Back to GetFilings.com
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000.
|_| 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: 0-21643
------------------------
CV THERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 43-1570294
(State of Incorporation) (I.R.S. Employer Identification No.)
3172 Porter Drive, Palo Alto, California 94304
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (650) 812-0585
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $.001 Par Value
Indicate by check whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant, based upon the last sale price of the Common Stock reported on
the Nasdaq Stock Market was $697,508,998 as of February 28, 2001.
The number of shares of Common Stock outstanding as of February 28, 2001
was 19,734,867.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's Proxy Statement in connection with the
Registrant's Annual Meeting of Stockholders are incorporated herein by reference
into Part III of this report.
================================================================================
PART I
Item 1. Business
Overview
CV Therapeutics is a biopharmaceutical company engaged in the discovery
and development of new small molecule drugs to treat cardiovascular disease, the
leading cause of death in the United States. We currently are conducting
clinical trials for three of our drug candidates. Ranolazine, the first in a new
class of compounds known as partial fatty acid oxidation (pFOX) inhibitors, is
in Phase III clinical trials for the potential treatment of chronic angina.
CVT-510, an A1 adenosine receptor agonist, is in Phase II clinical trials for
the potential treatment of atrial arrhythmias. CVT-3146, an A2A adenosine
receptor agonist, is in Phase I clinical trials for the potential use as an
adjunctive pharmacologic agent in cardiac perfusion imaging studies. In
addition, we have several research and preclinical development programs designed
to bring additional drug candidates into human clinical testing.
Ranolazine for the potential treatment of chronic angina
Ranolazine, a potential treatment for chronic angina, is currently in its
second Phase III trial. Angina is the heart pain, often quite debilitating, that
results from a shortage of oxygen-rich blood available to the heart relative to
the oxygen required for the amount of work the heart needs to do. For many
patients, this oxygen shortage occurs even when their hearts only need to do the
minimal work necessary to support routine activities such as climbing stairs or
carrying groceries from the car. Typically, this oxygen shortage is the result
of obstructions in the coronary arteries that prevent proper circulation of
oxygen-rich blood. According to the American Heart Association, there were
approximately 7.2 million patients in the United States in 1998 who suffered
from angina.
The key to treating angina is to bring the heart's need for oxygen into
balance with its available supply. Current pharmaceutical therapies, such as
beta blockers, calcium channel blockers and long-acting nitrates, all achieve
this result by forcing a reduction in the demand for oxygen by a lowering in one
or more of heart rate, blood pressure or the strength of contraction of the
heart muscle. Patients on these therapies may be unable to tolerate further
reductions in the heart rate, blood pressure and the strength of contraction,
and therefore, current therapies may prove unsatisfactory.
We believe ranolazine balances the oxygen supply/demand equation by
causing the heart to use oxygen more efficiently. In other words, ranolazine may
allow a diseased heart to do its work with a limited supply of oxygen. By
improving the heart's oxygen efficiency, ranolazine may be able to provide a
treatment for angina without forcing a reduction in the amount of work that the
heart can do. This may allow patients to reduce their angina without lowering
heart rate, blood pressure or cardiac contraction strength, an outcome not
currently available to patients.
In August 1999, we announced initial results from the first of two planned
Phase III trials of ranolazine, our anti-anginal drug candidate. The results of
the trial, called Monotherapy Assessment of Ranolazine in Stable Angina, or
MARISA, indicated increases in patients' treadmill exercise duration compared to
placebo, the primary endpoint for this trial. These results were statistically
significant at the 99.5% or greater level, or what is commonly referred to as p
< 0.005. This means that, applying widely-used statistical methods, the chance
that these results could have occurred by accident is less than 1 in 200.
We are currently conducting the second of the two planned Phase III
trials, called Combination Assessment of Ranolazine in Stable Angina, or CARISA.
Should results of this trial be consistent with the results we found in the
MARISA trial, we intend to file a New Drug Application (NDA) with the United
States Food and Drug Administration seeking approval to market ranolazine for
chronic angina.
2
In January 2001 we announced that we completed enrollment of the
originally planned 462 patients in the CARISA trial and that we also planned on
enrolling an additional 186 patients based on the results of a blinded interim
assessment. This interim assessment, which was pre-specified in the protocol,
evaluated the statistical variance of the primary endpoint, treadmill times, in
a "blinded" fashion but did not assess the efficacy of ranolazine compared to
placebo. The protocol-specified interim assessment dictated enrollment of an
additional 186 patients.
We have entered into a sales and marketing agreement with Innovex Inc., a
subsidiary of Quintiles Transnational Corp. Under this agreement, if the United
States Food & Drug Administration (FDA) approves ranolazine for sale in the
United States, Innovex will hire and train a dedicated sales force for
ranolazine and assist in funding marketing expenses for up to five years after
approval. We will receive 100% of the revenues from sales of ranolazine. In
turn, we will pay Innovex a fee that will not exceed 33% of those revenues in
the first two years, and that will decline to a maximum of 25% by the fourth and
fifth years. At the end of the five-year agreement, we can retain the sales
force built by Innovex.
In addition, we have initiated a Phase II clinical trial of ranolazine in
patients with severe congestive heart failure (CHF). The goals of this study are
to provide data in support of an NDA filing for ranolazine in angina, and to
guide potential further development of ranolazine in patients with CHF.
CVT-510 for potential heart rate reduction during atrial arrhythmias
CVT-510 is currently in phase II clinical trials for the potential acute
control of heart rate during atrial arrhythmias. When a patient experiences an
atrial arrhythmia, the heart beats too fast to accommodate effective pumping of
blood throughout the body. According to hospital audit reports, atrial
arrhythmias were involved in approximately 2.6 million hospital diagnoses in the
United States in 1997.
Current therapies to control heart rate during these episodes may entail a
number of undesirable features. Digoxin may not work quickly enough. Beta
blockers and calcium channel blockers may reduce blood pressure in patients
whose blood pressure is already dangerously low due to the arrhythmia itself.
Finally, Adenocard(R), the branded name of adenosine, also reduces blood
pressure and may slow heart rate for too brief a time to be effective in
treating many arrhythmias.
CVT-510 is a new small molecule drug that we believe may address the
shortcomings of current therapies. CVT-510 selectively stimulates the A1
adenosine receptor, which may slow heart rate. However, unlike Adenocard(R),
CVT-510 does not stimulate the A2 adenosine receptor, which may lower blood
pressure.
In November 2000, at the annual meeting of the American Heart Association,
we announced results from a Phase II trial of CVT-510, indicating that CVT-510
terminated a kind of atrial arrhythmia known as paroxysmal supraventricular
tachycardia (PSVT), without adversely affecting blood pressure. Based on the
results of this trial, we intend to initiate a Phase III clinical trial of
CVT-510 in patients with PSVT. In addition, a Phase II trial of CVT-510 in
patients with atrial fibrillation is currently ongoing.
CVT-3146 for potential use as an adjunctive pharmacologic agent in cardiac
perfusion imaging studies
CVT-3146 is currently in Phase I clinical trials for the potential use as
an adjunctive pharmacologic agent in cardiac perfusion imaging studies. Cardiac
perfusion imaging studies are used for the detection and characterization of
coronary artery disease by identifying areas of insufficient blood flow in the
heart. In 1997, approximately 5.2 million cardiac perfusion imaging studies were
performed in the United States, of which 1.8 million were conducted using an
adjunctive pharmacologic agent.
In July 2000, we entered into a collaboration agreement with Fujisawa
Healthcare, Inc. (FHI) to develop and market CVT-3146 in North America. We will
be responsible for managing the CVT-3146 clinical development
3
program. FHI will be responsible for selling and marketing CVT-3146 in North
America and we will receive a royalty on sales of CVT-3146. In the United States
FHI currently markets Adenoscan(R), the market leading pharmacologic cardiac
stress-imaging agent.
Research and preclinical programs
We also have a number of preclinical and research programs in the areas of
adenosine receptor research, cardiac metabolism, atherosclerosis and cell cycle
inhibition. In each of these programs, we are working to translate new molecular
mechanisms into new pharmacology that will ultimately offer new hope and help
for people with cardiovascular disease.
Cardiovascular Disease Background
Cardiovascular disease is the leading cause of death in the United States,
claiming almost one million lives in 1998. The American Heart Association
estimated the total amount spent on cardiovascular medications in the United
States in 1998 at $14.8 billion.
The cardiovascular system is comprised of the heart, the blood vessels,
the kidneys and the lungs. Together, the components of the cardiovascular system
deliver oxygen and other nutrients to the tissues of the body and remove waste
products. The heart propels blood through a network of arteries and veins. The
kidneys closely regulate the blood volume and the balance of chemicals, such as
sodium, potassium and chloride, in the blood, and the lungs put oxygen in the
blood and remove carbon dioxide. To accomplish these tasks, the cardiovascular
system must maintain adequate blood flow, or cardiac output. Cardiac output is
determined by factors such as heart rate and blood pressure, which in turn are
controlled by a variety of hormones such as adrenaline, angiotensin and
adenosine. These hormones exert their effects by binding to specific receptors
on the surfaces of a variety of cell types in the heart, lungs, blood vessels
and kidneys. Any significant disruption of this system results in cardiovascular
disease.
Cardiovascular diseases, including atherosclerosis, which is the hardening
of the arteries, hypertension, which is high blood pressure, and others, may
cause permanent damage to the heart and blood vessels, leading to CHF, angina
and myocardial infarction, or heart attack. In 1998, in the United States, there
were 7.2 million patients with angina and 4.9 million patients with CHF. In
1997, there were 2.6 million hospital diagnoses of acute atrial arrhythmias in
the United States. More than 20 years ago, drugs such as nitrates, beta
blockers, calcium channel blockers and ACE inhibitors were developed to treat
cardiovascular diseases. These drugs have contributed to an increase in the
survival of patients who suffer from cardiovascular disease. However, these
drugs also can cause a variety of undesirable side effects, including fatigue,
depression, impotence, headaches, palpitations and edema. They also may lack
effectiveness in various segments of the cardiovascular market. Molecular
cardiology has provided new insight into the mechanisms underlying
cardiovascular diseases, thus creating the opportunity for improved therapies.
Business Strategy
The key elements of our business strategy are as follows:
Identify and develop new drugs for the treatment of cardiovascular
diseases-a single therapeutic area
By being focused on one therapeutic area, cardiovascular disease, we
believe that we can be relatively efficient in our drug discovery, development
and commercialization efforts. Our concentrated focus on cardiovascular disease
may add to our efficiency, including in the following areas:
o Research-focus is on the molecular mechanisms of the cardiovascular
system
4
o Regulatory-discussions are with the same FDA division
o Clinical investigators-investigators in one trial are candidates for
future trials
o Consultants-thought leaders are tapped for numerous internal
programs
o Clinical need-key employees are experienced in cardiovascular and/or
clinical science
o Sales force efficiency-detailing is to the same cardiologists and
other prescribing doctors
Focus on small molecule drug candidates
Small molecule therapeutics can frequently be administered orally on an
outpatient basis. By contrast, to date, "large molecule" therapeutics, such as
proteins or monoclonal antibodies, can very rarely be formulated to accommodate
oral outpatient administration. In addition, our emphasis on small molecule
therapeutics means that our drug candidates can be produced by conventional
pharmaceutical manufacturing methods, by using the outside production
capabilities of the established contract pharmaceutical manufacturing industry.
Commercialize products, in part, through a concentrated marketing effort
targeted to cardiologists
A focused commercialization effort can provide marketing cost
efficiencies. Patients that have severe cardiovascular conditions are generally
treated by cardiologists. In 1998, there were approximately 20,000 cardiologists
in the United States. Cardiologists are generally concentrated in metropolitan
communities near major medical centers. We believe that this relatively small
number of subspecialists is responsible for a significant portion of the patient
visits associated with prescriptions written for severe cardiovascular
conditions. These market dynamics make it possible to approach the sales of the
drugs in our pipeline with a focused sales force, like the one to be provided
for ranolazine through our sales and marketing services agreement with Innovex,
Inc.
Participate in the sales and marketing in the United States of at least
some of the drugs we develop
In the biopharmaceutical industry, a substantial percentage of the profits
generated from successful drug development are typically retained by the entity
directly involved in the sales and marketing of the drug. Licensing our drug
candidates to a third party who will complete development and provide sales and
marketing resources in exchange for a sales royalty may reduce some of our
risks. However, we believe that the risk-return tradeoff typically favors
developing and then marketing and selling products ourselves. Therefore, a key
element of our business strategy is to be involved, when practical, in the sales
and marketing of our products in the United States. Though we may eventually
become involved in direct sales and marketing activities in other parts of the
world, our initial direct efforts will be in the United States.
Product Portfolio
We have the following portfolio of product candidates:
Development
Product Target Indication(s) Status
- ------- ------ ------------- -----------
Ranolazine Fatty acid oxidation Angina Phase III
inhibition
Congestive heart failure Phase II
CVT-510 A1 adenosine receptor in Acute heart rate control during Phase II
the heart atrial arrhythmias
5
CVT-3146 A2A adenosine receptor in Cardiac imaging Phase I
the heart
Adentri TM Congestive heart failure Preclinical
A1 adenosine receptor in
the kidney
CVT-2759 A1 adenosine receptor in Chronic heart rate control Preclinical
the heart during atrial arrhythmias
CVT-3833 Fatty acid oxidation Angina/CHF Preclinical
inhibition
CVT-2584 Inhibition of cell cycle Vascular stenosis Preclinical
enzyme CDK2
CVT-3634 Adenosine receptor Vascular disease Preclinical
Cholesterol Tangier disease gene/HDL Atherosclerosis Research
Transport elevation
In the table, under the heading "Development Status," "Phase III"
indicates evaluation of clinical efficacy and safety within an expanded patient
population at geographically dispersed clinical trial sites. "Phase II"
indicates safety testing and initial efficacy testing in healthy volunteers
and/or a limited patient population. "Phase I" indicates initial safety testing
in healthy volunteers and a limited patient population. "Preclinical" indicates
lead compound selected for possible development which meets predetermined
criteria for potency, specificity, manufacturability, toxicity and pharmacologic
activity in animal and/or in vitro models. "Research" indicates lead candidate
being tested against predetermined criteria.
Ranolazine
Ranolazine is a novel small molecule for the potential treatment of
angina. Research indicates that ranolazine may cause a partial shift in the
source of energy for the heart from fatty acid toward glucose, which is a more
oxygen efficient source of energy. We are developing ranolazine to potentially
treat angina because we believe ranolazine may significantly improve exercise
tolerance, the standard clinical measurement for angina treatment. However,
unlike current anti-anginal medicines, ranolazine may allow blood pressure and
heart rate to remain essentially unchanged, and as a result, may have an
improved tolerability profile compared to currently available therapies. We
licensed exclusive rights to ranolazine in the United States and specified
foreign territories for use in cardiovascular indications, including angina,
from Syntex (U.S.A.), Inc. in March 1996.
Potential Indication-Angina
Angina is heart pain. Angina sufferers often describe their pain as a
crushing, strangling and/or burning sensation in the chest. These attacks can
occur anytime or anywhere, but in most patients with angina, they are often
triggered by daily physical exertion or emotional stress.
Angina is caused when the heart muscle does not get enough oxygen-carrying
blood to meet its need, generally because of obstructions in the coronary
arteries feeding blood to the heart. These obstructions typically are caused by
a buildup of cholesterol deposits in the coronary arteries. All the body's
organs and tissues need oxygen to extract energy from the foods we eat. The
heart also needs oxygen in order to fuel its mechanical work of pumping blood
throughout the body. Angina occurs when the blood supply cannot provide enough
oxygen to meet the heart muscle's demand.
In the United States, approximately 7.2 million patients in 1998 had
angina. Based on published data, we estimate that over half of these patients
are currently being treated with multiple medications, including nitrates, beta
blockers and calcium channel blockers.
Current Approaches to Angina Treatment
Currently available drugs to treat angina include beta blockers, calcium
channel blockers and long-acting nitrates. These drugs treat angina by
decreasing the heart's demand for oxygen by reducing the work it is asked to
6
perform. These drugs work by lowering heart rate, blood pressure and/or the
strength of the heart's contraction. These hemodynamic effects can limit or
prevent the use of currently available drugs in patients whose blood pressure or
cardiac function is already decreased. These effects can be particularly
pronounced when these drugs are used in combination. Additional adverse effects
include lower extremity edema associated with calcium channel blockers,
impotence and depression associated with beta blockers and headaches associated
with nitrates. Consequently, for some patients, presently available medical
treatment may not provide relief of angina without unacceptable effects.
pFOX Inhibition-A Potential New Approach by Ranolazine
Cardiac metabolism is the process by which the heart extracts the energy
it needs to pump blood from either fat or glucose by combining them with oxygen.
Under normal conditions, cardiac metabolism uses both fat and glucose on a
roughly 60% fat and 40% glucose basis. If fatty acid oxidation, which is the
combination of fatty acids and oxygen into energy, is inhibited, cardiac
metabolism shifts to utilizing more glucose. Since the heart gets more energy
from a unit of oxygen combined with glucose than it does from that same unit of
oxygen combined with fat, causing a shift in cardiac metabolism from fat to
glucose should improve cardiac efficiency. However, a complete shift away from
metabolizing fatty acids could potentially lead to unwanted side effects.
Consequently, only a partial inhibition of fatty acid oxidation is likely to be
desirable.
Research indicates that ranolazine may cause such a partial shift and may
be a partial fatty acid oxidation, or pFOX, inhibitor. Specifically, ranolazine
may cause a partial, and reversible, inhibition of fatty acid oxidation during
conditions of a shortage of oxygen. Inhibition of fatty acid oxidation results
in a shift to more glucose oxidation, which produces more energy per unit of
available oxygen. Such an improvement in cardiac efficiency could contribute to
a treatment for angina by reducing the imbalance between oxygen demand and
oxygen supply.
As a pFOX inhibitor, ranolazine potentially operates via a completely
different pathway than the existing anti-anginal drugs. Ranolazine does not
appear to work by lowering heart rate or blood pressure to reduce oxygen demand.
Rather, ranolazine may affect cardiac metabolism, the process by which energy is
extracted from glucose and fatty acids by combining them with oxygen. Ranolazine
appears to improve the efficiency of cardiac metabolism by allowing the
otherwise limited supply of oxygen to produce more energy. This metabolic shift
toward glucose metabolism and away from fatty acid metabolism does not affect
heart rate, blood pressure or the contraction strength of the heart.
Consequently, patients taking ranolazine may be able to maintain these
hemodynamic measures at or near baseline levels, which they are unable to do if
they take any of the currently available anti-anginal medications.
The following table sets forth the mechanisms and effects of ranolazine
and anti-anginal drugs.
Heart Blood Mechanism
Rate Pressure
Ranolazine: -- -- Improves oxygen
pFOX Inhibitor metabolism
Beta 9 9 Decreased
Blockers pump function
Calcium 9 9 Decreased
Channel pump function,
7
Blockers vasodilation
Long-Acting 8 9 Vasodilation
Nitrates
For the above table, the data and the reflected mechanism of action
indicated for ranolazine is based on clinical trials to date. Unlike beta
blockers, calcium channel blockers and long-acting nitrates, ranolazine has not
yet been approved by the FDA as safe or effective, and clinical trials are
currently underway to confirm this hypothesis.
Ranolazine Clinical Trial Status
We are currently conducting a pivotal Phase III clinical trial,
Combination Assessment of Ranolazine in Stable Angina, or CARISA. The CARISA
trial is a randomized, double-blind, placebo controlled trial of ranolazine used
in combination with other anti-anginal drugs in approximately 648 patients.
Should results of this trial be consistent with the results we found in the
first Phase III trial, we intend to submit a New Drug Application, or NDA, to
the United States Food and Drug Administration, seeking approval to market
ranolazine for chronic angina.
In January 2001, we announced that we completed enrollment of the
originally planned 462 patients in the CARISA trial and that we also planned on
enrolling an additional 186 patients based on the results of a blinded interim
assessment. This interim assessment, which was pre-specified in the protocol,
evaluated the statistical variance of the primary endpoint, treadmill times, in
a blinded fashion, but did not assess the efficacy of ranolazine compared to
placebo. The protocol-specified interim assessment dictated enrollment of an
additional 186 patients.
In addition, we have recently initiated a Phase II clinical trial of
ranolazine in patients with congestive heart failure (CHF). This multicenter
trial is a randomized, double-blind placebo-controlled trial of orally
administered sustained release ranolazine in patients with New York Heart
Association Class III or IV CHF. The study is designed to evaluate the
pharmacokinetics, safety and tolerability of ranolazine in patients with severe
CHF, to support an NDA for ranolazine in chronic angina. In addition, we will
use this study to evaluate pilot efficacy endpoints in CHF, which will guide us
on how we may study ranolazine for the treatment of CHF in the future.
In August 1999, we completed our Monotherapy Assessment of Ranolazine In
Stable Angina, or MARISA trial. MARISA was a randomized, double-blind,
placebo-controlled trial of a sustained release formulation of ranolazine used
in patients who were not receiving other anti-anginal drugs. Patients were
evaluated by treadmill exercise testing during treatment with placebo and each
of three doses of ranolazine, 500mg twice daily, 1000mg twice daily, and 1500mg
twice daily. The results of the trial are summarized below:
o The MARISA primary endpoint was treadmill exercise duration
approximately 12 hours after the previous dose and just before the
next dose. At this time, ranolazine plasma concentrations are at
their lowest point during the dosing cycle, or at trough. Data from
175 patients appear to show that compared to placebo, ranolazine
taken twice a day increased exercise duration at trough plasma
concentrations, at all three active doses studied. These results
were statistically significant at the 99.5% or greater level, or
what is commonly referred to as p < 0.005. This means that, applying
widely used statistical methods, the chance that these results could
have occurred by accident is less than 1 in 200.
o Key secondary endpoints, exercise time to onset of angina and
exercise time to the electrocardiographic appearance of ischemia
were increased at all three ranolazine doses studied
8
compared to placebo. These results were statistically significant at
the 99.5% or greater level, or p < 0.005.
o The lack of clinically relevant hemodynamic effects was consistent
with results observed in prior clinical trials of a different
formulation of ranolazine. While increases in exercise duration were
observed, ranolazine had no clinically meaningful impact on heart
rate or blood pressure, either at rest or following exercise.
o Adverse events, including dizziness, asthenia or weakness, and
nausea, and the electrocardiographic changes observed in this trial,
were consistent with those observed in prior trials of a different
formulation of ranolazine. Adverse event frequency increased as dose
increased.
Three Phase II trials completed by Syntex prior to 1994 indicated that an
immediate release formulation of ranolazine increased, with p < 0.05, the
exercise duration of angina patients during exercise testing at peak dosage
levels, compared to placebo. This result was observed both when ranolazine was
given alone and in combination with beta blockers or calcium channel blockers.
In these trials, ranolazine was administered on a three times daily schedule. To
achieve a more commercially attractive product with a twice-daily dosing
schedule, Syntex developed a sustained release formulation of ranolazine, which
we are testing in our Phase III clinical trials. To date, ranolazine has been
tested in more than 2,300 patients and volunteers.
Commercialization of Ranolazine
In May 1999, we entered into a sales and marketing alliance with Innovex,
Inc., a subsidiary of Quintiles Transnational Corp. Under this agreement, if
ranolazine is approved for sale in the United States by the FDA, Innovex will
hire and train a dedicated sales force for ranolazine and assist in funding
marketing expenses for up to five years after launch. We will receive 100% of
the revenues of ranolazine, and we will pay Innovex a fee that will not exceed
33% of those revenues in the first two years that will decline to a maximum of
25% by the fourth and fifth years. Further, in exchange for giving us the option
to retain this trained sales force at the end of the contract, Innovex will
receive a royalty on sales of 7% in the sixth and 4% in the seventh years after
launch. Innovex provides sales and marketing services to the pharmaceutical
industry worldwide.
CVT-510
We are developing CVT-510 for the potential acute control of heart rate
during atrial arrhythmias. Atrial arrhythmias are abnormally rapid heart rates,
and include the conditions of atrial fibrillation, atrial flutter and paroxysmal
supraventricular tachycardias (PSVT). CVT-510 is an A1 adenosine receptor
agonist which may act selectively on the conduction system of the heart to slow
electrical impulses. CVT-510 may offer a new approach to rapid and sustained
control of acute atrial arrhythmias by reducing heart rate without lowering
blood pressure. We have completed a Phase II trial of CVT-510 in patients with
PSVT and we are currently conducting a Phase II trial of CVT-510 in patients
with atrial fibrillation.
Potential Indication-Acute Heart Rate Control During Atrial Arrhythmias
Atrial arrhythmias occur when the atria of the heart beat rapidly, or
uncontrollably, sending multiple electrical impulses to the ventricles of the
heart. An excessive increase in ventricular rate reduces the heart's cardiac
output due to inadequate filling and emptying of the left ventricle. Potentially
damaging consequences include low blood pressure and damage to the brain, heart
and other vital organs, therefore, these rhythm disturbances often require
immediate treatment. Prompt slowing of the heart rate is the goal of therapy.
Because of the need to treat patients quickly, intravenous therapies allow for
rapid stabilization of the patient while the underlying condition is treated.
In the United States, atrial arrhythmias are involved in approximately 2.6
million hospital diagnoses annually. Atrial arrhythmias are a major complication
of heart attacks, heart failure and cardiac surgery. The acute treatment
9
of atrial arrhythmias involves slowing the heart rate. Later, when the heart
rate is controlled, additional steps can be taken to reverse the abnormal
electrical activity in the atria which underlie these arrhythmias.
Current Approaches to Acute Heart Rate Control During Atrial Arrhythmias
Current medical therapies, which include digitalis, calcium channel
blockers, beta blockers and Adenocard(R), aim to slow the heart to a normal rate
but have significant limitations in the acute care setting. Digitalis is
effective in controlling heart rate, but requires a long time to take effect.
This can be dangerous in patients whose condition requires prompt heart rate
control to restore normal cardiac output. Calcium channel blockers, beta
blockers and Adenocard(R) act quickly but are themselves associated with
reductions in blood pressure and depressed cardiac function. These drugs could
potentially exacerbate the condition of patients already experiencing cardiac
dysfunction as a complication of the arrhythmia. Furthermore, the effect of
Adenocard(R) persists only for a few seconds, and as a result, this product is
not indicated for treatment in patients with atrial fibrillation or flutter.
Cardiac Conduction System
During an atrial arrhythmia, the atria of the heart beat too rapidly,
sending excessive electrical impulses to the ventricles of the heart. These
electrical impulses are initiated at a set of specialized cells in the atria,
known as the sinus node, and then run to another set of specialized cells known
as the atrio-ventricular (AV) node. It is this AV node which controls the
transmission of the electrical impulses to the ventricles. Since the rate at
which electrical impulses pass through the AV node determines ventricular heart
rate, slowing AV nodal transmission will result in a reduction in ventricular
heart rate. Since ventricular rate is a primary determinant of cardiac output,
prompt slowing of rapid AV nodal conduction is one treatment approach to slowing
the abnormally rapid heart rate of an atrial arrhythmia.
Potential Treatment by CVT-510
CVT-510 is designed to selectively stimulate the A1 adenosine receptor.
Stimulation of the A1 adenosine receptor in the AV node slows the speed of
electrical conduction across the AV node, which in turn reduces the number of
electrical impulses that reach the ventricle. Stimulation of the A2 adenosine
receptor may lower blood pressure. Since CVT-510 may selectively stimulate the
A1 adenosine receptor without significantly stimulating the A2 adenosine
receptor, it may be possible to use CVT-510 to intervene immediately in the
arrhythmia process without the unwanted effect of lowering blood pressure.
CVT-510 may offer cardiac patients and clinicians alternatives to current
therapies that are either relatively slow to act or reduce blood pressure.
CVT-510 Clinical Trial Status
In November 2000, at the annual meeting of the American Heart Association,
we announced results from a Phase II trial of CVT-510 indicating that CVT-510
terminated paroxysmal supraventricular tachycardia (PSVT) without adversely
affecting blood pressure. In this open-label, dose escalation study, CVT-510 was
given as one or two bolus injections at least two minutes apart to 37 patients
with inducable PSVT undergoing electrolphysiological study. The results
indicated that in 32 of 37 patients, or 86%, the PSVT was terminated and normal
sinus rhythm was restored. CVT-510 was well tolerated in these patients with no
adverse effects on blood pressure, and no high-grade AV block or other serious
adverse events were observed. Based on the results of this trial, we intend on
initiating a Phase III clinical trial of CVT-510 in patients with PSVT. We are
conducting a second Phase II trial of CVT-510 in patients with atrial
arrhythmias.
10
CVT-3146
We are developing CVT-3146 for the potential use as an adjunctive
pharmacologic agent in cardiac perfusion imaging studies. Cardiac perfusion
imaging studies are used for the detection and characterization of coronary
artery disease, by identifying areas of insufficient blood flow in the heart.
Some of these studies are conducted using pharmacologic agents. CVT-3146 is an
A2A adenosine receptor agonist which may act selectively on the heart to cause
coronary vasoldilation and thus increase coronary blood flow. Therefore,
CVT-3146 may provide doctors with an alternative agent for cardiac perfusion
imaging studies without unwanted side effects. We have entered into a
collaboration with Fujisawa Healthcare to develop and market CVT-3146 in North
America. We are currently conducting a Phase I trial to assess the safety and
tolerability of CVT-3146.
Potential Indication-An Adjunctive Pharmacologic Agent in Cardiac
Perfusion Imaging Studies
Cardiac perfusion imaging studies are used for the detection and
characterization of coronary artery disease by identifying areas of insufficient
blood flow in the heart. During these tests, the heart is subjected to a period
of stress to stimulate maximal blood flow. Myocardial perfusion is measured
during stress and compared to when patients are at rest. Areas of relatively
poor perfusion during stress as compared to rest indicates which areas of the
heart may be affected by narrowed coronary arteries.
To stress the heart sufficiently to perform the test, many patients
exercise on a treadmill. However, more than a third of the patients who take the
test are unable to exercise adequately because of medical conditions such as
peripheral vascular disease or arthritis. For those patients, a pharmacologic
agent that temporarily increases coronary blood flow is used to mimic the
increase in blood flow caused by exercise. In 1997, approximately 5.2 million
cardiac perfusion imaging studies were performed in the United States, of which
1.8 million were conducted using a pharmacologic agent.
Current Approaches to Increasing Coronary Blood Flow During Cardiac
Imaging Studies
Current pharmacologic therapies used in cardiac imaging testing are
dipyridamole and Adenoscan(R), the brand name for adenosine. Adenoscan(R) is
used for cardiac imaging because it is the naturally occurring agent that causes
coronary vasodilation and it has a short half-life. However, because
Adenoscan(R) activates all four receptor subtypes, it can cause many side
effects. Chief among these are flushing, dyspnea and headache. Adenoscan(R) is
also contraindicated in asthma patients. Another current cardiac imaging agent,
dipyridamole, is known to increase levels of adenosine by inhibiting its
transport into cells. Due to its longer half-life, coronary vasodilation
persists for long periods of time, and therefore, patients must be closely
monitored at the completion of the test. In addition, one of the main side
effects of dipryridamole is dizziness.
Potential Treatment by CVT-3146
CVT-3146 has been designed to selectively activate the A2A adenosine
receptor in the heart, in order to elicit the coronary vasodilation response
while avoiding many of the side effects of Adenoscan(R) or dipyridamole.
CVT-3146 Clinical Trial Status
In November 2000, we initiated a randomized, double-blind,
placebo-controlled Phase I trial of CVT-3146 in healthy volunteers. The goal of
the trial is to assess the safety and tolerability of CVT-3146.
Adentri(TM) Program
Patients with congestive heart failure (CHF) have limited heart pumping
function, and the corresponding reduction in blood flow impairs the kidney's
ability to clear fluid wastes from the body. Current therapies for CHF tend to
negatively impact other activities of the kidneys. Preclinical studies and
clinical trials indicate that A1
11
adenosine receptor antagonists may increase the kidney's ability to clear fluid
wastes without decreasing other functions of the kidneys. Thus, we believe that
A1 adenosine receptor antagonists have the potential to be a new therapy for the
treatment of CHF.
In March 1997, we licensed the rights to our A1 adenosine receptor
antagonist technology, patents and compounds, including CVT-124, to Biogen, Inc.
Collectively, Biogen's efforts in this area are referred to as the AdentriTM
program. As a result of the agreements we signed, Biogen has an exclusive
worldwide license to develop, manufacture and commercialize CVT-124 and any
other A1 adenosine receptor antagonists developed either by Biogen or us based
on our patents or our technology. As long as Biogen retains its license for our
A1 adenosine receptor antagonist technology and patents, Biogen is responsible
for funding all development and commercialization expenses related to these
compounds.
In February 2000, Biogen announced that it had successfully completed a
Phase II trial of CVT-124 in patients with moderate-to-severe CHF. However,
Biogen also announced its intention to continue the AdentriTM program with a new
molecule that is currently in preclinical studies.
Potential Indication-Congestive Heart Failure
CHF occurs when the heart muscle is weakened by disease so it cannot
adequately pump blood throughout the body. As a result of this pump failure,
fluid accumulates throughout the body, including in the lungs. This results in
shortness of breath. Fluid also accumulates in the body because of adaptations
by the kidneys during CHF.
Approximately 4.9 million people in the United States in 1998 suffered
from CHF and an estimated 400,000 new cases arise each year. Approximately
875,000 patients in 1995 were hospitalized in the United States with a primary
diagnosis of CHF. CHF is the leading cause of hospital admissions among patients
over 65.
Current Approaches to Treating Congestive Heart Failure
Current treatment of CHF consists of therapy designed to improve the
pumping function of the heart combined with the administration of diuretics to
eliminate excess sodium and water from the body by blocking reabsorption in the
kidneys. However, current diuretic therapies such as furosemide, thiazides and
spironolactone become less effective over time as the disease progresses.
Approximately one quarter of hospitalized CHF patients are resistant to current
intravenous diuretic therapies. The dosage of the most commonly prescribed
diuretics for CHF are often increased as the disease progresses, which can be
associated with toxic side effects. One such side effect is potassium loss,
which may lead to an increased incidence of cardiac arrhythmias if potassium is
not monitored and replaced, and another is a decline in kidney function.
Potential Treatment by A1 Adenosine Receptor Antagonists
An A1 adenosine receptor antagonist blocks the action of the A1 adenosine
receptors. Since the A1 adenosine receptor plays an important role in the
kidneys to cause the kidneys to retain sodium and fluids, blocking the action of
this receptor may reduce the amount of fluid that the kidneys retain.
Clinical Trial Experience
In Phase I and Phase II trials, CVT-124 appeared to be generally well
tolerated and produced increases in urine, sodium and chloride excretion
compared to placebo. This was observed both in healthy volunteers and in
moderately severe CHF patients. Moreover, trials to date indicated that CVT-124
may be able to treat fluid overload without an associated reduction in the
filtration function of the kidneys. Furosemide, which is currently the most
commonly used treatment for fluid overload caused by CHF, has been shown in
prior trials to be associated with a reduction in the filtration function of the
kidneys. In February 2000, Biogen announced it had
12
successfully completed a placebo-controlled Phase II trial evaluating various
doses of CVT-124 in comparison to and in combination with furosemide.
Program Status
In February 2000, Biogen announced its intention to continue the AdentriTM
program with a new molecule that is currently in preclinical studies. Prior to
initiating clinical studies with a new compound, Biogen will be required to
complete its preclinical studies and to submit an IND to the FDA.
Preclinical Pipeline
Our research and development team is creating new product opportunities
through our expertise in molecular cardiology. We have preclinical research
programs in the areas of:
o Adenosine Receptor Research
- Cardiac conduction
- Angiogenesis
o Metabolism
- Cardiac energetics
o Atherosclerosis
- Increase HDL, "the good cholesterol"
o Cell Cycle Inhibition
Adenosine Receptor Research
Adenosine is a naturally occurring small molecule that is known to elicit
pharmacological responses that tend to compensate for the imbalance in oxygen
supply relative to demand that occurs when blood vessels are partially blocked
by cardiovascular disease. Our adenosine receptor research program has
discovered proprietary compounds that selectively elicit the desired effects of
adenosine receptor stimulation for the treatment of certain electrical
conductance disturbances, such as atrial arrhythmias, and to regulate the
mechanisms of new blood vessel growths, or angiogenesis.
- - Cardiac Conduction
Electrical impulses within the heart muscle play a key role in causing the
heart muscle to sequentially expand and then contract, which is required for the
heart to pump blood throughout the body in a controlled rhythm. Failure of this
electrical system to function properly will result in a poorly pumping heart,
such as in atrial arrhythmias.
We have discovered a series of novel, proprietary, orally bio-available,
partial A1 adenosine receptor agonists, including CVT-2759, that selectively
slow the electrical conductance in the heart to adjust the rate of a beating
heart into the normal range. These compounds are similar to CVT-510, which is
being developed for the acute care of atrial arrhythmias, but are targeted for
the continued care of patients with chronic atrial arrhythmias.
- - Angiogenesis
Our scientists have led the effort to fully characterize the role of
adenosine in the initiation, maintenance, and growth of new vessels in vascular
beds that are deprived of oxygen due to cardiovascular disease. We have
discovered the receptor that is responsible for regulation of the known mitogens
such as vascular endothelial
13
growth factor and fibroblast growth factor, and have discovered small molecule
agonists and antagonists of this process. The goal of these programs, which
includes compounds such as CVT-3634, is to harness this naturally occurring
process for the potential treatment of peripheral vascular disease or aberrant
angiogenesis that causes diabetic retinopathy and macular degeneration.
Metabolism
In order for the heart to adequately pump blood, fuel in the form of fat,
or fatty acids, and sugar, in the form of glucose, are metabolized with oxygen
to yield ATP, water and carbon dioxide. When oxygen is in limited supply, for
example when the vessels that feed the heart are blocked from atherosclerosis
and cardiovascular disease, the normal utilization of glucose becomes impaired.
This metabolic imbalance in favor of fatty acid oxidation (compared to
glucose)can be partially restored by inhibiting fatty acid metabolism with a
partial fatty acid oxidation (pFOX) inhibitor.
The goals of our cardiac metabolism program are to further characterize
the therapeutic potential of ranolazine in the treatment of indications other
than angina, and to discover new, proprietary second generation ranolazine
products. For example, in an animal model of congestive heart failure,
ranolazine increased work output by the heart without increasing the consumption
of oxygen. In other words, cardiac performance and cardiac efficiency were
improved. We have also discovered several series of novel, proprietary pFOX
inhibitors, including CVT-3833, that are potential second generation compounds
to ranolazine.
Atherosclerosis
The goal of our Tangier drug discovery program is to study the ways in
which excess cholesterol is removed from the walls of blood vessels, in an
effort to prevent or reverse the buildup of arterial plaques that cause heart
attacks. Roughly half of heart attacks occur in patients with low levels of high
density lipoproteins, known as the "good" form of cholesterol, or HDL. Patients
with the genetic disorder called Tangier disease have virtually no HDL in their
blood, and are at a greatly increased risk for developing cardiovascular
disease. Our scientists have used a new strategy combining gene expression
microarrays, and biochemical techniques to identify the gene that is defective
in patients with Tangier disease. Having identified the gene that is responsible
for the genetic disorder in Tangier disease patients, we have targeted this gene
as part of a drug discovery program to identify novel, proprietary, small
molecules that may increase HDL.
Cell Cycle Inhibition
The goal of our cell cycle inhibition program is to develop new
therapeutics that suppress abnormal cellular proliferation. Excessive
proliferation of cardiovascular connective tissue cells or vascular smooth
muscle cells cause the scarring and loss of function that is characteristic of
chronic diseases of the heart, blood vessels and kidneys. As part of our drug
discovery strategy, we have focused upon enzymes called cell cycle enzymes that
regulate cellular proliferation. CVT-2584 is a new compound that selectively
inhibits CDK2, a critical cell cycle enzyme. Animal studies with CVT-2584 have
shown substantial reduction of blockages after vascular injury.
Collaborations and Licenses
We have established, and intend to continue to establish, strategic
partnerships to expedite development and commercialization of our drug
candidates. For those programs with potential application outside of
cardiovascular disease, we intend to identify additional corporate partners. In
addition, we have licensed chemical compounds from academic collaborators and
other companies. Our collaborations and licenses currently in effect include:
14
University of Florida Research Foundation
In June 1994, we entered into a license agreement with the University of
Florida Research Foundation, Inc. under which we received exclusive worldwide
rights to develop A1 adenosine receptor antagonists and agonists for the
detection, prevention and treatment of human and animal diseases. In
consideration for the license, we paid an initial license fee and are obligated
to pay royalties based on net sales of products that utilize the licensed
technology. Under this agreement, we must exercise commercially reasonable
efforts to develop and commercialize one or more products covered by the
licensed technology. In the event we fail to reach certain milestones under the
agreement, the licensor may convert the exclusive license into a non-exclusive
license. We sublicensed our rights under this license that relate to A1
adenosine receptor antagonists to Biogen in March 1997.
Syntex
In March 1996, we entered into a license agreement with Syntex (U.S.A.)
Inc. to obtain United States and foreign patent rights to ranolazine for the
treatment of angina and other cardiovascular indications. Pursuant to the
agreement, Syntex provided quantities of the compound to us. The license
agreement is exclusive and worldwide except for the following countries which
Syntex has licensed exclusively to Kissei Pharmaceuticals, Ltd. of Japan: Japan,
Korea, China, Taiwan, Hong Kong, the Philippines, Indonesia, Singapore,
Thailand, Malaysia, Vietnam, Myanmar, Laos, Cambodia and Brunei.
Under the license agreement, we paid an initial license fee. In addition,
we are obligated to make payments upon product approvals in the first two major
markets, but in no event later than March 31, 2005 and March 31, 2006,
respectively, unless the contract is terminated. In addition, we will make
royalty payments based on net sales of products that utilize the licensed
technology. We are required to use commercially reasonable efforts to develop
and commercialize the product for angina.
Biogen
In March 1997, we entered into two research collaboration and license
agreements with Biogen. The agreements grant Biogen the exclusive worldwide
right to develop and commercialize any products which are produced based on our
A1 adenosine receptor antagonist patents or technologies (including our rights
under the University of Florida Research Foundation license) for all
indications. In exchange, we received a $16.0 million payment consisting of
research related funding, an equity investment and $3.0 million in funding under
a general purpose loan facility. Biogen agreed to make milestone payments and
equity investments, as well as the loan facility, all of which are subject to
achievement of clinical development and commercialization milestones. In
February 1998, we terminated the research component of the agreements and, as a
result, approximately $4.0 million of deferred revenue was recognized as there
were no further research obligations related to this funding. In December 1998,
Biogen released an additional $4.5 million under the loan facility. In February
2000, based on results of a Phase II clinical trial, Biogen announced its
intention to proceed with the program, but with a backup compound, and
subsequently paid us $6.5 million, consisting of a $2.0 million milestone
payment and $4.5 million under the loan facility. Biogen will also pay royalties
on any future sales of products covered by the agreement. Biogen has control and
responsibility for conducting, funding and pursuing all aspects of the
development, submissions for regulatory approvals, manufacture and
commercialization of A1 adenosine receptor antagonist products under the
agreement.
In March 2000, we repaid the initial $3.0 million installment under the
loan facility. In October 2000, we exercised our right to convert $9.0 million
in debt from the loan facility into 118,932 shares of our common stock at a
price of $75.67 per share, in full repayment of the entire principal amount
under this loan facility. In December 2000, we repaid all accrued and unpaid
interest on the loan facility.
15
Biogen may terminate the agreements for any reason upon 60 days written
notice. If Biogen terminates the agreements, all rights to the technology will
revert to us, and we will pay Biogen a small royalty on future sales of any A1
adenosine receptor antagonist.
Incyte
In July 1998, we entered into a joint research collaboration agreement
with Incyte Genomics, Inc. to develop a prototype gene expression database in
the area of cardiovascular biology. We contribute our molecular cardiology
expertise and Incyte contributes its genomics capabilities. Incyte owns the data
produced, and we receive a perpetual, non-exclusive license to use the data in
our drug development efforts. Each party bears its own costs of the research.
Either party may terminate the agreement on 60 days written notice.
Innovex
In May 1999, we entered into a sales and marketing services agreement with
Innovex, a subsidiary of Quintiles Transnational Corp. Under this agreement, if
ranolazine is approved for sale in the United States by the FDA, Innovex will
hire and train a dedicated sales force for ranolazine and assist in funding
marketing expenses for up to five years after launch. We will receive 100% of
the revenues from sales of ranolazine and we will pay Innovex a share of those
revenues.
The agreement calls for Innovex to conduct pre-launch activities, hire and
train a dedicated cardiology sales force to launch and promote ranolazine, and
provide post-launch marketing and sales services. To fund pre-launch activities,
Quintiles will provide us with a $10 million credit facility at the time we file
with the FDA for approval. We are required to spend a minimum of $10 million on
ranolazine pre-launch marketing activities so long as Quintiles provides
advances under the credit facility. Upon FDA approval, Quintiles will make a $10
million milestone payment to us, which we are obligated to use to repay any
amounts outstanding under the credit facility. Should we file for approval and
draw down the credit facility, but never receive FDA approval, we are obligated
to repay the loan within 10 years of the date we received the loan.
Innovex has agreed to provide services for at least three years after
launch and to provide services in years four and five after launch if minimum
sales levels are met. The agreement also specifies the minimum number of sales
representatives and the minimum level of dollars to be spent on marketing by
Innovex during the first two years of the contract, regardless of sales levels.
The minimum size of the sales force and the marketing expenses in year three or
any subsequent year must be maintained by Innovex as long as minimum sales
levels are met.
In exchange for providing these sales and marketing services, Innovex will
receive a fee equal to up to an average of 33% of revenues in the first two
years of sales, up to 30% of revenues for the third year and up to 25% of
revenues in years four and five. Also, for giving us the option to retain this
trained sales force at the end of the contract, Innovex will receive a royalty
on sales of 7% in the sixth and 4% in the seventh years after launch.
In connection with the agreement, Quintiles purchased 1,043,705 shares of
our common stock for a total purchase price of $5.0 million.
We or Innovex may terminate the agreement in the event of material uncured
breach, bankruptcy or insolvency, our decision to not file an NDA for ranolazine
or to terminate development of the product, notice from the United States Food
and Drug Administration that it will not approve the product for marketing, or
failure to achieve certain minimum sales levels. In addition, we or Innovex may
terminate the agreement if product launch will not occur by a specific date. The
agreement will terminate automatically if we no longer retain our license rights
to ranolazine.
16
Fujisawa Healthcare
In July 2000, we entered into a collaboration with Fujisawa Healthcare,
Inc. to develop and market second generation pharmacologic cardiac stress
agents. Under this agreement, FHI received exclusive North American rights to
CVT-3146, a short acting selective A2A adenosine receptor agonist, and a backup
compound. We received $10.0 million from FHI consisting of a $6.0 million
up-front payment, which will be recognized as revenue over the expected term of
the agreement, and the purchase of 54,270 shares of our common stock for a total
purchase price of $4.0 million. We may receive up to an additional $24.0 million
in cash based on development and regulatory milestones. FHI will reimburse us
for 75% of the development costs, and if approved by the FDA, we will receive a
royalty based on product sales of CVT-3146 and may receive a royalty on another
product sold by FHI.
FHI may terminate the agreement for any reason on 90 days written notice,
and we may terminate the agreement if FHI fails to launch a product within a
specified period after marketing approval. In addition, we or FHI may terminate
the agreement in the event of material uncured breach, or bankruptcy or
insolvency.
Marketing and Sales
Except for our sales and marketing services agreement with Innovex, we
currently have no sales or distribution capabilities, and have only limited
marketing capabilities. We may promote our products in collaboration with
marketing partners or rely on relationships with one or more companies with
established distribution systems and direct sales forces. For example, Innovex
will provide sales and marketing for ranolazine in the United States. For our
other products, and for ranolazine at the end of the term of our agreement with
Innovex, we may elect to establish our own specialized sales force and marketing
organization to market our products to cardiologists.
Manufacturing
We do not currently operate manufacturing facilities for clinical or
commercial production of our proposed products. We have no experience in
manufacturing, and currently lack the resources and capability to manufacture
any of our proposed products on a clinical or commercial scale. Accordingly, we
are, and will continue to be, dependent on corporate partners, licensees or
other third parties for clinical and commercial scale manufacturing. We have
entered into several manufacturing agreements relating to ranolazine, including
agreements for commercial scale or scale-up of production of bulk active
pharmaceutical ingredient, tableting and supply of a raw material component of
the product.
We do have experience in the transfer of synthetic technology from
discovery to scale-up manufacturing facilities, having successfully executed
technology transfer for the manufacture of clinical supplies of one orally
administered agent and one intravenously administered agent. In addition, prior
to approval of an NDA for ranolazine, we will be required to demonstrate to the
FDA's satisfaction the equivalence of the multiple sources of supply used in our
clinical trials and their equivalence to the product to be commercially
supplied.
Patents and Proprietary Technology
Patents and other proprietary rights are important to our business. Our
policy is to file patent applications and to protect technology, inventions and
improvements to inventions that are commercially important to the development of
our business. The evaluation of the patentability of United States and foreign
patent applications can take several years to complete and can entail
considerable expense.
We own several patents issued by and/or pending with the United States
Patent and Trademark Office and foreign patents or patent applications relating
to our technology, including related to our clinical programs, ranolazine,
CVT-510 and CVT-3146. We also have acquired a license, which is exclusive in
specified territories,
17
to specified issued patents issued by the United States Patent and Trademark
Office and foreign corresponding patent applications related to ranolazine. A
primary United States patent relating to ranolazine will expire in May 2003
unless we are granted an extension based upon the Waxman-Hatch Act, which we
anticipate would extend the patent protection for an additional five years.
In addition, we have acquired, and in turn have granted to Biogen, an
exclusive license to issued patents and pending patent applications relating to
A1 adenosine receptor antagonists.
Government Regulation
FDA Requirements for Drug Compounds
The research, testing, manufacture and marketing of drug products are
extensively regulated by numerous governmental authorities in the United States
and other countries. In the United States, drugs are subject to rigorous
regulation by the FDA. The Federal Food, Drug and Cosmetic Act, and other
federal and state statutes and regulations, govern, among other things, the
research, development, testing, manufacture, storage, recordkeeping, labeling,
promotion and marketing and distribution of pharmaceutical products. Failure to
comply with applicable regulatory requirements may subject a company to a
variety of administrative or judicially imposed sanctions.
The steps ordinarily required before a new pharmaceutical product may be
marketed in the United States include preclinical laboratory tests, animal tests
and formulation studies, the submission to the FDA of an Investigational New
Drug Application (or IND), which must become effective before clinical testing
may commence, and adequate and well-controlled clinical trials to establish the
safety and effectiveness of the drug for each indication for which it is being
tested.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal trials to assess the potential safety and
efficacy of the product. The conduct of the preclinical tests and formulation of
compounds for testing must comply with federal regulations and requirements. The
results of preclinical testing are submitted to the FDA as part of an IND.
A 30-day waiting period after the filing of each IND is required prior to
the commencement of clinical testing in humans. If the FDA has not commented on
or questioned the IND within this 30-day period, clinical trials may begin. If
the FDA has comments or questions, the questions must be answered to the
satisfaction of the FDA before initial clinical testing can begin. In addition,
the FDA may, at any time, impose a clinical hold on ongoing clinical trials. If
the FDA imposes a clinical hold, clinical trials cannot commence or recommence
without FDA authorization and then only under terms authorized by the FDA. In
some instances, the IND application process can result in substantial delay and
expense.
Clinical trials involve the administration of the investigational new drug
to healthy volunteers or patients under the supervision of a qualified principal
investigator. Clinical trials must be conducted in compliance with federal
regulations and requirements, under protocols detailing the objectives of the
trial, the parameters to be used in monitoring safety and the effectiveness
criteria to be evaluated. Each protocol must be submitted to the FDA as part of
the IND. The study protocol and informed consent information for patients in
clinical trials must also be approved by the institutional review board at each
institution where the trials will be conducted.
Clinical trials to support NDAs are typically conducted in three
sequential phases, but the phases may overlap. In Phase I, the initial
introduction of the drug into healthy human subjects or patients, the drug is
tested to assess metabolism, pharmacokinetics and pharmacological actions and
safety, including side effects associated with increasing doses. Phase II
usually involves trials in a limited patient population, to determine dosage
tolerance and optimal dosage, identify possible adverse effects and safety
risks, and provide preliminary support for the efficacy of the drug in the
indication being studied.
18
If a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluations, Phase III trials are undertaken to further
evaluate clinical efficacy and to further test for safety within an expanded
patient population at geographically dispersed clinical trial sites. There can
be no assurance that Phase I, Phase II or Phase III testing of our product
candidates will be completed successfully within any specified time period, if
at all.
After completion of the required clinical testing, generally a marketing
application called a New Drug Application (NDA) is prepared and submitted to the
FDA. FDA approval of the NDA is required before marketing of the product may
begin in the United States. The NDA must include the results of extensive
clinical and other testing and the compilation of data relating to the product's
chemistry, pharmacology and manufacture. The cost of the NDA is substantial.
The FDA has 60 days from its receipt of the NDA to determine whether the
application will be accepted for filing based on the agency's threshold
determination that the NDA is sufficiently complete to permit substantive
review. Once the submission is accepted for filing, the FDA begins an in-depth
review of the NDA. Under federal law, the FDA has 180 days in which to review
the NDA and respond to the applicant. The review process is often significantly
extended by FDA requests for additional information or clarification regarding
information already provided in the submission. The FDA typically will refer the
application to the appropriate advisory committee, typically a panel of
clinicians, for review, evaluation and a recommendation as to whether the
application should be approved. The FDA is not bound by the recommendation of an
advisory committee.
If FDA evaluations of the NDA and the manufacturing facilities are
favorable, the FDA may issue an approval letter, or, in some cases, an
approvable letter followed by an approval letter. Both letters usually contain a
number of conditions that must be met in order to secure final approval of the
NDA. When and if those conditions have been met to the FDA's satisfaction, the
FDA will issue an approval letter. The approval letter authorizes commercial
marketing of the drug for specific indications. As a condition of NDA approval,
the FDA may require postmarketing testing and surveillance to monitor the drug's
safety or efficacy, or impose other conditions. Once granted, product approvals
may be withdrawn if compliance with regulatory standards is not maintained or
problems occur following initial marketing.
If the FDA's evaluation of the NDA submission or manufacturing facilities
is not favorable, the FDA may refuse to approve the NDA or issue a not
approvable letter. The not approvable letter outlines the deficiencies in the
submission and often requires additional testing or information. The FDA
ultimately may decide that the application does not satisfy the regulatory
criteria for approval.
Foreign Regulation of Drug Compounds
Approval of a product by comparable regulatory authorities may be
necessary in foreign countries prior to the commencement of marketing of the
product in those countries, whether or not FDA approval has been obtained. The
approval procedure varies among countries and can involve additional testing.
The time required may differ from that required for FDA approval. Although there
are some procedures for unified filings for some European countries with the
sponsorship of the country which first granted marketing approval, in general
each country has its own procedures and requirements, many of which are time
consuming and expensive. Thus, there can be substantial delays in obtaining
required approvals from foreign regulatory authorities after the relevant
applications are filed.
In Europe, marketing authorizations may be submitted at a centralized, a
decentralized or a national level. The centralized procedure is mandatory for
the approval of biotechnology products and provides for the grant of a single
marketing authorization which is valid in all European Union member states. As
of January 1995, a mutual recognition procedure is available at the request of
the applicant for all medicinal products which are not subject to the
centralized procedure. We will choose the appropriate route of European
regulatory filing to accomplish the
19
most rapid regulatory approvals. There can be no assurance that the chosen
regulatory strategy will secure regulatory approvals on a timely basis or at
all.
Hazardous Materials
Our research and development processes involve the controlled use of
hazardous materials, chemicals and radioactive materials and produce waste
products. We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposing of hazardous
materials and waste products.
Competition
The pharmaceutical and biopharmaceutical industries are subject to intense
competition and rapid and significant technological change. If regulatory
approvals are received, ranolazine may compete with several classes of existing
drugs for the treatment of angina, some of which are available in relatively
inexpensive generic form, including calcium channel blockers, beta blockers and
nitrates. There are also surgical treatments such as coronary artery bypass
grafting and percutaneous transluminal coronary angioplasty. However, for those
patients who do not respond adequately to existing therapies and remain
symptomatic despite maximal treatment with existing anti-anginal drugs and who
are not candidates for surgical procedures, there is no currently effective
treatment. In refractory patients who are candidates for surgical procedures,
there is no effective pharmacologic treatment available. We are aware of
companies that are developing products that may compete with our other drug
candidates. For example, we believe that Discovery Therapeutics and Fujisawa
Healthcare have A1 adenosine receptor agonists under development which could
compete with CVT-510. We believe King Pharmaceuticals Inc., Discovery
Therapeutics, DuPont Pharmaceuticals Company, and Adenosine Therapeutics LLC
have A2A adenosine receptor agonists under development which could compete with
CVT-3146. Finally, we believe Fujisawa Pharmaceutical, Japan and Discovery
Therapeutics, Inc., are each developing A1 adenosine receptor antagonists which
could compete with Biogen's AdentriTM program.
We believe that the principal competitive factors in the markets for
ranolazine and CVT-510 will include:
o the length of time to receive regulatory approval
o product performance
o product price
o product supply
o marketing and sales capability
o enforceability of patent and other proprietary rights
We believe that we and our collaborative partners are or will be
competitive with respect to these factors. Nonetheless, because our products are
still under development, our relative competitive position in the future is
difficult to predict.
Employees
As of January 31, 2001, we employed 134 individuals full-time, including
35 who hold doctoral degrees. Of our full-time work force, 106 employees are
engaged in or directly support research and development activities and 28 are
engaged in business development, finance and administrative activities. Our
employees are not represented by a collective bargaining agreement. We believe
that our relations with our employees are good.
20
Risk Factors
Our product candidates will take at least several years to develop, and we
cannot assure you that we will successfully develop, market and manufacture
these products.
Since our inception in 1990, we have dedicated substantially all of our
resources to research and development. We do not have any marketed products, and
we have not generated any product revenue. Because all of our potential products
are in research, preclinical or clinical development, we will not realize
product revenues for at least several years, if at all.
We have not applied for or received regulatory approval in the United
States or any foreign jurisdiction for the commercial sale of any of our
products. All of our product candidates are either in clinical trials under an
Investigational New Drug, or IND, or applicable foreign authority submission, or
are in preclinical research and development. We have not submitted an NDA to the
FDA or equivalent application to any other foreign regulatory authorities for
any of our product candidates, and the products have not been determined to be
safe or effective in humans for their intended uses.
Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any
products, we must demonstrate through preclinical testing and clinical trials
that our product candidates are safe and effective for use in humans. We will
incur substantial expense for, and devote a significant amount of time to,
preclinical testing and clinical trials.
Drug discovery methods based upon molecular cardiology are relatively new.
We cannot be certain that these methods will lead to commercially viable
pharmaceutical products. In addition, some of our compounds within our adenosine
receptor research, metabolism, atherosclerosis and cell cycle inhibition
programs are in the early stages of research and development, and we have not
submitted IND applications or commenced clinical trials for these new compounds.
We cannot be certain when these clinical trials will commence, if at all.
Because these compounds are in the early stages of product development, we could
abandon further development efforts before they reach clinical trials.
We cannot be certain that any of our product development efforts will be
successfully completed or that any of our products will be shown to be safe and
effective. Even if we believe that any product is safe and effective, we may not
obtain the required regulatory approvals. Furthermore, we may not be able to
manufacture our products in commercial quantities or market any products
successfully.
If we are unable to satisfy the regulatory requirements for our clinical
trials, we will not be able to commercialize our drug candidates.
All of our products may require additional development, preclinical
studies and clinical trials, and will require regulatory approval, prior to
commercialization. Any delays in our clinical trials would delay market launch
and would increase our cash requirements.
We currently have only three products in clinical development: ranolazine,
CVT-510 and CVT-3146. Many factors could delay completion of our clinical
trials, including:
o slower than anticipated patient enrollment
o difficulty in obtaining sufficient supplies of clinical trial
materials
o adverse events occurring during the clinical trials.
21
For example, our first Phase III clinical trial of ranolazine, called
Monotherapy Assessment of Ranolazine In Stable Angina or MARISA, had challenging
enrollment criteria. These criteria required patients who suffer from angina to
stop taking all of their other anti-anginal medications and receive only placebo
during segments of the clinical trial. This meant that they received no
medication to treat their angina when they received placebo. Given the
difficulty of identifying patients willing to completely stop taking
anti-anginal medications, enrollment for this trial was slower than anticipated.
In addition, while we completed enrollment of the originally planned 462
patients in the second Phase III trial of ranolazine, called Combination
Assessment of Ranolazine In Stable Angina or CARISA, based on a blinded interim
assessment pre-specified in the protocol, we plan on enrolling an additional 186
patients in the study.
In addition, data obtained from preclinical and clinical activities are
susceptible to different interpretations, which could delay, limit or prevent
regulatory approval. Delays or rejections may be based upon many factors,
including changes in regulatory policy during the period of product development.
For example, the initial clinical trials with ranolazine used a different
formulation of ranolazine than we used in the MARISA trials and we are using in
the CARISA trial. This means that the NDA will contain data from trials using
two different formulations and is subject to interpretation by the FDA. An
unfavorable interpretation could result in actions by the FDA that would delay
potential approval. We may be unable to maintain our proposed schedules for IND
applications and clinical protocol submissions to the FDA, initiations of
clinical trials and completions of clinical trials as a result of FDA reviews or
complications that may arise in any phase of the clinical trial program.
Furthermore, even if our clinical trials occur on schedule, the results
may differ from those obtained in preclinical studies and earlier clinical
trials. Clinical trials may not demonstrate sufficient safety and efficacy to
obtain the necessary approvals. For example, in November 1995, based on
unfavorable efficacy data from a Phase II trial, we terminated a prior
development program.
If we are unable to satisfy governmental regulations relating to the
development of our drug candidates, we may be unable to obtain or maintain
necessary regulatory approvals to commercialize our products.
The research, testing, manufacturing and marketing of drug products are
subject to extensive regulation by numerous regulatory authorities in the United
States and other countries. Failure to comply with FDA or other applicable
regulatory requirements may subject a company to administrative or judicially
imposed sanctions. These include:
o warning letters
o civil penalties
o criminal penalties
o injunctions
o product seizure or detention
o product recalls
o total or partial suspension of production
o FDA refusal to approve pending NDAs or supplements to approved NDAs
22
The process of obtaining FDA and other required regulatory approvals,
including foreign approvals, often takes many years and can vary substantially
based upon the type, complexity and novelty of the products involved.
Furthermore, this approval process is extremely expensive and uncertain. We
cannot guarantee that any of our products under development will be approved for
marketing by the FDA or corresponding foreign regulatory authorities. Even if
regulatory approval of a product is granted, we cannot be certain that we will
be able to obtain the labeling claims necessary or desirable for the promotion
of those products.
Even if we obtain regulatory approval, we may be required to undertake
postmarketing trials. In addition, identification of side effects after a drug
is on the market or the occurrence of manufacturing problems could cause
subsequent withdrawal of approval, reformulation of the drug, additional
preclinical testing or clinical trials, changes in labeling of the product, and
additional marketing applications.
If we receive regulatory approval, we will also be subject to ongoing FDA
obligations and continued regulatory review, such as continued safety reporting
requirements, and we may also be subject to additional FDA post-marketing
obligations. In addition, we or our third party manufacturers will be required
to adhere to federal regulations setting forth current good manufacturing
practices, known as cGMP. The regulations require that we manufacture our
products and maintain our records in a prescribed manner with respect to
manufacturing, testing and quality control activities. Furthermore, we or our
third party manufacturers must pass a preapproval inspection of manufacturing
facilities by the FDA and foreign authorities before obtaining marketing
approval, and will be subject to periodic inspection by the FDA and
corresponding foreign regulatory authorities under reciprocal agreements with
the FDA. There can be no guarantee that such inspections will not result in
compliance issues that could prevent or delay marketing approval, or require the
expenditure of money or other resources to correct. In addition, drug product
manufacturing facilities in California must be licensed by the State of
California, and other states may have comparable requirements.
If we receive regulatory approval and if any of our products or services
become reimbursable by a government health care program, such as Medicare or
Medicaid, we may become subject to certain federal and state health care fraud
and abuse and reimbursement laws. These laws include the federal "Anti-Kickback
Statute," "False Claims Act," and "Physician Self-Referral Law," and their state
counterparts. If and when we become subject to such laws, our arrangements with
third parties, including health care providers, physicians, vendors, and
Innovex, will need to comply with these laws as applicable. We do not know
whether our existing or future arrangements will be found to be compliant.
Violations of these statutes could result in criminal and civil penalties and
exclusion from governmental health care programs.
Our products, even if approved by the FDA or foreign regulatory agencies,
may not be accepted by physicians, insurers or patients.
If any of our products after receiving FDA or other foreign regulatory
approval fail to achieve market acceptance, our ability to become profitable in
the future will be adversely affected. We believe that market acceptance will
depend on our ability to provide acceptable evidence of safety, efficacy and
cost effectiveness. In addition, we believe market acceptance depends on the
effectiveness of our marketing strategy and the availability of reimbursement
for our products.
We have no marketing or sales experience, and if we are unable to enter
into or maintain collaborations with marketing partners or if we are unable to
develop our own sales and marketing capability, we may not be successful in
commercializing our products.
We currently have no sales or distribution capability and only limited
marketing capability. As a result, we depend on collaborations with third
parties, such as Innovex, a subsidiary of Quintiles Transnational Corp., Biogen
Inc. and Fujisawa Healthcare, Inc., which have established distribution systems
and direct sales forces. For instance, we have entered into a sales and
marketing services agreement with Innovex with respect to ranolazine. Innovex
will market and sell ranolazine in the United States using a dedicated sales
force if and when
23
FDA approval to market ranolazine has been granted. Commercialization of
ranolazine depends on Innovex to perform their contractual obligations. Their
failure to do so would adversely affect commercialization of ranolazine. To the
extent that we enter into co-promotion or other licensing arrangements, our
revenues will depend upon the efforts of third parties, over which we may have
little control. In addition, Biogen is responsible for establishing marketing
and sales activities for any product that results from the AdentriTM program and
Fujisawa is responsible for establishing marketing and sales activities for
CVT-3146.
If we are unable to reach and maintain agreement with one or more
pharmaceutical companies or collaborative partners, we may be required to market
our products directly. We may elect to establish our own specialized sales force
and marketing organization to market our products to cardiologists. In order to
do this, we would have to develop a marketing and sales force with technical
expertise and with supporting distribution capability. Developing a marketing
and sales force is expensive and time consuming and could delay any product
launch. We cannot be certain that we will be able to develop this capacity.
Our business depends on attracting and retaining collaborators and
licensors.
We may not be able to retain current or attract new corporate and academic
collaborators, licensors, licensees and others. Our business strategy requires
us to enter into various arrangements with these parties, and we are dependent
upon the success of these parties in performing their obligations. If we fail to
obtain and maintain these arrangements, the development of our products would be
delayed. We may be unable to proceed with the development, manufacture or sale
of products or we might have to fund development of a particular product
candidate internally. If we have to fund development and commercialization of
all of our products internally, our future capital requirements will increase
substantially.
The collaborative arrangements that we may enter into in the future may
place responsibility on the collaborative partner for preclinical testing and
clinical trials, manufacturing and preparation and submission of applications
for regulatory approval of potential pharmaceutical products. We cannot control
the amount and timing of resources which our collaborative partners devote to
our programs. If a collaborative partner fails to successfully develop or
commercialize any product, product launch would be delayed. In addition,
collaborators may pursue competing technologies or product candidates.
Under our collaborative arrangements, we or our collaborative partners may
also have to meet performance milestones. If we fail to meet our obligations
under our collaborative arrangements, our collaborators could terminate their
arrangements or we could lose rights to the compounds under development. For
example, under our agreement with Innovex, we are required to launch the product
by a specific date. If we fail to reach this milestone, Innovex will no longer
be obligated to provide sales and marketing services for ranolazine. Under our
agreement with Biogen, in order for us to receive development milestone
payments, Biogen must meet development milestones. Under our license agreement
with Syntex U.S.A., Inc., a subsidiary of Roche, for ranolazine, we are required
to make milestone payments to Syntex following FDA approval of ranolazine and
following regulatory approval of ranolazine in Europe. These payments are due no
later than March 31, 2005 and March 31, 2006, respectively. Under our agreement
with Fujisawa, we are responsible for development activities and must meet
development milestones in order to receive development milestone payments.
In addition, collaborative arrangements in our industry are extremely
complex, particularly with respect to intellectual property rights. Disputes may
arise in the future with respect to the ownership of rights to any technology
developed with or by third parties. These and other possible disagreements
between us and our collaborators could lead to delays in the collaborative
research, development or commercialization of product candidates. These disputes
could also result in litigation or arbitration, which is time consuming and
expensive.
We expect to continue to operate at a loss and may never achieve
profitability.
24
We cannot be certain that we will ever achieve and sustain profitability.
Since our inception, we have been engaged in research and development
activities. We have generated no product revenues. As of December 31, 2000, we
had an accumulated deficit of $131.1 million. The process of developing our
products requires significant additional research and development, preclinical
testing and clinical trials, as well as regulatory approvals. These activities,
together with our general and administrative expenses, are expected to result in
operating losses for the foreseeable future.
We must secure additional financing to meet our future needs.
We may require substantial additional funding in order to complete our
research and development activities and commercialize any products. In the past,
we have financed our operations primarily through the sale of equity and debt
securities, payments from our collaborators, equipment and leasehold improvement
financing and other debt financing. We have generated no product revenue, and
none is expected for at least several years. We anticipate that our existing
resources and projected interest income will enable us to maintain our current
and planned operations for at least the next 24 months. However, we may require
additional funding prior to that time.
Additional financing may not be available on acceptable terms or at all.
If we are unable to raise additional funds, we may:
o have to delay, scale back or eliminate some or all of our research
or development programs
o lose rights under existing licenses
o have to relinquish more of, or all of, our rights to product
candidates at an earlier stage of development or on less favorable
terms than we would otherwise seek
o be unable to operate as a going concern.
Our future capital requirements will depend on many factors, including:
o scientific progress in our research and development programs
o the size and complexity of our programs
o the timing, scope and results of preclinical studies and clinical
trials
o our ability to establish and maintain corporate partnerships
o the time and costs involved in obtaining regulatory approvals
o the costs involved in filing, prosecuting and enforcing patent
claims
o competing technological and market developments
o the cost of manufacturing or obtaining preclinical and clinical
material
If additional funds are raised by issuing equity securities, substantial
dilution to existing stockholders may result. There may be additional factors
that could affect our need for additional financing. Many of these factors are
not within our control.
Inability to compete successfully in our market will harm our business.
25
The pharmaceutical and biopharmaceutical industries, and the market for
cardiovascular drugs in particular, are intensely competitive. If regulatory
approvals are received, some of our products will compete with well-established,
proprietary and generic cardiovascular therapies that have generated substantial
sales over a number of years. Many of these therapies are reimbursed from
government health administration authorities and private health insurers.
In addition, we are aware of companies which are developing products that
may compete in the same markets as our products. Many of these potential
competitors have substantially greater product development capabilities and
financial, scientific, marketing and sales resources. Other companies may
succeed in developing products earlier or obtain approvals from the FDA more
rapidly than either we or our corporate partners are able to achieve.
Competitors may also develop products that are safer or more effective than
those under development or proposed to be developed by us and our corporate
partners. In addition, research and development by others could render our
technology or our products obsolete or non-competitive.
We may be unable to effectively protect our intellectual property.
Our success will depend to a significant degree on our ability to:
o obtain patents and licenses to patent rights
o maintain trade secrets
o operate without infringing on the proprietary rights of others
We cannot be certain that patents will issue from any of our pending or
future patent applications, that any issued patent will be sufficient to protect
our technology and investments or that we will be able to obtain extensions of
patents beyond the initial term. For example, a primary patent relating to
ranolazine will expire in May 2003 unless we are granted an extension based upon
the Waxman-Hatch Act, which we anticipate would extend the patent protection for
an additional five years.
Patent applications in the United States are maintained in secrecy until a
patent issues. As a result, we can never be certain that others have not filed
patent applications for technology covered by our pending applications or that
we were the first to invent the technology. There may be third party patents,
patent applications and other intellectual property relevant to our products and
technology which are not known to us and that block or compete with our
compounds, products or processes.
Competitors may have filed applications for, or may have received patents
and may obtain additional patents and proprietary rights relating to, compounds,
products or processes that block or compete with ours. We may have to
participate in interference proceedings declared by the Patent and Trademark
Office. These proceedings determine the priority of invention and, thus, the
right to a patent for the technology in the United States. In addition,
litigation may be necessary to enforce any patents issued to us or to determine
the scope and validity of the proprietary rights of third parties. Litigation
and interference proceedings, even if they are successful, are expensive to
pursue, and we could use a substantial amount of our limited financial resources
in either case.
Just as it is important to protect our proprietary rights, we also must
not infringe patents issued to competitors and not breach the licenses that
might cover technology used in our potential products. If our competitors own or
have rights to technology that we need in our product development efforts, we
will need to obtain a license to those rights. If we fail to obtain any
necessary licenses, we may be unable to complete product development.
We also rely on trade secrets to develop and maintain our competitive
position. Although we protect our proprietary technology in part by
confidentiality agreements with employees, consultants, collaborators, advisors
26
and corporate partners, these agreements may be breached. We cannot assure you
that these agreements will provide this meaningful protection or adequate
remedies in the event of unauthorized use or disclosure of this information. We
also cannot assure you that the parties to these agreements will not breach
them. In that event, we may not have adequate remedies for any breach. As a
result, third parties may gain access to our trade secrets, and third parties
may disclose our trade secrets and confidential technology to the public. In
addition, it is possible that our trade secrets will otherwise become known or
be discovered independently by our competitors.
Patent litigation is becoming more widespread in the biopharmaceutical
industry. Although no third party has asserted a claim of infringement against
us, we cannot assure you that third parties will not assert patent or other
intellectual property infringement claims against us with respect to our
products or technology or other matters. If they do, we may not prevail and, as
a result, may be subject to significant liabilities to third parties or may be
required to license the disputed rights from the third parties or cease using
the technology. We may not be able to obtain any necessary licenses on
reasonable terms, if at all. Any such claims against us, with or without merit,
as well as claims initiated by us against third parties, can be time-consuming
and expensive to defend or prosecute.
We have no manufacturing experience and will depend on third parties to
manufacture our products.
We do not currently operate manufacturing facilities for clinical or
commercial production of our products under development. We have no experience
in manufacturing and currently lack the resources or capability to manufacture
any of our products on a clinical or commercial scale. As a result, we are
dependent on corporate partners, licensees or other third parties for the
manufacturing of clinical and commercial scale quantities of our products.
For example, we have entered into agreements with third party
manufacturers for clinical scale production of ranolazine's active
pharmaceutical ingredient and for ranolazine tableting, which we believe are
sufficient to support the remainder of the Phase III program to support filing
of an NDA for ranolazine for chronic angina. In addition, we have entered into
several other manufacturing agreements relating to ranolazine, including for
commercial scale or scale-up of bulk active pharmaceutical ingredient,
tableting, and supply of a raw material component of the product. However,
commercial launch of ranolazine is dependent on these third party arrangements,
and could be affected by delays or difficulties in performance. In addition,
because we have used various manufacturers for ranolazine in different clinical
trials prior to FDA approval of ranolazine, we will be required to demonstrate
to the FDA's satisfaction the bioequivalence of the multiple sources of
ranolazine used in our clinical trials and their bioequivalence to the product
to be commercially supplied.
Failure to obtain adequate reimbursement from government health
administration authorities, private health insurers and other organizations
could materially adversely affect our future business, results of operations and
financial condition.
Our ability and the ability of our existing and future corporate partners
to market and sell our products will depend in part on the extent to which
reimbursement for the cost of our products and related treatments will be
available from government health administration authorities, private health
insurers and other organizations. Third party payors are increasingly
challenging the price of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly
approved health care products. In addition, for sales of our products in Europe,
we will be required to seek reimbursement on a country-by-country basis. We
cannot be certain that any products approved for marketing will be considered
cost effective or that reimbursement will be available or that allowed
reimbursement in foreign countries will be adequate. In addition, payors'
reimbursement policies could adversely affect our or any corporate partner's
ability to sell our products on a profitable basis.
Our business depends on certain key executives, the loss of whom could
weaken our management team, and on attracting and retaining qualified personnel.
27
The growth of our business and success depends in large part on our
ability to attract and retain key management, technical, sales and marketing and
other operating personnel. There can be no assurance that we will be able to
attract and retain the qualified personnel or develop the expertise in these
areas as needed for our business. The loss of the services of one or more
members of these groups or the inability to attract and retain additional
personnel and develop expertise as needed could limit our ability to develop and
commercialize our existing drugs and future drug candidates. Such persons are in
high demand and often receive competing employment offers.
Our operations involve hazardous materials, which could subject us to
significant liability.
Our research and development activities involve the controlled use of
hazardous materials, including hazardous chemicals, radioactive materials and
pathogens, and the generation of waste products. Accordingly, we are subject to
federal, state and local laws governing the use, handling and disposal of these
materials. We may incur significant costs to comply with additional
environmental and health and safety regulations in the future. Although we
believe that our safety procedures for handling and disposing of hazardous
materials comply with regulatory requirements, we cannot eliminate the risk of
accidental contamination or injury from these materials. In the event of an
accident or environmental discharge, we may be held liable for any resulting
damages, which may exceed our financial resources and may materially adversely
affect our business, financial condition and results of operations. Although we
believe that we are in compliance in all material respects with applicable
environmental laws and regulations, there can be no assurance that we will not
be required to incur significant costs to comply with environmental laws and
regulations in the future. There can also be no assurance that our operations,
business or assets will not be materially adversely affected by current or
future environmental laws or regulations.
We may be subject to product liability claims if our products harm people,
and we have only limited product liability insurance.
The manufacture and sale of human therapeutic products involve an inherent
risk of product liability claims and associated adverse publicity. We currently
have only limited product liability insurance for clinical trials and no
commercial product liability insurance. We do not know if we will be able to
maintain existing or obtain additional product liability insurance on acceptable
terms or with adequate coverage against potential liabilities. This type of
insurance is expensive and may not be available on acceptable terms. If we are
unable to obtain or maintain sufficient insurance coverage on reasonable terms
or to otherwise protect against potential product liability claims, we may be
unable to commercialize our products. A successful product liability claim
brought against us in excess of our insurance coverage, if any, may require us
to pay substantial amounts. This could adversely affect our results of
operations and our need for and the timing of additional financing.
The market price of our stock may continue to be highly volatile.
Within the last 12 months, our common stock has traded between $21.08 and
$93.13. The market price of the shares of common stock for our company has been
and may continue to be highly volatile. Announcements may have a significant
impact on the market price of our common stock. These announcements may include:
o results of our clinical trials and preclinical studies, or those of
our corporate partners or our competitors
o our operating results
o developments in our relationships with corporate partners
o developments affecting our corporate partners
28
o negative regulatory action or regulatory approval with respect to
our announcement or our competitors' announcement of new products
o government regulations, reimbursement changes and governmental
investigations or audits related to us or to our products
o developments related to our patents or other proprietary rights or
those of our competitors
o changes in the position of securities analysts with respect to our
stock
o operating results below the expectations of public market analysts
and investors
o market conditions for biopharmaceutical or biotechnology stocks in
general
The stock market has from time to time experienced extreme price and
volume fluctuations, which have particularly affected the market prices for
emerging biotechnology and biopharmaceutical companies, and which have often
been unrelated to their operating performance. These broad market fluctuations
may adversely affect the market price of our common stock. In addition, sales of
substantial amounts of our common stock in the public market could lower the
market price of our common stock.
Delaware law, provisions in our charter and our rights plan could make the
acquisition of our company by another company more difficult.
Provisions of our certificate of incorporation may have the effect of
delaying or preventing changes in control or management or limit the price that
investors may be willing to pay for shares of our common stock. In addition, we
are subject to the provisions of Section 203 of the Delaware General Corporation
Law, an anti-takeover law, which could delay a merger, tender offer or proxy
contest or make a similar transaction more difficult. In addition, our board of
directors has the authority to issue up to 5,000,000 shares of preferred stock
without stockholders' approval. The rights of the holders of common stock will
be subject to, and may be affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock could have the effect of making it more difficult for a third party to
acquire a majority of our outstanding voting stock.
Furthermore, in February 1999, the board of directors enacted
anti-takeover provisions, including a stockholder rights plan, and authorized
severance agreements in the event of a change of control for key executives. The
Board of Directors amended the stockholders rights plan in July 2000 to lower
the triggering ownership percentage and increase the exercise price while
maintaining the plan in effect.
Item 2. Properties
We currently lease two buildings in Palo Alto, California. The first
building has 61,081 square feet and a lease with an initial term that expires in
April 2012 with an option to renew for thirteen years. In November and December
2000, we entered into two lease agreements for the second building, which has
73,172 square feet. The first of these two agreements is a sublease with a term
that expires in February 2005. The second agreement is with the master landlord
and has a term from March 2005 through April 2012. Both buildings are used for
general administration, research and development. We believe that these
facilities will be adequate to meet our needs for the foreseeable future.
Item 3. Legal Proceedings
We are not a party to any material pending legal proceedings.
29
Item 4. Submission of Matters to a Vote of Securities Holders
On December 13, 2000, we held a special meeting of our shareholders to
approve and adopt an amendment to our Amended and Restated Certificate of
Incorporation to increase the total number of authorized shares of our common
stock from 30,000,000 to 85,000,000. 14,077,355 votes were cast for the motion,
1,463,246 votes were cast against the motion and 3,388 votes abstained.
30
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Market Information
Our common stock trades on the Nasdaq National Market under the symbol
"CVTX".
The following table sets forth, for the periods indicated, the high and
low price per share of the common stock
High Low
----------- -----------
Fiscal Year Ended December 31, 1998
First Quarter ended March 31, 1998 $ 10.250 $ 8.250
Second Quarter ended June 30, 1998 $ 10.875 $ 8.250
Third Quarter ended September 30, 1998 $ 9.063 $ 5.750
Fourth Quarter ended December 31, 1998 $ 7.500 $ 4.250
Fiscal Year Ended December 31, 1999
First Quarter ended March 31, 1999 $ 7.250 $ 3.688
Second Quarter ended June 30, 1999 $ 6.375 $ 4.000
Third Quarter ended September 30, 1999 $ 21.000 $ 5.375
Fourth Quarter ended December 31, 1999 $ 27.875 $ 10.375
Fiscal Year Ended December 31, 2000
First Quarter ended March 31, 2000 $ 69.000 $ 22.500
Second Quarter ended June 30, 2000 $ 75.625 $ 26.500
Third Quarter ended September 30, 2000 $ 82.750 $ 49.750
Fourth Quarter ended December 31, 2000 $ 93.125 $ 58.875
on the Nasdaq National Market.
On February 28, 2001, the closing price for our common stock was $35.75
per share. As of February 28, 2001, we had approximately 105 holders of record
of our common stock.
Dividends
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore, do not anticipate paying any cash
dividends in the foreseeable future.
31
Item 6. Selected Financial Data
The data set forth below is not necessarily indicative of the results of
future operations and should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this document and
also with "Management's Discussion and Analysis of Financial Condition and
Results of Operations". No dividends were declared or paid for any periods
presented.
Year Ended December 31,
--------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
Statements of Operations Data
Revenues:
Collaborative research $ 250 $ 2,578 $ 4,509 $ -- $ 3,309
Operating expenses:
Research and development 7,141 10,568 14,578 20,342 40,761
General and administrative 2,917 4,169 4,158 4,659 7,601
-------- -------- -------- -------- --------
Total operating expenses 10,058 14,737 18,736 25,001 48,362
-------- -------- -------- -------- --------
Loss from operations (9,808) (12,159) (14,227) (25,001) (45,053)
Interest income 587 1,760 2,749 2,795 15,785
Interest and other expense (1,144) (926) (1,124) (916) (9,112)
-------- -------- -------- -------- --------
Net loss $(10,365) $(11,325) $(12,602) $(23,122) $(38,380)
======== ======== ======== ======== ========
Basic and diluted net loss per share (1) $ (9.83) $ (1.58) $ (1.16) $ (1.75) $ (2.06)
======== ======== ======== ======== ========
Shares used in computing basic and
diluted net loss per share (1) 1,054 7,157 10,905 13,207 18,664
======== ======== ======== ======== ========
December 31,
--------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(in thousands)
Balance Sheet Data
Cash, cash equivalents and marketable
securities $ 21,568 $ 38,090 $ 44,804 $ 91,257 $296,193
Working capital $ 20,278 $ 32,904 $ 40,698 $ 88,038 $285,590
Total assets $ 26,139 $ 42,644 $ 49,330 $ 96,907 $311,633
Long-term debt $ 5,000 $ 5,052 $ 7,838 $ 7,855 $197,815
Accumulated deficit $(45,626) $(56,951) $(69,553) $(92,675) $(131,055)
Total stockholders' equity $ 18,676 $ 26,557 $ 34,738 $ 82,147 $ 91,782
- ----------
(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the shares used in calculating basic and diluted net loss per share.
32
Quarterly Results of Operations
The following table sets forth the quarterly results of operations for the
year ended December 31, 1999:<