the efficacy of the
product is evaluated. Phase III trials typically involve additional testing for
safety and clinical efficacy in an expanded population.
8
THERAPEUTICS--RESEARCH AND DEVELOPMENT PROGRAMS
Using our advanced technology platform, we seek to discover and develop
proprietary therapeutic and diagnostic human healthcare products and services to
detect, treat and manage a broad array of illnesses. We have three fields of
major emphasis: cancer; metabolic diseases, including obesity; and inflammation.
We also have significant programs in infectious diseases, cardiovascular
diseases and diseases of the central nervous system. The following is a summary
of our principal research and development programs:
CANCER
In the field of cancer, or oncology, we are engaged in clinical development
of two compounds, and in target and drug discovery, primarily through strategic
alliances. Our programs address a variety of cancers, including leukemia,
prostate, breast, lung, colorectal, multiple myeloma, non-Hodgkin's lymphoma and
melanoma.
The following two cancer product candidates are in clinical trials:
The CAMPATH-REGISTERED TRADEMARK- (alemtuzumab) product candidate is a
humanized monoclonal antibody being evaluated for the treatment of patients with
chronic lymphocytic leukemia, which is the most prevalent form of adult
leukemia. The CAMPATH-Registered Trademark- monoclonal antibody is being
developed by Millennium & ILEX Partners, L.P., our joint venture with ILEX
Products, Inc., a subsidiary of ILEX Oncology, Inc. The partnership completed
the submission to the U.S. Food and Drug Administration in December 1999 of a
biologics license application for the CAMPATH-Registered Trademark- product
candidate for patients who are not responsive to traditional therapy. The FDA
has granted fast track status to its review of this application. On
December 14, 2000, the Oncologic Drugs Advisory Committee to the FDA recommended
accelerated approval for patients with chronic lymphocytic leukemia who have
been unsuccessfully treated with alkylating agents and have not responded to
therapy with the drug fludarabine. On February 20, 2001, the FDA issued a
Class I complete response letter. In the letter, the FDA indicated that the
timeframe for accelerated approval has been extended for a 60-day period.
Millennium & ILEX Partners expects to complete ongoing discussions with the FDA
on final package labeling and design of a post-marketing confirmatory study for
CAMPATH-Registered Trademark- during this time. The partnership has entered into
a worldwide, other than the Far East, distribution agreement with Schering AG
and its affiliate, Berlex Laboratories. The CAMPATH-Registered Trademark-
monoclonal antibody has received an orphan drug designation from the FDA, which
may entitle Millennium & ILEX Partners to a seven-year marketing exclusivity
period in the United States for the CAMPATH-Registered Trademark- product
candidate.
LDP-341 is a small-molecule drug candidate for the treatment of diverse
cancers. LDP-341 has a unique mechanism of action, inhibition of the proteasome,
which is the cellular component responsible for protein degradation. We
completed Phase I clinical trials of LDP-341 for the treatment of multiple
myeloma in early 2001. We began a Phase II clinical trial of LDP-341 for the
treatment of multiple myeloma in the first quarter of 2000, and we expect to
begin a series of Phase I/II and Phase II clinical trials of LDP-341 for the
treatment of additional oncology indications in solid tumors as well as
hematological malignancies as both a single agent and in combination with other
chemotherapeutic agents later in 2001.
We have entered into two strategic alliances for target and drug discovery
in cancer:
LILLY. We have an alliance with Lilly focused on finding small-molecule
drug targets in select areas of cancer, including prostate cancer and mechanisms
of drug resistance. We received four milestone payments from Lilly during 2000
under this alliance for the delivery of three cancer drug candidate genes and
the acceptance of one validated target for cancer drugs.
BAYER. Our multi-disease alliance with Bayer includes discovery of
small-molecule drug targets for areas of cancer that fall outside of our Lilly
collaboration.
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METABOLIC DISEASES
The field of metabolic diseases includes obesity, type 2 diabetes and
wasting disorders, such as cancer cachexia. In March 2001, we entered into a
broad alliance with Abbott Laboratories that includes joint development and
commercialization of drugs for the treatment and management of obesity and
type 2 diabetes. Both companies are contributing their research pipelines in
these disease areas to the collaboration, which will include more than
35 projects at the outset. Other targets in the field of metabolic diseases that
we are pursuing independently of our agreement with Abbott include MC4, a target
for the regulation of food intake that we are pursuing for cancer cachexia and
other wasting disorders.
INFLAMMATION
Inflammation encompasses a broad spectrum of human diseases and conditions,
including rheumatoid arthritis, asthma and chronic obstructive pulmonary
disease, multiple sclerosis, inflammatory bowel disease and stroke. In
June 2000, we entered into a broad agreement in the field of inflammation with
Aventis Pharmaceuticals that includes joint development and commercialization of
drugs for the treatment of specified inflammatory diseases. Our agreement with
Aventis covers a substantial portion of our research and development program in
inflammation.
In the field of inflammation, we have four products in clinical development:
- LDP-977 is a small-molecule drug candidate for the treatment of asthma.
LDP-977 is designed to selectively inhibit the production of leukotrienes,
a class of molecules that plays an important role in bronchial asthma. A
Phase IIa trial of LDP-977 has been completed and we expect to begin Phase
IIb trials in patients with asthma later this year. In January 2000, we
entered into an agreement with Taisho Pharmaceutical Company, Ltd.
relating to the development, marketing and sale of LDP-977 in Europe and
Asia.
- LDP-519 is a small-molecule drug candidate for the treatment of
post-ischemic reperfusion injury, which is inflammatory damage that occurs
when blood supply to a tissue is restored after an interruption such as
that resulting from organ transplantation, stroke or myocardial
infarction. We completed a Phase I clinical trial of LDP-519 in 2000. As
with LDP-341, LDP-519 acts through the inhibition of the proteasome.
- LDP-02 is a humanized monoclonal antibody for the treatment and management
of patients with inflammatory bowel disease, including ulcerative colitis
and Crohn's disease. We have a collaboration agreement with
Genentech, Inc. for the development and commercialization of LDP-02. We
are currently enrolling patients for both a Phase II clinical trial of
LDP-02 for the treatment of Crohn's disease and a Phase IIb clinical trial
for the treatment of ulcerative colitis.
- LDP-01 is a humanized monoclonal antibody for prevention of post-ischemic
reperfusion injury. We completed a Phase IIa clinical trial of LDP-01 in
renal transplantation 1999. In 2000 we completed enrollment of a
Phase I/II study in patients with stroke.
Outside of our collaboration with Aventis, we are also engaged in two other
strategic alliances for target-specific drug discovery and development in the
field of inflammation:
ROCHE BIOSCIENCE. We have an alliance with Roche Bioscience to develop a
small-molecule antagonist of a chemokine receptor known as CCR3 to block the
recruitment of inflammatory cells for the treatment of patients with asthma and
allergies.
KYOWA HAKKO. We have a collaboration agreement with Kyowa Hakko for the
discovery and development of small-molecule antagonists to chemokine receptors
for the treatment of inflammatory and autoimmune diseases.
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INFECTIOUS DISEASES
BACTERIAL INFECTIONS. We are engaged in identifying and validating new
targets for antibacterial drugs and in high-throughput screening to identify
potential lead compounds. We are conducting these activities in collaboration
with American Home Products. During the first four years of this alliance we
have delivered twelve antibacterial targets to American Home Products, and have
received multiple milestone and bonus payments in return. In January 2001, we
identified one pre-clinical antibacterial compound.
VIRAL INFECTIONS. Our multi-disease collaboration with Bayer includes the
discovery of drug targets that may enable the development of novel
small-molecule compounds for the treatment of patients with viral diseases.
CARDIOVASCULAR DISEASES
In the field of cardiovascular diseases, we are engaged in the
identification and validation of new drug targets. We are conducting this
activity in collaboration with Eli Lilly in connection with congestive heart
failure and with Bayer in connection with other cardiovascular diseases.
CENTRAL NERVOUS SYSTEM DISEASES
In the field of central nervous system diseases, we are engaged in the
identification and validation of new drug targets for the treatment of affective
disorders, schizophrenia, generalized depression, epilepsy and neurodegenerative
disorders, such as Alzheimer's disease. We have a strategic alliance with
American Home Products in the area of central nervous system diseases. We have
delivered seven novel genes to American Home Products under this alliance,
receiving milestone payments in return. The area of pain is also included in our
multi-disease alliance with Bayer.
PREDICTIVE MEDICINE
An important strategic focus for us is the application of our technology
platform to develop products and services that will provide clinicians and
pharmaceutical researchers with information that enables them to make better
informed decisions about drug treatment and other aspects of patient management.
We are conducting this work through our MPMx division.
MPMx is focusing its efforts on diagnostics and pharmacogenomic services and
expects to expand into the provision of information services related to patient
management.
DIAGNOMICS-REGISTERED TRADEMARK- PRODUCTS
Many current diagnostic tests are directed towards the symptoms, rather than
the causes, of the diseases that they are used to diagnose or monitor. As a
result, these tests generally provide information only about a patient's current
condition. In contrast, we are developing gene-based diagnostic tests, which we
call Diagnomics-Registered Trademark- tests, to assess the underlying causes of
diseases. We believe that Diagnomics-Registered Trademark- products and services
will provide information with inherent prognostic, therapeutic and economic
implications, facilitating a shift in medical care towards planned and
cost-effective treatment of the underlying causes of disease.
We are engaged in two strategic collaborations as part of our
Diagnomics-Registered Trademark- program.
BECTON DICKINSON. In February 1999, we entered into a strategic alliance
with Becton Dickinson focused primarily on Diagnomics-Registered Trademark-
products for specified cancers. Under this agreement, we are undertaking
research to identify and deliver clinically validated diagnostic markers to
Becton Dickinson for skin, cervical, breast, ovarian, uterine and prostate
cancers. A diagnostic marker is a molecule or substance whose presence or
concentration can be measured in a biological sample taken from a
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patient, providing useful information about the patient's status or future
prospects with respect to a particular disease or diseases. For example, under
license from Millennium, Becton Dickinson is developing the
Melastatin-Registered Trademark- product, a clinical marker to diagnose
melanoma. In June 2000, we entered into a licensing agreement with Becton
Dickinson in the area of colon cancer diagnostics. Under this agreement, Becton
Dickinson paid us a licensing fee in exchange for research and development
rights to select diagnostic markers and related intellectual property that we
develop in this disease area. We have also granted Becton Dickinson an option to
obtain a royalty-bearing, worldwide license from us to commercialize diagnostic
markers arising out of the research and development program.
ROCHE DIAGNOSTICS. In December 2000, we entered into a collaborative
research agreement with Roche Diagnostics, relating to the development of
diagnostic products for rheumatoid arthritis. Under the agreement, we have
granted Roche research and development rights to select diagnostic markers and
related intellectual property developed by us in this disease area. Roche has
agreed to pay us a licensing fee, funding for research, milestone payments and
royalties. We have granted Roche the right to commercialize, on a worldwide
basis, any diagnostic products resulting from the alliance. The research and
development program is for a term of three years.
PHARMACOGENOMICS
Different people often respond in different ways to the same drug. A drug
that is safe and effective in one patient may be toxic or ineffective in
another. We believe that these differences in response, in part, reflect genetic
variations between the individuals concerned. Pharmacogenomic studies seek to
establish correlations between specific genetic variations and specific
responses to drugs. By establishing such correlations, pharmacogenomics may
permit both new and existing drugs to be targeted to those patients in whom they
are most likely to be both effective and safe. In November 1999, we entered into
a strategic alliance with Bristol-Myers Squibb focused primarily on the
application of pharmacogenomics to cancer treatments.
ALLIANCES
A fundamental component of our business strategy is to form alliances with
major pharmaceutical and biotechnology companies. In general, our alliances fall
into three categories:
- Alliances focused on particular diseases, in which we perform drug
discovery research funded by our collaborators. The principal terms of our
largest disease-focused alliances, with Bayer, Aventis and Abbott, are as
follows:
- We formed the Bayer alliance in September 1998. This alliance is for a
five-year term and covers several disease areas, including cardiovascular
disease, cancer, pain, blood diseases and viral infections. Under this
alliance, we are eligible to receive up to $465 million from Bayer. Bayer
has already made a $96.6 million equity investment and paid a portion of
the research and development funding. By the end of 2000, we had
delivered to Bayer more than 80 disease-relevant qualified drug targets
for assay configuration, of which 15 qualified drug targets had moved
into high-throughput screening or lead identification. In January 2001,
we and Bayer announced our discovery of the first genome-derived
small-molecule drug candidate to emerge from our joint research alliance.
- We formed the Aventis alliance in June 2000. This alliance is for a
five-year term and is primarily for collaborative research and
development in the area of inflammation. In North America, we have agreed
to share the responsibility for and cost of developing, manufacturing and
marketing products arising from the alliance. Outside of North America,
Aventis is responsible for and will bear the cost of developing,
manufacturing and marketing products arising from the alliance, and has a
royalty obligation to us. Our arrangement with Aventis also includes an
equity investment by Aventis, under which we are eligible to receive up
to
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$250 million, and a technology transfer agreement, under which we are
eligible to receive up to $200 million. We have already received a
portion of this funding.
- We formed the Abbott alliance in March 2001. This alliance is for a
five-year term, and is primarily for collaborative research and
development in the area of metabolic diseases. We and Abbott have agreed
to share equally the cost of developing, manufacturing and marketing
products on a worldwide basis. Our arrangement with Abbott also includes
an equity investment by Abbott, under which we are eligible to receive up
to $250 million, and a technology exchange and development agreement.
- Alliances focused on drug discovery for specific targets or the
development of a specific product candidate. For example, we have an
alliance with Roche Bioscience to develop a small-molecule antagonist of a
chemokine receptor known as CCR3 to block the recruitment of inflammatory
cells for the treatment of patients with asthma and allergies. One of our
key product development alliances is with ILEX Products, Inc., focused on
the clinical development of the CAMPATH-Registered Trademark- monoclonal
antibody for the treatment of chronic lymphocytic leukemia.
- Alliances based on the transfer of our technology platform. The principal
terms of our largest technology transfer alliances, with Monsanto Company
and Aventis, are as follows:
- We formed a five-year alliance with Monsanto in October 1997. In
connection with this collaboration, Monsanto established a wholly-owned
subsidiary, Cereon Genomics, based in Cambridge, Massachusetts. We have
granted Cereon and Monsanto an exclusive royalty-bearing worldwide
license to use our genomics technologies in the fields of plant
agriculture and aspects of dairy agriculture. We also granted a
non-exclusive worldwide license to Monsanto to apply our genomics
technologies outside of these fields. Under this collaboration, we are
eligible to receive up to $218 million, plus royalties. We have already
received a substantial portion of this funding.
- We formed a five-year alliance with Aventis in June 2000. This alliance
includes a broad non-exclusive technology transfer arrangement under
which we are transferring key elements of our technology platform to
Aventis to enhance Aventis's current capabilities. This alliance also
includes a technology development component under which we will work
collaboratively with Aventis to develop further enhancements to our
technology platform. Of the total $450 million we are eligible to receive
under the alliance with Aventis, we are eligible to receive up to
$200 million in funding in connection with the technology transfer
arrangement. We have already received a portion of this funding.
Our disease-focused alliance agreements and our target-specific and
product-specific alliance agreements generally provide for the funding by our
collaborator of some portion of a research program to be conducted by us in
conjunction with the collaborator, and the grant of license rights by us to our
collaborator to develop and commercialize specified products and services
resulting from discoveries made in the research program. In many cases, we have
retained development and commercialization rights for ourselves to certain
therapeutic and diagnostic applications of discoveries made in the research
program. In some cases, if specified research, product development or regulatory
milestones are achieved, our collaborators are obligated to make milestones
payments to us. In addition, our alliance agreements generally entitle us to
royalties or a share of profits on product sales, which are payable for the life
of the applicable patents or a specified period of time.
The agreements governing these alliances are subject to various
contingencies, including in some cases, early termination rights. We have
generally agreed with our collaborators that, for a specified period of time
while the alliance is in place, we will not conduct research, independently or
with third parties, in the fields covered by the alliance agreement.
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Our technology transfer alliance agreements generally provide for the
non-exclusive grant of license rights by us to our collaborator to use our
technology platform for biotechnology research and development. Typically, our
collaborators are obligated to make periodic payments to us and/or to pay us
royalties on products they develop using our technology platform.
Our ability to obtain ongoing funding for our sponsored research and
technology transfer programs and certain milestone payments under these
programs, if any, depends on these alliances continuing for their full term and
on our ability to achieve specified research objectives.
Since inception, substantially all of our revenues have been derived from
our strategic alliances. For the twelve-month period ended December 31, 2000,
revenues from our strategic alliance with Bayer accounted for approximately 27%
of our total revenues, revenues from our strategic alliance with Monsanto
accounted for approximately 22% of our total revenues, and revenues from our
strategic alliance with Aventis accounted for approximately 10% of our total
revenues.
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The following table sets forth information about our principal current
alliances:
YEAR
ESTABLISHED COLLABORATOR ALLIANCE TYPE SUBJECT
- --------------------- -------------------------- -------------------------- --------------------------
2001 Abbott Disease-focused, Metabolic diseases,
technology exchange and technology
development
2000 Roche Diagnostics Disease-focused Rheumatoid arthritis
diagnostics
2000 Becton Dickinson Disease-focused Colon cancer diagnostics
2000 Aventis Disease-focused, Inflammation, technology
technology transfer and
technology development
2000 Taisho Pharmaceutical Product development LDP-977 for asthma
1999 Schering AG/Berlex Product distribution CAMPATH-Registered Trademark-
Laboratories monoclonal antibody
1999 Bristol-Myers Squibb Disease-focused Cancer pharmacogenomics
1999 Becton Dickinson Disease-focused Cancer diagnostics
1998 Bayer Disease-focused Cardiovascular diseases,
cancer, pain, blood
diseases and viral
infections
1997 Kyowa Hakko Target-specific discovery CCR1 and CXCR3 chemokine
receptors
1997 Monsanto Technology transfer Agriculture
1997 Genentech Product development LDP-02
1996 American Home Products Disease-focused Bacterial diseases
1996 ILEX Products, Inc. Product development CAMPATH-Registered Trademark-
monoclonal antibody
1996 Roche Bioscience Target-specific discovery CCR3 chemokine receptor
1996 American Home Products Disease-focused and Central nervous system
technology transfer diseases, technology
1996 Eli Lilly Disease-focused Cancer
1995 Aventis Target-specific discovery NF-kB Inflammation
1995 Eli Lilly Disease-focused and cardiovascular diseases,
technology transfer technology
RESEARCH AND DEVELOPMENT
Company-sponsored research and development expenses totaled $77.0 million in
2000 and $19.3 million in 1999. Our strategic collaborator-sponsored research
and development expenditures totaled $191.7 million in 2000 and $140.6 million
in 1999. Substantially all of our research and development expenses were
sponsored by our strategic collaborators in 1998. In calculating strategic-
collaborator sponsored research and development expenditures, we have included
expenditures in programs for which we receive current funding as well as
programs for which we may receive future compensation as milestone payments,
royalties or otherwise even though we provide the current funding. Our research
and development expenditures in 2000 increased significantly over 1999 as we
added personnel and expanded research and development activities to accommodate
existing and added strategic alliances and development efforts, and as a result
of the addition, through our acquisition of LeukoSite, Inc., in December 1999,
of several preclinical product candidates and six product candidates in clinical
trials.
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PATENTS AND PROPRIETARY RIGHTS
We generally seek United States and foreign patent protection for the genes,
proteins, antibodies and small-molecule drug leads that we discover, as well as
therapeutic, diagnostic and pharmacogenomic products and processes, drug
screening methodologies and other inventions based on such genes, proteins,
antibodies and small-molecules. We also seek patent protection or rely upon
trade secret rights to protect certain other technologies which may be used to
discover and characterize genes, proteins, antibodies and small-molecules and
which may be used to develop novel therapeutic, diagnostic and pharmacogenomic
products and processes. As of December 31, 2000, we and our subsidiaries owned
138 U.S. patents and 10 foreign patents, and more than 1,400 pending U.S. and
foreign patent applications. Our issued U.S. and foreign patents expire on
various dates between 2012 and 2019.
We own three issued U.S. patents and several pending U.S. and foreign patent
applications related to the Melastatin-Registered Trademark- product. We are an
exclusive licensee under two issued U.S. patents and pending U.S. and foreign
patent applications related to LDP-01. The LDP-01 license extends through the
expiration of the licensed patents in 2016. We also own pending U.S. and foreign
patent applications related to LDP-02. We also own issued U.S. patents, granted
foreign patents and pending U.S. and foreign applications related to LDP-977 and
LDP-341. We also are the exclusive licensee of an issued U.S. patent and pending
U.S. and foreign applications and we own an issued U.S. patent and pending U.S.
and foreign applications related to LDP-519. The LDP-519 license extends through
the expiration of the licensed patents in 2015.
We have entered into several license agreements under which we have acquired
certain rights to use proprietary technologies and compounds. In particular, we
have exclusive and non-exclusive licenses as set forth in an agreement with BTG
International Ltd. to make, use and sell products containing the
CAMPATH-Registered Trademark- monoclonal antibody. This license extends through
the expiration of the licensed patents in 2015. The agreement requires the
payment of royalties to BTG. In addition, BTG may terminate the license
agreement under certain circumstances, including in the event of a breach of the
agreement or if there is a failure to meet commercialization requirements.
In the event our in-licensed rights were terminated or modified, our ability
to manufacture and sell products using the covered technologies would be
materially adversely affected.
We also currently own the following trademarks and servicemarks: "Changing
the Practice of Medicine"(SM), Chemoprediction-TM-,
Cytomed-Registered Trademark-, DGx-Registered Trademark-,
Diagnomics-Registered Trademark-, Expression Explorer-Registered Trademark-,
G2P-TM-, "Gene to Patient"-TM-, the Millennium "M" logo and design (registered),
MBio-TM-, Melastatin-Registered Trademark-, Millennium-Registered Trademark-,
Millennium Biotherapeutics-Registered Trademark-, Millennium Information-TM-,
Millennium Pharmaceuticals-Registered Trademark-, Millennium Predictive
Medicine-Registered Trademark-, MPMx-Registered Trademark-,
Pharmacoinformatics-TM-, Protein Explorer-TM-, RADE-TM-, Sequence
Explorer-Registered Trademark-, SmartChip-Registered Trademark-, and
"Transcending the Limits of Medicine"(SM). CAMPATH-Registered Trademark- is a
registered trademark, and MABCAMPATH-TM- is a trademark, of Millennium & ILEX
Partners.
GOVERNMENT REGULATION
OVERVIEW OF FDA REGULATIONS
Biological and non-biological drugs, including our products under
development, and medical devices, are subject to extensive and rigorous
regulation by the federal government, principally the FDA, and by state and
local governments. Federal and state statutes and regulations govern, among
other things, the research, development, testing, manufacture, storage,
recordkeeping, reporting, labeling, distribution, promotion and marketing of
pharmaceutical and diagnostic device products. If these products are marketed
abroad, they also are subject to export requirements and to regulation by
foreign governments. Failure to comply with applicable regulatory requirements
may subject a company to administrative or judicially imposed sanctions, such as
warning letters, product recalls, product seizure, injunctions, civil penalties,
criminal prosecution, suspension of production, license revocation, or FDA
refusal to approve pending marketing applications.
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The applicable regulatory clearance process, which must be completed prior
to the commercialization of a product, is lengthy and expensive. FDA
requirements for our products under development vary depending upon whether the
product is a non-biological drug or biological drug. Our monoclonal antibody
product candidates currently in human clinical or late preclinical development
(I.E., the CAMPATH-Registered Trademark- monoclonal antibody, LDP-01 and LDP-02)
are regulated by the FDA as biological drugs. We believe that products under
development in our small-molecule antagonist program will be regulated as
non-biological drugs. We are also developing diagnostic products that will be
regulated as medical devices.
REGULATION OF NON-BIOLOGICAL DRUGS AND BIOLOGICAL DRUGS
Non-biological drugs and biological drugs are subject to some of the same
laws and regulations. Ultimately, however, they are approved under somewhat
different regulatory frameworks. Product development and approval within either
regulatory framework takes a number of years, involves the expenditure of
substantial resources and is uncertain. Many non-biological drugs and biological
drugs that initially appear promising ultimately do not reach the market because
they are not found to be safe or effective under the standards applied by FDA,
or cannot meet the FDA's other regulatory requirements for product manufacture
and sale. In addition, the current regulatory framework may change or additional
regulations may arise at any stage of our product development that may affect
approval, delay the submission or review of an application or require additional
expenditures by us.
The activities required before a new non-biological drug or biological drug
can be marketed in the United States begin primarily with preclinical testing.
Preclinical tests include laboratory evaluation of product chemistry, toxicology
and other characteristics. Animal studies are used to assess the potential
safety and efficacy of the product as formulated. Many preclinical studies are
regulated by the FDA under the current Good Laboratory Practice, or GLP,
regulations. Violations of these regulations can, in some cases, lead to
invalidation of the studies, requiring such studies to be replicated if the data
are to be submitted to the FDA in support of a marketing application.
The entire body of preclinical development work necessary to administer
investigational non-biological drugs and biological drugs to human volunteers or
patients is summarized in an investigational new drug application, or IND,
submitted to the FDA. FDA regulations provide that human clinical trials may
begin 30 days following submission of an IND application, unless the FDA advises
otherwise or requests additional information, clarification or additional time
to review the application. Once trials have commenced, investigators must
promptly report all unanticipated risks and adverse events that occur to human
subjects to the Institutional Review Board, or IRB, and the drug sponsor during
clinical trials. The sponsor must promptly report an adverse event that is
unexpected, serious, and possibly drug-related to the FDA. The FDA may stop the
trials by placing a "clinical hold" on such trials because of concerns about,
for example, the safety of the product being tested. Such holds can cause
substantial delay and in some cases may require abandonment of a product.
Clinical testing in humans involves the administration of the
investigational non-biological drug or biological drug to healthy volunteers or
to patients under the supervision of a qualified principal investigator, usually
a physician, pursuant to an FDA reviewed protocol. Each clinical study is
conducted under the auspices of an IRB at each academic center, hospital or
other research facility at which the study will be conducted. The IRB must
approve the protocol and informed consent documents before a clinical trial can
proceed. An IRB will consider, among other things, ethical factors, the safety
of human subjects, whether informed consent was properly obtained, and the
possible liability of the institution.
Human clinical trials typically are conducted in three sequential phases,
but the phases may overlap. Phase I clinical trials consist of testing the
product in a small number of patients or normal volunteers, primarily for
safety, in one or more dosages, as well as characterization of a drug's
pharmacokinetic and/or pharmacodynamic profile. In Phase II clinical trials, in
addition to safety, the
17
efficacy of the product is evaluated in a patient population. Phase III clinical
trials typically involve additional testing for safety and clinical efficacy in
an expanded population at multiple geographically dispersed sites. A clinical
plan, or "protocol," is submitted to the FDA prior to commencement of each
clinical trial. The FDA may order the temporary or permanent discontinuation of
a clinical trial at any time for a variety of reasons, particularly if safety
concerns exist.
Upon completion of clinical trials, a company seeking FDA approval to market
a new non-biological drug must file a new drug application, or NDA, with the
FDA. In addition to reports of the preclinical and clinical trials conducted
under the U.S. IND application, the NDA includes information pertaining to the
preparation of the drug substance, analytical methods, drug product formulation,
detail on the manufacture of finished products and proposed product packaging
and labeling. In addition to reports of the preclinical and clinical trials
conducted under the U.S. IND application, the marketing application also
includes other data and information relating to the product's safety and
efficacy. The manufacturing facility must also pass an FDA current Good
Manufacturing Practices (cGMP) inspection before the marketing application can
be approved.
A company seeking FDA approval to market a biological drug is required to
prepare and submit additional information for inclusion in a single biologics
license application, or BLA, which is similar in content to the NDA. To approve
a BLA, the FDA must determine that the product is effective and that the
manufacturing establishment and product meet applicable requirements to ensure
the safety, purity, and potency of the product.
Submission of a standard NDA or BLA does not assure FDA approval for
marketing. After the application is submitted, the FDA initially determines
whether all pertinent data and information have been submitted before accepting
the application for filing. After the application is considered filed, the FDA
begins its substantive review. The FDA also typically will request a review and
recommendation by an advisory committee consisting of outside experts. The FDA
may accept or reject the advisory committee's recommendations, or accept them
with modifications. The application review process generally takes one to three
years to complete, although reviews of non-biological drugs and biological drugs
that meet a medical need for serious or life-threatening diseases may be
accelerated or prioritized for a six month review. However, the process may take
substantially longer if, among other things, the review is complex, the
information is not complete, or the FDA has questions or concerns about the
safety or efficacy of a product. In order to gain approval, the FDA may require
post-marketing studies to be conducted and may impose other conditions as well.
Expedited or accelerated approvals may require additional larger confirmatory
clinical studies to be conducted following approval.
In addition, the FDA may, in some circumstances, impose restrictions on the
use of the non-biological drug or biological product that may be difficult and
expensive to administer. Product approval may be withdrawn if compliance with
regulatory requirements is not maintained or if adverse events are reported
after the product reaches the market. The FDA requires reporting of certain
safety and other information that becomes known to a manufacturer of an approved
non-biological drug or biological product. These reports may be voluntarily
provided to the company and/or the FDA by physicians and other healthcare
professionals. Manufacturing and sale may also be disrupted, or delayed, in the
event of failure to comply with all required current Good Manufacturing
Practices as determined by FDA investigators in periodic inspections of
manufacturing facilities. In addition, changes in the product or the
manufacturing facility may require the submission of a supplemental NDA or BLA.
Upon approval, a prescription non-biological drug or biological product may
only be marketed for the approved indications in the approved dosage forms and
at the approved dosage. In addition, the nature of marketing claims that we will
be permitted to make in the labeling and advertising of our products will be
limited to those specified in an FDA clearance or approval. Claims exceeding
those that are cleared or approved will constitute violation of the Food, Drug
and Cosmetic Act.
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ORPHAN DRUG ACT
Under the Orphan Drug Act, a sponsor of a marketing application may seek to
obtain a seven-year period of marketing exclusivity for a non-biological or
biological drug intended to treat a rare disease or condition, which is defined
as a disease or condition that occurs in fewer than 200,000 patients. Orphan
drugs provide significant tax advantages to a sponsor. Before a product can
receive marketing exclusivity associated with orphan product status, it must
receive orphan product designation. If a drug is designated as an orphan drug or
biologic by the FDA, the sponsor of the first FDA approved application of the
drug or biologic for the specified indication receives seven years of marketing
exclusivity, subject to certain limitations.
Millennium & ILEX Partners, L.P. has obtained orphan product designation for
the CAMPATH-Registered Trademark- monoclonal antibody for the treatment of
patients with chronic lymphocytic leukemia. We may seek such designation for
other products as well. However, other companies may also receive orphan
designation and obtain the FDA marketing approval before we obtain such
approval. If another company obtains marketing approval for the same drug or
biologic first and receives seven-year marketing exclusivity, we would not be
permitted by the FDA to market our product in the United States for the same use
during the exclusivity period. In addition, we could incur substantial costs in
asserting any rights to prevent such uses we may have under the Orphan Drug Act.
If we receive seven-year marketing exclusivity, FDA may rescind the period of
exclusivity under certain circumstances, including our failure to assure a
sufficient quantity of the drug.
The Orphan Drug Act is subject to amendment by Congress, which has
periodically considered amendments that would change the substantive provisions
of the law, including the market exclusivity provisions. There can be no
assurance that the market exclusivity provisions under this Act will still be
the same when the CAMPATH-Registered Trademark- monoclonal antibody or other
product candidates are approved.
FOREIGN REGULATIONS
We will also be subject to a variety of foreign regulations governing
clinical trials and sales of our products. Whether or not FDA approval has been
obtained, approval of a product by the comparable regulatory authorities of
foreign countries must be obtained prior to the commencement of marketing of the
product in those countries. The approval process varies from country to country
and the time may be longer or shorter than that required for FDA approval.
OTHER REGULATIONS
In addition to regulations enforced by the FDA, we also are subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state or local
regulations. Millennium's research and development involves the controlled use
of hazardous materials, chemicals and various radioactive compounds. Although we
believe that our safety procedures for storing, handling, using and disposing of
such materials comply with the standards prescribed by applicable regulations,
the risk of accidental contaminations or injury from these materials cannot be
completely eliminated. In the event of such an accident, we could be held liable
for any damages that result and any such liability could have a material adverse
effect.
REGULATION OF DIAGNOSTICS
The FDA regulates the development, manufacture, and marketing of medical
devices including diagnostic products and reagents. The FDA has regulations that
set varying requirements for medical devices according to potential risk class.
Class I devices represent the lowest potential risk devices and are therefore
subject only to the general controls that include establishment registration,
product listing, the prohibition of mislabeling or adulteration, and a
requirement to comply with current federal Good
19
Manufacturing Practices regulations. Premarket notification is required for some
Class I clinical diagnostic devices. Class II devices present greater risk than
Class I devices and are subject to special controls, such as guidelines or
performance standards, as well as the same general controls that are applicable
to Class I devices. Class II devices require premarket clearance to demonstrate
to the FDA the manufacturer's claims that the device is substantially equivalent
to other legally marketed devices, and meets generally accepted performance
criteria that may be required to demonstrate that the device is safe and
effective. Class III devices present a higher level of risk and are additionally
subject to rigorous demonstration of safety and effectiveness through the
premarket approval process.
For some Class I and most Class II devices, a premarket notification must be
submitted to the FDA. Usually within 90 days of the receipt of this
notification, the FDA makes the determination whether the device submitted is
substantially equivalent to a legally marketed predicate device. A legally
marketed predicate device is one which was marketed prior to the passage of the
Medical Device Amendments of 1976, or a post-1976 device that has been
determined by the FDA to be substantially equivalent to the previously cleared
devices. A determination of substantial equivalence requires several FDA
findings: First, that the device has the same intended use as the legally
marketed device; and second, either that the device has the same technological
characteristics as the legally marketed predicate device, or, if it does not,
that the device is as safe and effective as the legally marketed predicate
device and does not present different questions about safety and effectiveness.
Class III devices require extensive clinical testing to prove safety and
effectiveness, and submission of the resulting data to the FDA as a premarket
approval application, or PMA. The FDA ordinarily will refer a new device PMA to
an advisory panel of outside experts for a recommendation on whether to approve
the application or to request additional testing.
Where a PMA is required, FDA regulations require the demonstration of safety
and effectiveness, typically based upon extensive clinical trials. Fulfilling
the requirements of the PMA are costly and both the preparation and review are
time consuming, commonly taking from one to several years. Before granting
premarket approval, the FDA must inspect and find acceptable the proposed
manufacturing procedures and facilities. The FDA can also impose conditions of
approval, such as requirements for postmarketing study, or restrictions on sale,
distribution or use. The premarket approval regulations also require FDA
approval of most changes made after the tests have been approved.
Analyte specific reagents, or ASRs, that are used by clinical laboratories
to conduct in-house assays or "home brew" tests are regulated by FDA under this
device classification scheme, and their sale, distribution, and use are
restricted under FDA regulations. The majority of ASRs are Class I and exempt
from premarket notification requirements, although they remain subject to other
FDA requirements such as good manufacturing practices, labeling, and reporting.
Some ASRs are Class II (for example, for blood bank tests) or Class III (for
example, for HIV and tuberculosis tests) and are subject to FDA premarket
review. ASRs for genetic testing or predictive genetic testing currently are
Class I and exempt from premarket review, although FDA has announced that the
agency may propose additional regulation of genetic tests if determined
appropriate following its ongoing evaluation of pertinent reports and
recommendations.
MANUFACTURING REGULATION
The manufacture of diagnostic products and reagents must be in accordance
with quality system regulations and current federal Good Manufacturing Practices
regulations. Diagnostic products and reagents are also subject to various
postmarketing requirements, such as complaint handling and reporting of adverse
events. Premarket approval products are also subject to annual reports. The FDA
typically inspects manufacturing facilities every two years.
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CLINICAL LABORATORY IMPROVEMENT AMENDMENTS OF 1988
All medical testing in the United States is regulated by the Health Care
Financing Administration according to the complexity of the testing as specified
under the Clinical Laboratory Improvement Amendments of 1988. CLIA regulations
establish three categories of laboratory tests, for which regulatory
requirements become increasingly stringent as the complexity of the test rises:
(1) tests that require little or no operator skill, which allows for a
certificate waiver of the regulations; (2) tests of moderate complexity; and
(3) high complexity tests which require significant operator skill or training.
Complexity categorization of diagnostic tests has been the responsibility of the
Centers for Disease Control and Prevention although that responsibility has
recently been transferred to the FDA. CLIA regulatory requirements apply to
facilities such as clinical laboratories, hospitals, and physician offices which
perform laboratory tests. All laboratories are subject to periodic inspection.
In addition, all laboratories performing tests of moderate or high complexity
must register with HCFA or an organization to whom HCFA has delegated such
authority. They also must meet requirements relating to personnel
qualifications, proficiency testing, quality assurance, and quality control. We
expect all genetic tests to be categorized as having moderate to high
complexity. "Home brew" tests using analyte specific reagents must be conducted
in a clinical laboratory meeting the requirements for high-complexity tests. In
practical terms, performing a test of high complexity means that the individual
supervising the test (generally, the physician, pathologist or laboratory
director) must be appropriately educated and trained, and the laboratory must be
certified for high complexity testing under CLIA.
STATE REGULATION
In addition to federal regulation, certain diagnostic tests will be subject
to a variety of state laws and regulations in those states where our products
may be marketed, sold or used. States also impose requirements on clinical
laboratories and regulate the ordering of laboratory tests, reporting of test
results and confidentiality of medical records.
MANUFACTURING
We have limited manufacturing capabilities and ourselves produce only a few
of our compounds for research and development and preclinical testing. We rely
on third parties to manufacture most of our compounds for research, development,
preclinical and clinical trials. We generally expect to rely on our
collaborators or other third parties to maintain current Good Manufacturing
Practices and to manufacture the products for which we obtain regulatory
approval to market and sell. Our partnership with ILEX Products has entered into
a supply agreement with Boehringer Ingleheim for the production of the
CAMPATH-Registered Trademark- monoclonal antibody. Under most of our
collaboration agreements, our collaborators have the exclusive right to
manufacture products that result from their programs.
SALES AND MARKETING
We do not currently have significant sales or marketing capabilities.
We expect to rely on our strategic collaborators or on other third parties
to market most products that we may develop. For example, our partnership for
the CAMPATH-Registered Trademark- product candidate has entered into a
distribution agreement with Schering AG and its affiliate, Berlex Laboratories,
to distribute the CAMPATH-Registered Trademark- product candidate on a worldwide
basis, other than the Far East.
At some time in the future, we plan to co-promote or ourselves market
several of the products that we may develop. We will be required to incur
significant additional expenditures in building sales, marketing and commercial
infrastructure to support this effort.
21
COMPETITION
We face intense competition from a wide range of pharmaceutical,
biotechnology and diagnostic companies, as well as academic and research
institutions and government agencies. Our competitors include organizations that
are pursuing the same or similar technologies as those which constitute our
technology platform and from organizations that are pursuing pharmaceutical or
diagnostic products that are competitive with our potential products. Many of
our competitors compete against us for strategic collaborators for their
research and development and commercialization programs.
Principal competitive factors in our industry include:
- the quality and breadth of an organization's technology;
- the skill of an organization's employees and its ability to recruit and
retain skilled employees;
- an organization's intellectual property estate;
- the range of capabilities from target identification and validation to
drug discovery and development to manufacturing and marketing; and
- the availability of substantial capital resources to fund discovery,
development and commercialization activities.
We believe that the quality and breadth of our technology platform, the
skill of our employees and our ability to recruit and retain skilled employees,
our aggressive program of seeking patent protection for gene discoveries, our
capabilities for early stage research and drug discovery and our capital
resources are competitive strengths. However, many large pharmaceutical and
biotechnology companies have significantly larger intellectual property estates
than we do, more substantial capital resources than we have, and greater
capabilities and experience than we do in preclinical and clinical development,
sales, marketing, manufacturing and regulatory affairs.
EMPLOYEES
As of December 31, 2000, we had approximately 1,330 full-time employees, of
whom approximately 400 hold Ph.D. or M.D. degrees and approximately 340 hold
other advanced degrees. Approximately 1,070 of our employees are engaged in
research and development activities and approximately 260 are engaged in
business development, finance, operations support and administration. None of
our employees is represented by a collective bargaining agreement, nor have we
experienced work stoppages. We believe that relations with our employees are
good.
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RISK FACTORS THAT MAY AFFECT RESULTS
This Annual Report on Form 10-K, together with the accompanying letter to
shareholders, contains forward-looking statements, including statements about
our growth and future operating results, discovery and development of products,
potential acquisitions, strategic alliances and intellectual property. For this
purpose, any statement that is not a statement of historical fact should be
considered a forward-looking statement. We often use the words "believes,"
"anticipates," "plans," "expects," "intends" and similar expressions to help
identify forward-looking statements.
There are a number of important factors that could cause Millennium's actual
results to differ materially from those indicated or implied by forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere in this Form 10-K.
We disclaim any intention or obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
REGULATORY RISKS
WE HAVE NOT YET RECEIVED MARKETING APPROVAL FOR ANY PRODUCT OR SERVICE RESULTING
FROM OUR DEVELOPMENT EFFORTS AND MAY NOT BE ABLE TO OBTAIN ANY SUCH APPROVAL.
We have completed development of only one product candidate, the
CAMPATH-Registered Trademark- monoclonal antibody, which we developed in our
partnership with ILEX Products, Inc. In December 1999, this partnership applied
to the U.S. Food and Drug Administration for approval to market this product. On
February 20, 2001, the FDA issued a Class I complete response letter. However,
it is possible that the FDA will not grant this marketing approval or, in order
to gain approval, the FDA may require post-marketing studies or larger
confirmatory clinical studies to be conducted and may impose other conditions
and restrictions that may be difficult and expensive to administer.
All of the products that we are developing will require additional research
and development, extensive preclinical studies and clinical trials and
regulatory approval prior to any commercial sales. This process is lengthy,
often taking a number of years, and expensive. In some cases, the length of time
that it takes for us to achieve various regulatory approval milestones affects
the payments that we are eligible to receive under our strategic alliance
agreements.
We may need to successfully address a number of technological challenges in
order to complete development of our products. Moreover, these products may not
be effective in treating any disease or may prove to have undesirable or
unintended side effects, toxicities or other characteristics that may preclude
our obtaining regulatory approval or prevent or limit commercial use.
WE HAVE ONLY LIMITED EXPERIENCE IN REGULATORY AFFAIRS, AND SOME OF OUR PRODUCTS
MAY BE BASED ON NEW TECHNOLOGIES; THESE FACTORS MAY AFFECT OUR ABILITY OR THE
TIME WE REQUIRE TO OBTAIN NECESSARY REGULATORY APPROVALS.
We have only limited experience in filing and prosecuting the applications
necessary to gain regulatory approvals. Moreover, certain of the products that
are likely to result from our research and development programs may be based on
new technologies and new therapeutic approaches that have not been extensively
tested in humans. The regulatory requirements governing these types of products
may be more rigorous than for conventional products. As a result, we may
experience a longer regulatory process in connection with any products that we
develop based on these new technologies or new therapeutic approaches.
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RISKS RELATING TO OUR INDUSTRY, BUSINESS AND STRATEGY
BECAUSE DISCOVERING DRUGS BASED UPON GENOMICS IS NEW, IT IS POSSIBLE THAT THIS
DISCOVERY PROCESS WILL NOT RESULT IN COMMERCIAL PRODUCTS OR SERVICES.
The process of discovering drugs based upon genomics is new and evolving
rapidly. We focus our genomics research primarily on diseases that may be linked
to several or many genes working in combination. Both we and the general
scientific and medical communities have only a limited understanding relating to
the role of genes and their products in these diseases. To date, we have not
commercialized any products or services, and we may not be successful in doing
so in the future. In addition, relatively few products based on gene discoveries
have been developed and commercialized by others. Rapid technological
development by us or others may result in compounds, products or processes
becoming obsolete before we recover our development expenses.
OUR PLAN TO GROW THROUGH ACQUISITIONS OF OTHER COMPANIES WILL NOT BE SUCCESSFUL
IF WE ARE UNABLE TO INTEGRATE ACQUIRED COMPANIES WITH OUR OTHER OPERATIONS OR IF
THE TECHNOLOGY OR PERSONNEL OF ACQUIRED COMPANIES DO NOT MEET OUR EXPECTATIONS.
We completed our merger with LeukoSite, Inc. on December 22, 1999. In
addition, on July 27, 2000 we acquired the business of Cambridge Discovery
Chemistry Limited, a subsidiary of Oxford Molecular Group plc. We may not be
able to successfully integrate or profitably manage these businesses. In
addition, the combination of our business with these businesses may not achieve
revenues, net income or loss levels, efficiencies or synergies that justify the
merger. The combined company may experience slower rates of growth as compared
to the historical rates of growth of Millennium and these businesses
independently. We plan to make additional acquisitions in the future, which will
entail similar risks.
COMPETITION FOR SCIENTIFIC AND MANAGERIAL PERSONNEL IN OUR INDUSTRY IS INTENSE;
WE WILL NOT BE ABLE TO SUSTAIN OUR OPERATIONS AND GROW IF WE ARE NOT ABLE TO
ATTRACT AND RETAIN KEY PERSONNEL.
Our success substantially depends on the ability, experience and performance
of our senior management and other key personnel. If we lose one or more of the
members of our senior management or other key employees, our business and
operating results could be seriously harmed.
In addition, our future success will depend heavily on our ability to
continue to hire, train, retain and motivate additional skilled managerial and
scientific personnel. The pool of personnel with the skills that we require is
limited. Competition to hire from this limited pool is intense.
WE FACE SUBSTANTIAL COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING,
DEVELOPING OR COMMERCIALIZING PRODUCTS AND SERVICES BEFORE OR MORE SUCCESSFULLY
THAN WE DO.
The fields of genomics, biotechnology and pharmaceuticals are highly
competitive. Many of our competitors are substantially larger than we are and
have substantially greater capital resources, research and development staffs
and facilities than we have. Furthermore, many of our competitors are more
experienced than we are in drug discovery, development and commercialization,
obtaining regulatory approvals and product manufacturing and marketing. As a
result, our competitors may identify genes associated with diseases or discover,
develop and commercialize products or services based on such genes before we do.
In addition, our competitors may discover, develop and commercialize products or
services that render non-competitive or obsolete the products or services that
we or our collaborators are seeking to develop and commercialize.
WE MAY NOT BE ABLE TO OBTAIN BIOLOGICAL MATERIAL, INCLUDING HUMAN AND ANIMAL DNA
SAMPLES, REQUIRED FOR OUR GENETIC STUDIES, WHICH COULD DELAY OR IMPEDE OUR DRUG
DISCOVERY EFFORTS.
Our gene identification strategy includes genetic studies of families and
populations prone to particular diseases. These studies require the collection
of large numbers of DNA samples from
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affected individuals, their families and other suitable populations as well as
animal models. The availability of DNA samples and other biological material is
important to our ability to discover the genes responsible for human diseases
through human genetic approaches and other studies. Competition for these
resources is intense. Access to suitable populations, materials and samples
could be limited by forces beyond our control, including governmental actions.
Some of our competitors may have obtained access to significantly more family
and population resources and biological materials than we have obtained. As a
result, we may not be able to obtain access to DNA samples necessary to support
our human gene discovery programs.
RISKS RELATING TO OUR FINANCIAL RESULTS AND STRUCTURE AND NEED FOR FINANCING
WE HAVE INCURRED SUBSTANTIAL LOSSES AND EXPECT TO CONTINUE TO INCUR LOSSES. WE
WILL NOT BE SUCCESSFUL UNLESS WE REVERSE THIS TREND.
We have incurred losses in five of the last seven years. We expect to
continue to incur substantial operating losses in future periods. To date,
substantially all of our revenues have resulted from payments from
collaborators. We have not received any revenues from the sale of products or
clinical or diagnostic services.
We expect to increase our spending significantly as we continue to expand
our infrastructure, research and development programs and commercialization
activities. As a result, we will need to generate significant revenues to pay
these costs and achieve profitability. We cannot be certain whether or when we
will become profitable because of the significant uncertainties with respect to
our ability to generate revenues from the sale of products and services and from
existing and potential future strategic alliances.
OUR SUBSTANTIAL INDEBTEDNESS MAY ADVERSELY AFFECT OUR CASH FLOW AND OPERATIONS
AND BE DIFFICULT FOR US TO REPAY, WHICH COULD ADVERSELY AFFECT THE VALUE OF YOUR
INVESTMENT IN US.
We have substantial amounts of outstanding indebtedness. As of December 31,
2000, this consisted primarily of $95,927,000 of 5.50% convertible subordinated
notes due January 15, 2007. We also may obtain additional long-term debt and
working capital lines of credit. As a result of this indebtedness, we have
substantial principal and interest payment obligations. We may be unable to
generate cash sufficient to pay the principal of, interest on and other amounts
due in respect of our indebtedness when due.
Our substantial leverage could have significant negative consequences,
including:
- increasing our vulnerability to general adverse economic and industry
conditions;
- limiting our ability to obtain additional financing;
- requiring the dedication of a substantial portion of our cash from
operations to service our indebtedness, thereby reducing the amount of our
cash available for other purposes, including capital expenditures;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we compete; and
- placing us at a possible competitive disadvantage vis-a-vis less leveraged
competitors and competitors that have better access to capital resources.
WE MAY NEED ADDITIONAL FINANCING, WHICH MAY BE DIFFICULT TO OBTAIN. OUR FAILURE
TO OBTAIN NECESSARY FINANCING OR DOING SO ON UNATTRACTIVE TERMS COULD ADVERSELY
AFFECT OUR DISCOVERY AND DEVELOPMENT PROGRAMS AND OTHER OPERATIONS.
We will require substantial funds to conduct research and development,
including preclinical testing and clinical trials of our potential products. We
will also require substantial funds to meet our obligations to our collaborators
and maximize the prospective benefits to us from these alliances,
25
manufacture and market any products and services that are approved for
commercial sale and meet our debt service obligations. Additional financing may
not be available when we need it or may not be available on terms that are
favorable to us.
If we are unable to obtain adequate funding on a timely basis, we may be
required to significantly curtail one or more of our discovery or development
programs. We could be required to seek funds through arrangements with
collaborators or others that may require us to relinquish rights to certain of
our technologies, product candidates or products which we would otherwise pursue
on our own.
RISKS RELATING TO COLLABORATORS
WE DEPEND SIGNIFICANTLY ON OUR COLLABORATORS TO DEVELOP AND COMMERCIALIZE
PRODUCTS AND SERVICES BASED ON OUR WORK. OUR BUSINESS MAY SUFFER IF ANY OF OUR
COLLABORATORS BREACHES ITS AGREEMENT OR FAILS TO SUPPORT OR TERMINATES ITS
ALLIANCE WITH US.
We conduct most of our discovery and development activities through
strategic alliances. The success of these programs depends heavily on the
efforts and activities of our collaborators. Each of our collaborators has
significant discretion in determining the efforts and resources that they will
apply to the alliance. Our existing and any future alliances may not be
scientifically or commercially successful.
The risks that we face in connection with these alliances include:
- All of our strategic alliance agreements are subject to termination under
various circumstances, including, in many cases, on short notice without
cause.
- In our strategic alliance agreements, we generally agree not to conduct
specified types of research and development in the field that is the
subject of the alliance. These agreements may have the effect of limiting
the areas of research and development we may pursue, either alone or in
collaboration with third parties.
- Our collaborators may develop and commercialize, either alone or with
others, products and services that are similar to or competitive with the
products and services that are the subject of the alliance with us.
- Our collaborators may change the focus of their development and
commercialization efforts. Pharmaceutical and biotechnology companies
historically have re-evaluated their priorities following mergers and
consolidations, which have been common in recent years in these
industries.
- We will rely on our collaborators to manufacture most products covered by
our alliances. For example, Becton Dickinson has the sole right to
develop, manufacture and commercialize our
Melastatin-Registered Trademark- gene detection product. Therefore, we
cannot control the timing of the introduction of this product.
WE MAY NOT BE SUCCESSFUL IN ESTABLISHING ADDITIONAL STRATEGIC ALLIANCES, WHICH
COULD ADVERSELY AFFECT OUR ABILITY TO DEVELOP AND COMMERCIALIZE PRODUCTS AND
SERVICES.
An important element of our business strategy is entering into strategic
alliances for the development and commercialization of products and services
based on our discoveries. We face significant competition in seeking appropriate
collaborators. Moreover, these alliance arrangements are complex to negotiate
and time-consuming to document. We may not be successful in our efforts to
establish additional strategic alliances or other alternative arrangements. The
terms of any additional strategic alliances or other arrangements that we
establish may not be favorable to us. Moreover, such strategic alliances or
other arrangements may not be successful.
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RISKS RELATING TO INTELLECTUAL PROPERTY
IF WE ARE UNABLE TO OBTAIN PATENT PROTECTION FOR OUR DISCOVERIES, THE VALUE OF
OUR TECHNOLOGY AND PRODUCTS WILL BE ADVERSELY AFFECTED. IF WE INFRINGE PATENT OR
OTHER INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, WE MAY NOT BE ABLE TO
DEVELOP AND COMMERCIALIZE OUR PRODUCTS AND SERVICES OR THE COST OF DOING SO MAY
INCREASE.
Our patent positions, and those of other pharmaceutical and biotechnology
companies, are generally uncertain and involve complex legal, scientific and
factual questions.
Our ability to develop and commercialize products and services depends in
significant part on our ability to:
- obtain patents;
- obtain licenses to the proprietary rights of others on commercially
reasonable terms;
- operate without infringing upon the proprietary rights of others;
- prevent others from infringing on our proprietary rights; and
- protect trade secrets.
THERE IS SIGNIFICANT UNCERTAINTY ABOUT THE VALIDITY AND PERMISSIBLE SCOPE OF
GENOMICS PATENTS IN OUR INDUSTRY, WHICH MAY MAKE IT DIFFICULT FOR US TO OBTAIN
PATENT PROTECTION FOR OUR DISCOVERIES.
The validity and permissible scope of patent claims in the pharmaceutical
and biotechnology fields, including the genomics field, involve important
unresolved legal principles and are the subject of public policy debate in the
United States and abroad. For example, there is significant uncertainty both in
the United States and abroad regarding the patentability of gene sequences in
the absence of functional data and the scope of patent protection available for
full-length genes and partial gene sequences. Moreover, certain groups have made
certain gene sequences available in publicly accessible databases. These and
other disclosures may adversely affect our ability to obtain patent protection
for gene sequences claimed by us in patent applications that we file subsequent
to such disclosures. There is also some uncertainty as to whether human clinical
data will be required for issuance of patents for human therapeutics. If such
data are required, our ability to obtain patent protection could be delayed or
otherwise adversely affected.
THIRD PARTIES MAY OWN OR CONTROL PATENTS OR PATENT APPLICATIONS AND REQUIRE US
TO SEEK LICENSES, WHICH COULD INCREASE OUR DEVELOPMENT AND COMMERCIALIZATION
COSTS, OR PREVENT US FROM DEVELOPING OR MARKETING OUR PRODUCTS OR SERVICES.
We may not have rights under some patents or patent applications related to
our proposed products, processes or services. Third parties may own or control
these patents and patent applications in the United States and abroad.
Therefore, in some cases, such as those described below, to develop,
manufacture, sell or import certain of our proposed products, processes or
services, we or our collaborators may choose to seek, or be required to seek,
licenses under third party patents issued in the United States and abroad or
those that might issue from United States and foreign patent applications. In
such event, we would be required to pay license fees or royalties or both to the
licensor. If licenses are not available to us on acceptable terms, we or our
collaborators may not be able to develop, manufacture, sell or import these
products, processes or services.
With respect to our product candidate LDP-01, we are aware of third party
patents and patent applications which relate to certain anti-CD18 antibodies and
their use in various methods of treatment including methods of reperfusion
therapy and methods of treating focal ischemic stroke. In addition, our LDP-01,
LDP-02, and CAMPATH-Registered Trademark- product candidates are humanized
monoclonal antibodies. We
27
are aware of third party patents and patent applications that relate to certain
humanized or modified antibodies, products useful for making humanized or
modified antibodies, and processes for making and using humanized or modified
antibodies. We are also aware of third party patents and patent applications
relating to certain manufacturing processes, products thereof and materials
useful in such processes.
Our product candidates LDP-341 and LDP-519 are small molecule drug
candidates. With respect to LDP-341, we are aware of third party patents or
patent applications that relate to either intermediates or synthetic processes
used in the synthesis of this compound. Additionally, for the use of LDP-341 and
LDP-519 in the treatment of infarctions we are aware of the existence of a
potentially interfering patent application filed by one of our former
consultants.
WE MAY BECOME INVOLVED IN EXPENSIVE PATENT LITIGATION OR OTHER PROCEEDINGS,
WHICH COULD RESULT IN OUR INCURRING SUBSTANTIAL COSTS AND EXPENSES OR
SUBSTANTIAL LIABILITY FOR DAMAGES OR REQUIRE US TO STOP OUR DEVELOPMENT AND
COMMERCIALIZATION EFFORTS.
There has been substantial litigation and other proceedings regarding the
patent and other intellectual property rights in the pharmaceutical and
biotechnology industries. We may become a party to patent litigation or other
proceedings regarding intellectual property rights. For example, we believe that
we hold patent applications that cover genes that are also claimed in patent
applications filed by others. Interference proceedings before the United States
Patent and Trademark Office may be necessary to establish which party was the
first to invent these genes.
The cost to us of any patent litigation or other proceeding, even if
resolved in our favor, could be substantial. Some of our competitors may be able
to sustain the cost of such litigation or proceedings more effectively than we
can because of their substantially greater financial resources. If a patent
litigation or other proceeding is resolved against us, we or our collaborators
may be enjoined from developing, manufacturing, selling or importing our
products, processes or services without a license from the other party and we
may be held liable for significant damages. We may not be able to obtain any
required license on commercially acceptable terms or at all.
Uncertainties resulting from the initiation and continuation of patent
litigation or other proceedings could have a material adverse effect on our
ability to compete in the marketplace. Patent litigation and other proceedings
may also absorb significant management time.
RISKS RELATING TO PRODUCT MANUFACTURING, MARKETING AND SALES
BECAUSE MANY OF THE PRODUCTS AND SERVICES THAT WE DEVELOP WILL BE BASED ON NEW
TECHNOLOGIES AND THERAPEUTIC APPROACHES, THE MARKET MAY NOT BE RECEPTIVE TO
THESE PRODUCTS AND SERVICES UPON THEIR INTRODUCTION.
The commercial success of any of our products and services that may be
approved for marketing will depend upon their acceptance by physicians,
patients, third party payors, reimbursors and governments as clinically useful,
cost effective and safe. Many of the products and services that we are
developing are based upon new technologies or therapeutic approaches. As a
result, it may be more difficult for us to achieve market acceptance of our
products and services, particularly the first products and services that we
introduce to the market based on new technologies and therapeutic approaches.
Our efforts to educate the medical community on these potentially unique
approaches may require greater resources than would be typically required for
products and services based on conventional technologies or therapeutic
approaches.
28
BECAUSE WE HAVE LIMITED SALES, MARKETING OR DISTRIBUTION EXPERIENCE AND
CAPABILITIES, WE WILL DEPEND ON THIRD PARTIES TO SUCCESSFULLY PERFORM THESE
FUNCTIONS ON OUR BEHALF OR WILL BE REQUIRED TO INCUR SIGNIFICANT COSTS AND
DEVOTE SIGNIFICANT EFFORTS TO DEVELOP THESE CAPABILITIES.
We have limited sales, marketing or distribution experience and
capabilities. We plan to rely significantly on sales, marketing and distribution
arrangements with our collaborators and other third parties for the products and
services that we are developing. For example, our partnership that holds the
CAMPATH-Registered Trademark- monoclonal antibody will rely solely upon Schering
AG and its U.S. affiliate, Berlex Laboratories, for the marketing, distribution
and sale of the CAMPATH-Registered Trademark- product candidate throughout the
world other than the Far East. If in the future we elect to perform sales,
marketing and distribution functions ourselves, we would face a number of
additional risks, including the need to recruit experienced marketing and sales
personnel.
BECAUSE WE HAVE LIMITED MANUFACTURING CAPABILITIES, WE WILL BE DEPENDENT ON
THIRD-PARTY MANUFACTURERS TO MANUFACTURE PRODUCTS FOR US OR WILL BE REQUIRED TO
INCUR SIGNIFICANT COSTS AND DEVOTE SIGNIFICANT EFFORTS TO ESTABLISH OUR OWN
MANUFACTURING FACILITIES AND CAPABILITIES.
We have limited manufacturing experience and no commercial scale
manufacturing capabilities. In order to continue to develop products and
services, apply for regulatory approvals and, ultimately, commercialize any
products and services, we will need to develop, contract for or otherwise
arrange for the necessary manufacturing capabilities.
We currently rely upon third parties to produce material for preclinical
testing purposes and expect to continue to do so in the future. We also expect
to rely upon other third parties, including our collaborators, to produce
materials required for clinical trials and for the commercial production of
certain of our products if we succeed in obtaining necessary regulatory
approvals. Our partnership with ILEX Products relies on Boehringer Ingelheim as
the sole source manufacturer of the CAMPATH-Registered Trademark- monoclonal
antibody.
There are a limited number of manufacturers that operate under the FDA's
good manufacturing practices regulations capable of manufacturing for us. As a
result, we have experienced some difficulty finding manufacturers for our
products with adequate capacity for our anticipated future needs. If we are
unable to arrange for third party manufacturing of our products, or to do so on
commercially reasonable terms, we may not be able to complete development of our
products or market them.
Reliance on third party manufacturers entails risks to which we would not be
subject if we manufactured products ourselves, including reliance on the third
party for regulatory compliance and quality assurance, the possibility of breach
of the manufacturing agreement by the third party because of factors beyond our
control and the possibility of termination or nonrenewal of the agreement by the
third party, based on its own business priorities, at a time that is costly or
inconvenient for us.
We may in the future elect to manufacture certain of our products in our own
manufacturing facilities. We will require substantial additional funds and need
to recruit qualified personnel in order to build or lease and operate any
manufacturing facilities.
IF WE FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT FOR OUR FUTURE PRODUCTS
OR SERVICES BY THIRD PARTY PAYORS, THERE MAY BE NO COMMERCIALLY VIABLE MARKETS
FOR OUR PRODUCTS OR SERVICES.
The availability and levels of reimbursement by governmental and other third
party payors affect the market for any pharmaceutical product or healthcare
service. These third party payors continually attempt to contain or reduce the
costs of healthcare by challenging the prices charged for medical products and
services. In certain foreign countries, particularly the countries of the
European Union, the pricing of prescription pharmaceuticals is subject to
governmental control. We may not be able to sell our products and services
profitably if reimbursement is unavailable or limited in scope or amount.
29
In both the United States and certain foreign jurisdictions, there have been
a number of legislative and regulatory proposals to change the healthcare
system. Further proposals are likely. The potential for adoption of these
proposals affects or will affect our ability to raise capital, obtain additional
collaborators and market our products.
If we or our collaborators obtain marketing approvals for our products and
services, we expect to experience pricing pressure due to the trend toward
managed health care, the increasing influence of health maintenance
organizations and additional legislative proposals.
ETHICAL, LEGAL AND SOCIAL ISSUES RELATED TO GENETIC TESTING MAY CAUSE OUR
DIAGNOSTIC PRODUCTS TO BE REJECTED BY CUSTOMERS OR PROHIBITED OR CURTAILED BY
GOVERNMENTAL AUTHORITIES.
Diagnostic tests that evaluate genetic predisposition to disease raise
issues regarding the use and confidentiality of the information provided by such
tests. Insurance carriers and employers might discriminate on the basis of such
information, resulting in a significant barrier to the acceptance of such tests
by customers. This type of discrimination could cause governmental authorities
to prohibit or limit the use of such tests.
ITEM 2. PROPERTIES
We lease a total of approximately 710,000 square feet of laboratory and
office space in several buildings located in Cambridge, Massachusetts, with the
majority of this space subject to long term leases expiring in 2003, 2004, 2008,
2011, 2013 and 2014. We have signed two long term leases for two buildings to be
constructed in Cambridge, each building consisting of approximately 200,000
square feet of office and laboratory space, expiring in 2019 and 2020. We expect
to occupy the first of these buildings in Q3 2002 and the second building in
Q3/Q4 2003.
In addition to our Cambridge, Massachusetts properties, we lease
approximately 22,000 square feet of laboratory and office space in Cambridge,
England for our subsidiary, Millennium Pharmaceuticals Limited under leases
expiring in 2001 and 2002. In February 2001, we signed an agreement to lease a
building to be constructed in Cambridge, England comprising 90,000 square feet
of office and laboratory space which we expect to occupy in early 2003 and which
will replace our current Cambridge, England location. This agreement for lease
includes options for expansion into additional space at the same location.
We believe our currently-leased and occupied facilities, and the facilities
to be constructed in Cambridge, Massachusetts and Cambridge, England, are
suitable and adequate to meet our requirements for the near term.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders, through
solicitation of proxies or otherwise, during the last quarter of the year ended
December 31, 2000.
30
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and positions of our
executive officers.
NAME AGE POSITIONS HELD
- ---- -------- ------------------------------------------
Mark J. Levin............................. 50 Chairman of the Board of Directors,
President and Chief Executive Officer
Kenneth J. Conway......................... 52 Senior Vice President and President of
MPMx
John B. Douglas III....................... 47 Senior Vice President and General Counsel
Paul R. Hamelin........................... 46 Senior Vice President, Commercial
Operations
Steven H. Holtzman........................ 47 Chief Business Officer
John Maraganore, Ph.D........