UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

FORM 10-K

 

 

 

For the fiscal year ended December 31, 2001

 

OR

 

 

For the transition period from____________to____________

 

Commission File Number: 0-22890

 

 

SANGSTAT MEDICAL CORPORATION
(Exact name of registrant as specified in its charter)

 

 

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)
Preferred Share Purchase Rights
(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES  ý  NO  o

 

Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

The aggregate market value of voting stock held by non-affiliates of the Registrant, as of March 18, 2002 was approximately $540,560,000 (based on the closing price for shares of the Registrant’s Common Stock as reported by the Nasdaq National Market of $24.98 on that date). Shares of Common Stock held by each officer, director, and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

 

On March 18, 2002 approximately 26,348,115 shares of the Registrant’s Common Stock, $.001 par value, were outstanding.

Parts of the definitive Proxy Statement for the Registrant’s 2002 Annual Meeting of Stockholders to be filed with the Securities Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K are incorporated by reference into Part III of this Form 10- K.

 

 

 

SANGSTAT MEDICAL CORPORATION

 

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

 

TABLE OF CONTENTS

 

PART I
Item 1.	Business
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
PART II
Item 5.		Market for Registrant’s Common Stock and Related Stockholder Matters
Item 6.		Selected Consolidated Financial Data
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk
Item 8.		Financial Statements and Supplementary Data
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
The information required by Items 10 through 13 is incorporated by reference from the registrant’s proxy statement.
PART IV
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES

 

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PART I

 

ITEM 1.                                                     BUSINESS

 

The following discussion and analysis should be read in conjunction with “Selected Consolidated Financial Data” and our Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K.  Except for the historical information contained herein, the discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and future results. The cautionary statements made in this Annual Report on Form 10-K  should be read as being applicable to all related forward-looking statements wherever they appear. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include those discussed in “Risk Factors,” as well as those discussed elsewhere herein. In particular, we have included forward-looking statements regarding the following: (i) our anticipated financial results for 2002; (ii) the timeline and potential results of preclinical development and clinical trials; (iii) potential outcomes of our and Abbott’s litigation with Novartis; (iv) our plans for marketing a cyclosporine capsule in Europe; (v) anticipated expenditures and timing relating to FDA and foreign approval of our products and facilities; and (vi) anticipated potential strategic collaborations with others.  These forward-looking statements are based on our current expectations, and we disclaim any obligation to update these forward-looking statements for subsequent events or to explain why actual results differ.

 

Overview

 

SangStat is a global biotechnology company expanding on its transplantation foundation to discover, develop and market high value therapeutic products in immunology, hematology/oncology and auto-immune disease. Since our incorporation in 1988, we have been dedicated to improving the outcome of organ and bone marrow transplantation through the development and marketing of products to address all phases of transplantation in the worldwide market. We are headquartered in Fremont, California. We maintain a strong European and U.S. presence, including direct sales and marketing forces in all major European markets and the U.S. and distributors throughout the rest of the world.

 

Historically, our business was comprised of two segments: pharmaceutical products and transplantation services. In October 2000, we implemented a new strategy focused on growing a core business in high value therapeutics that builds on our expertise in transplantation but extends into new therapeutic areas. As a result of this new strategy, we decided to dedicate significant resources to our pharmaceutical products segment, which consists of four marketed products and three principal product candidates. Consequently, on April 20, 2001, we sold our transplantation services segment, The Transplant Pharmacy, to Chronimed.

 

Our primary marketed product, Thymoglobulin, a treatment for acute rejection of a kidney transplant, was launched in February 1999. Thymoglobulin achieved worldwide sales of $30.6 million in 1999, $37.9 million in 2000 and $51.4 million in 2001. The success of Thymoglobulin and its potential in areas beyond solid organ transplantation has provided us with the ability to examine and develop new therapeutic opportunities outside of transplantation.

 

We are now focusing on a variety of therapeutic products and product candidates to address the pre-transplant, acute care and chronic phases of transplantation as well as product candidates in immunology, hematology/oncology and auto-immune disease.

 

We currently sell the following products:

 

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•    Thymoglobulin^® (sold under the name Thymoglobuline^® outside the U.S.);

 

•    Gengraf^® cyclosporine capsule (co-promoted with Abbott Laboratories in the U.S.);

 

•    Lymphoglobuline^® (outside the U.S.); and

 

•   Celsior^®.

 

Our principal products under development include:

 

•   A smaller-size cyclosporine capsule;

 

•   ABX-CBL (anti-CD147 antibody in co-development with Abgenix, Inc.); and

 

•    RDP58.

 

Background

 

Organ Transplantation

 

Organ transplantation can save or improve the lives of patients with organ failures. Transplantation involves surgically replacing the diseased or failed organ of a transplant recipient with a healthy organ from a donor. Industry sources report that each year approximately 20,000 patients in the U.S. receive donated organs, and we estimate that there are approximately twice that number of patients worldwide. While the size of the transplant population is difficult to ascertain at any given time, industry participants believe the population of organ transplant survivors to be more than 200,000 worldwide. Currently, there are approximately 260 transplant centers in the U.S.

 

In order to prevent rejection of implanted organs, most recipients must begin a life-long regimen of immunosuppressive therapy immediately upon receiving a donated organ. This immunosuppressive regimen usually requires daily therapy in order to prevent organ rejection and graft loss. Products that supplement immunosuppression can reduce the frequency and severity of rejection and infection episodes. These products can potentially enhance patient outcomes, while providing potential cost savings in the treatment of transplantation and its associated side effects. Our product Gengraf, an immunosuppressant, is approved in the U.S. for the prevention of kidney, liver and heart rejection.

 

The Transplant Immune Response

 

The function of the immune system is to protect the body from damage caused by invading microorganisms or other foreign matter. Differences between a donor’s and a recipient’s antigens can lead to the recognition of the donor’s organ as foreign matter by the recipient’s immune system. Specifically, the donor organ antigens are recognized by the immune system of the graft recipient as being “non-self,” triggering the immune system to attack and invade the graft. When the recipient’s immune system attacks and invades the donated graft, rejection and loss of the graft often occur. Thymoglobulin is approved for acute kidney graft rejection in the U.S., and Thymoglobulin and Lymphoglobuline are approved for both prevention and treatment of acute graft rejection in various countries outside the U.S.

 

The Transplant Process

 

A typical transplant patient progresses through three phases:

 

•    The Pre-Transplant Phase

 

A transplant candidate is registered on a national computerized waiting list. A candidate usually waits months or even years for a compatible organ. Organs harvested from donors are stored in a preservation solution such as Celsior to prevent deterioration. Each organ is cross-matched with potential recipients. The organ is then shipped in

 

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the same organ preservation solution to the recipient’s transplant center.

 

•    The Acute Phase (Surgery and First Year Post-Transplant)

 

After transplantation, the physician must prevent graft rejection for the transplant to be a success. Consequently, the success of the transplant is highly dependent on the immunosuppressive regimen that is initiated at the time of transplantation and continued daily for the rest of the patient’s life. Organ recipients must be regularly monitored to measure the body’s immune response and blood drug levels and to help identify acute rejection episodes. Many patients undergo one or more rejection episodes in the first year after transplant and require additional immunosuppressants.

 

•   The Chronic Phase (Lifetime Post-Transplant)

 

The use of immunosuppressants such as cyclosporine, initiated during the acute phase, is continued daily throughout the patient’s lifetime to minimize or prevent the loss of the organ by rejection. These drugs impair the recipient’s immune system in order to reduce the immune response against the graft. Even with the use of immunosuppressants, industry sources report that patients have an approximate 20% to 50% risk of losing a donated organ during the first three years following transplantation, and approximately 20% to 65% after five years. These percentages differ depending on the type of transplant. Chronic use of immunosuppressants can also lead to serious side effects, including life-threatening infections, kidney or liver toxicity and cancer.

 

Aplastic Anemia

 

Aplastic anemia, which primarily affects young people, is a disease in which the stem cells disappear from the bone marrow. Aplastic anemia has a high mortality rate and, even with treatment, quality of life is poor. A lack of stem cells in the bone marrow inhibits the production of blood cells. As a result, patients with this disease are dependent on weekly blood transfusions that require frequent visits to the physician’s offices. Both Thymoglobulin and Lymphoglobuline are approved in certain countries outside of the U.S. for treatment of aplastic anemia, and we believe that the majority of sales of Lymphoglobuline in Japan are for the treatment of aplastic anemia. Current treatments for severe aplastic anemia include immunosuppressants and, if necessary, bone marrow transplantation.

 

Myelodysplastic Syndrome (MDS)

 

Myelodysplastic Syndrome, or MDS, also referred to as pre-leukemia, is a rare disease in which the bone marrow functions abnormally and does not produce enough normal blood cells. The incidence of MDS is not known, but it is believed that there are approximately 10,000 to 20,000 new cases in the U.S. each year with the number increasing. Approximately 30% of patients with MDS may have their disease progress to develop into acute leukemia, a form of cancer where the patient has too many white blood cells. Weekly blood transfusions remains the principal therapy for less advanced types of MDS. Current treatments for the advanced types of the disease include chemotherapy and/or bone marrow transplantation. However, these therapies are ineffective or not available in the majority of cases.

 

We have orphan drug status for Thymoglobulin for the treatment of MDS and have a Phase IIb clinical study ongoing.

 

Bone Marrow or Stem Cell Transplantation

 

Bone marrow or stem cell transplantation is a standard therapy for many disease states, primarily cancer or pre-cancerous diseases. Stem cells, found in the peripheral blood or in the bone marrow, are given by an intravenous infusion to re-establish marrow function in a patient after ablation of the patient’s bone marrow.

 

Immunosuppressive therapy, primarily anti-thymocyte globulin, or ATG, such as Lymphoglobuline and Thymoglobulin, chemotherapeutic agents and/or irradiation are given as part of a conditioning regimen. The goal of this regimen is threefold: to limit the patient’s ability to mount an immune response to the new bone marrow or stem cells, to provide space for the new cells, and to destroy any residual cancer if the patient is being treated for a malignancy.

 

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Some of these patients experience graft versus host disease, or GVHD. This is a condition in which the graft (i.e. the new immune system) begins to reject the host (i.e. the body). GVHD is a life-threatening complication that frequently occurs following an allogeneic bone marrow transplant. An allogeneic bone marrow transplant procedure involves transferring donor hemopoetic stem cells, the graft, from a healthy person into an immunosuppressed patient, the host. The transplant is intended to restore normal circulating blood and immune cells to a patient whose own hemopoetic and immune system has been ablated by the treatment of an underlying disease such as cancer and the conditioning regimen. Often a portion of the donor graft recognizes the host’s own cells as foreign, becomes activated and attacks them, resulting in GVHD. GVHD typically involves damage to multiple organ systems, including the skin, liver and intestines. ABX-CBL is initially being developed to treat steroid-resistant GVHD.

 

Crohn’s Disease and Ulcerative Colitis

 

Crohn’s disease and ulcerative colitis are similar diseases that are often grouped together as inflammatory bowel disease. Industry sources estimate that there may be up to 1,000,000 Americans who suffer from inflammatory bowel disease. Crohn’s disease is a chronic inflammatory disease of the gastrointestinal tract that usually causes diarrhea, abdominal pain, fever and rectal bleeding. Ulcerative colitis is a similar disease to Crohn’s disease, but only infects the large intestine and is characterized by inflammation and ulceration of the innermost lining of the colon. Symptoms include diarrhea and sometimes abdominal pain. We are developing RDP58 for the treatment of both diseases.

 

Products and Product Candidates

 

The following table summarizes our principal products and product candidates.

 

Marketed Product		Indications/Potential Clinical Use		Status		Marketing Rights
Thymoglobulin/ Thymoglobuline		Prevention and treatment of acute graft rejection, severe aplastic anemia and steroid resistant GVHD		U.S.: Approved for treatment of acute kidney rejection episodes EU: Approved for prophylaxis and rejection in kidney, pancreas, and liver transplants; treatment of rejection crisis and acute GVHD in allogeneic bone marrow transplantation; and aplastic anemia		SangStat
Gengraf		Chronic immuosuppression (prevents organ rejection)		U.S.: Approved		SangStat and Abbott Laboratories jointly (U.S.)
Lymphoglobuline		Prevention and treatment of acute graft rejection, severe aplastic anemia and steroid resistant GVHD		Over 45 countries other than the U.S.: Approved		SangStat
Celsior		Preservation of organs prior to transplantation		U.S.: Approved only for cardiac transplantation		SangStat

 

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Product Candidate		Indications/Potential Clinical Use		Status		Commercialization Rights
Smaller-Size Cyclosporine Capsule		Chronic immunosuppression (prevents organ rejection)		Bioequivalence study ongoing		SangStat
ABX-CBL		Treatment of steroid resistant GVHD		Phase II/III		SangStat and Abgenix
RDP58		Ulcerative colitis, Crohn’s disease		Phase IIb		SangStat

 

Marketed Products

 

Thymoglobulin

 

Thymoglobulin is a pasteurized anti-thymocyte rabbit immunoglobulin that induces immunosuppression as a result of T-cell depletion and immune modulation. Thymoglobulin is made up of a variety of antibodies that recognize key receptors on T-cells, the cells of a transplant recipient’s immune system that recognize and ultimately reject foreign objects such as transplanted organs. While the exact mechanism is unknown, researchers believe Thymoglobulin antibodies may inactivate and kill these T-cells, thus neutralizing the rejection process and allowing the transplanted organ to recover. Thymoglobulin is also used to treat aplastic anemia and steroid resistant GVHD. Thymoglobulin is approved in the U.S. only for treatment of kidney transplant acute rejection episodes.

 

Market

 

We (or our distributors) market Thymoglobulin in 56 countries, with a majority of our revenues coming from Europe and the U.S. We launched Thymoglobulin in the U.S. in February 1999. In the U.S., Thymoglobulin is currently approved for treatment of acute rejection in kidney transplant recipients. In other countries where Thymoglobulin is marketed, it generally has the following indications:

 

•   prophylaxis and rejection in kidney, pancreas, and liver transplants;

 

•   treatment of rejection crisis and acute GVHD in allogeneic bone marrow transplantation; and

 

•    aplastic anemia.

 

We market and sell Thymoglobulin outside Europe and North America through distributors. We have a distribution agreement with Aventis for most countries outside of Europe and North America where Thymoglobulin is marketed. We have also entered into distribution agreements with distributors in certain Asian countries and are currently re-negotiating our distribution agreement with Aventis to obtain the right to distribute directly in certain territories.

 

Additional Clinical Studies

 

•    Induction/Prevention

 

We have initiated a comparative induction study of Thymoglobulin versus Simulect, a monoclonal antibody marketed by Novartis Pharmaceuticals Inc. (“Novartis”) in high-risk renal transplant recipients. Our intent in this study is to generate data comparing the clinical effects of Thymoglobulin with Simulect. It is not our intent to use this trial, and the FDA has indicated that this trial will not be sufficient, to support label indication changes or expansion. This prospective, randomized, open-label study is being conducted in over 20 transplant centers in the U.S. and Europe. Primary endpoints at 6 months will be graft survival, patient survival and incidence of acute rejection. We will also capture other important clinical data such as infections and incidence of delayed graft

 

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function. The study was closed early in March 2002, with a total enrollment of 279 participants out of a planned 340, after an interim analysis revealed significantly fewer acute rejections of implanted kidneys in patients treated with Thymoglobulin versus Simulect. In the interim analysis, the incidence of acute kidney rejection was 2.5 times greater among patients treated with Simulect compared to patients who received Thymoglobulin and this was statistically significant.  Further, there was no statistically significant difference in the rate of severe adverse events in either arm of the study.  These interim results are preliminary and subject to change upon finalization of the study results.

 

•    Hematological Disorders and Malignancies

 

We have also initiated an open-label prospective, randomized, multi-center Phase IIb trial with Thymoglobulin in MDS. SangStat received orphan drug designation for Thymoglobulin for treatment of MDS in September 2000. Orphan drug designation is granted to applicants when the prevalence of the disease for which approval is sought occurs in less than 200,000 patients in the U.S. The advantages of this designation include a waiver of the user fee, possible marketing exclusivity and tax credits for development costs. These advantages are intended to encourage sponsors to develop drugs for patients with rare diseases.

 

The standard of care for low-risk MDS patients is weekly blood transfusions. The primary endpoint in this trial is transfusion independence at six months post therapy. This is an open-label randomized trial comparing observation (the control arm) to treatment with Thymoglobulin (3.25mg/kg for four days). Patient enrollment began in October 2000. In part because this is a rare disease, as evidenced by its orphan drug status, patient enrollment to date has been relatively slow. There are currently 26 patients enrolled in the study. We continue to expand the number of centers participating in the study with the aim of completing enrollment of 72 patients into the study by the end of 2002.

 

Gengraf^® Cyclosporine Capsules

 

Cyclosporine, first approved in the U.S. in 1983, is a potent immunosuppressive agent. Cyclosporine inhibits the synthesis and release of the cytokine interleukin-2, which is essential to the body’s immune response to transplanted organs. Gengraf cyclosporine capsule, a product of Abbott Laboratories, Inc., is a generic version of Neoral^® capsules, which is marketed by Novartis. SangStat and Abbott co-promote and distribute Gengraf in the U.S. Gengraf is normally taken daily over the lifetime of the organ recipient to prevent organ rejection.

 

Cyclosporine Market

 

Cyclosporine is the leading immunosuppressive drug used to prevent organ and graft rejection in transplantation. Industry sources report that each year approximately 20,000 patients in the U.S. receive donated organs, and we estimate that there are approximately twice that number of patients receiving donated organs worldwide. While the size of the transplant population is difficult to ascertain at any given time, industry participants believe the population of organ transplant survivors to be more than 200,000 patients worldwide. The majority of these patients are prescribed daily doses of cyclosporine for the rest of their lives. Cyclosporine is also indicated for the treatment of rheumatoid arthritis and adult non-immunocompromised psoriasis patients. Worldwide sales of cyclosporine are greater than $1 billion per year. The U.S. market is approximately $500 million.

 

We entered into an agreement with Abbott in May 1999 for the co-promotion, distribution and research in the U.S. of Gengraf and SangCya Oral Solution. SangCya Oral Solution, which is a generic version of Neoral oral solution, was withdrawn from the U.S. market in July 2000 and is currently being sold on a limited basis only in the United Kingdom.

 

We launched Gengraf cyclosporine capsules in May 2000 in the U.S. through our combined SangStat/Abbott sales force. Gengraf’s indications are identical to Neoral’s indications and include (i) the prophylaxis of organ rejection in kidney, liver and heart allogeneic transplants; (ii) the treatment of patients with severe, active rheumatoid arthritis where the disease has not adequately responded to methotrexate; and (iii) the treatment of adult, non-immunocompromised patients with severe (i.e. extensive and/or disabling), recalcitrant, plaque psoriasis who have failed to respond to at least one systemic therapy (e.g. PUVA, retinoids or methotrexate), or in patients for whom either systemic therapies are contraindicated or cannot be tolerated.

 

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Lymphoglobuline^®

 

Lymphoglobuline is an anti-thymocyte equine immunoglobulin that induces immunosuppression as a result of T-cell depletion and immune modulation. In certain countries outside the U.S., it is approved for the prevention and treatment of rejection episodes in kidney, heart, pancreas, or liver transplantation. In hematology, Lymphoglobuline is approved in certain countries outside the U.S. for treatment of aplastic anemia and in the treatment of steroid resistant GVHD.

 

Market

 

We (or our distributors) market Lymphoglobuline in over 45 countries outside the U.S. Our sales force markets this product in Europe and Canada. Outside these countries, we sell Lymphoglobuline through our distribution agreement with Aventis or through other distributors. Aventis markets this product in Japan, where we believe a high percentage of sales occur for treatment of aplastic anemia. We hope to address U.S. market opportunities for Lymphoglobuline with the sale of Thymoglobulin. Therefore, we have no plans to seek approval for Lymphoglobuline in the U.S.

 

Celsior^®

 

Celsior is a storage solution for organs after removal from the donor and before transplantation into the recipient. It is a sterile, nonpyrogenic, extracellular solution for hypothermic flushing and storage of hearts. Early graft loss remains a significant problem associated with cardiac transplantation and damage to the heart tissue can occur due to inadequate preservation. Effective organ preservation includes initial flushing of the heart tissue during the recovery process and cold storage while the donor heart is transported to the recipient. Celsior is the first and only flush and cold storage solution approved by the FDA for cardiac transplantation. It was designed specifically for cardiac transplantation to minimize myocardial edema, oxygen free radical-induced reperfusion injury, and diastolic stiffness.

 

Market

 

We sell Celsior throughout Europe, and we commenced marketing the product in the U.S. in September 1999. Celsior is approved for marketing in the U.S. only in connection with cardiac transplantation. Outside of Europe and North America, we sell Celsior through our distribution agreement with Aventis or through other distributors. In 1999, industry sources report that there were approximately 4,000 cardiac and lung transplants worldwide.

 

Principal Products In Development

 

Consistent with our strategic changes in October of 2000, we leveraged our success with Thymoglobulin to expand our research and development initiatives to include areas outside of transplantation, including immunology, hematology/oncology and auto-immune disease. Our research and development expenses were $14.5 million in 1999, $20.8 million in 2000, and $17.9 million in 2001. These expenses primarily relate to additional indications for marketed products and new products in development.

 

We currently have three principal products in development:

 

Cyclosporine Capsules

 

We have an exclusive license to a pending patent application on a novel smaller-size cyclosporine capsule formulation from Tris Pharma, a small U.S. research and development company. We expect that the capsule will be smaller than currently marketed cyclosporine capsules. We are conducting a bioequivalence trial in healthy volunteers to demonstrate the new capsule’s bioequivalence to Neoral cyclosporine capsules in water. If the results of the bioequivalence trial and stability testing are positive, we presently expect to file for marketing approval in a European country in late 2002. We have withdrawn our Marketing Authorization Application in the U.K. for our cyclosporine capsule product known as Sang-2000 in favor of this newer formulation. We intend to follow the European Community Mutual Recognition Procedure for obtaining regulatory approval in multiple Member States.

 

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ABX-CBL

 

In August 2000, we entered into a global co-development, supply and license agreement for ABX-CBL with Abgenix under which we obtained an exclusive worldwide license for the marketing and sale of ABX-CBL. ABX-CBL is an anti-CD147 monoclonal antibody for the treatment of steroid resistant GVHD. The CD147 antigen is selectively expressed on activated immune cells including T cells, B cells and natural killer cells. In allogeneic blood and marrow transplantation (BMT), these activated immune cells attack a host’s own cells as foreign, resulting in GVHD, where the transplanted cells are attempting to “reject” the recipient. GVHD often leads to damage to multiple organ systems, including the skin, liver and intestines. First line therapy is high dose corticosteroids, which have a success rate of approximately 50%. Steroid resistant GVHD has a high mortality rate. We believe ABX-CBL has the ability to destroy activated immune cells without affecting the rest of the immune system.

 

ABX-CBL is currently in a multi-center, randomized, and controlled Phase II/III study. The study is designed to demonstrate statistically significant efficacy of a single dose level of ABX-CBL in comparison to a control group of patients. Many patients that undergo an allogeneic bone marrow transplant develop steroid resistant GVHD for which there is currently no standard approved therapy available. However, many physicians prescribe a treatment regimen using the polyclonal equine antibody, ATGAM. In this study, patients are randomized to receive ATGAM (30 mg/kg QOD for 6 doses) in the control group versus patients who received ABX-CBL (0.1 mg/kg/d for 14 days followed by 12 infusions over the next 6 weeks) in the treatment arm. Our primary endpoint of this study is patient survival at 180 days. As of March 1, 2002, we have enrolled 82 out of 92 patients planned for this study and presently expect to complete the study by the end of 2002.

 

We received orphan drug designation for ABX-CBL for the treatment of steroid resistant GVHD in November 2000.

 

RDP58

 

RDP58 is a novel inhibitor of TNF-alpha synthesis currently in Phase II clinical trials in the U.K. This is our first product candidate from our own research and development efforts to enter such a clinical trial. RDP58 was designed using our drug design approach, in collaboration with Synt:em, that integrates advanced biology, biophysics, chemistry and information technology in a coordinated effort to design and develop potential therapeutic products. We are investigating the use of RDP58 for treatment of various auto-immune disorders. Ulcerative colitis and Crohn’s disease are the two auto-immune disorders being examined in the current Phase II study.

 

Overview

 

Cytokines are protein messengers that coordinate the functions of immune cells and certain other cells and tissues. TNF-alpha is a cytokine that, when released in excess, can trigger activation of immune responses and inflammation. Continuous excessive TNF-alpha release can cascade into a variety of auto-immune diseases including inflammatory bowel disease, rheumatoid arthritis and psoriasis. There are currently a number of therapeutic products that target inhibition of TNF-alpha release. TNF inhibitors, including Remicade and Enbrel, have been approved for treatment since 1998 and 1999, respectively. They are considered the standard of care in the treatment of a variety of auto-immune diseases including Crohn’s disease and rheumatoid arthritis. These therapeutic agents are being examined as a treatment for a number of other auto-immune diseases, including psoriasis, psoriatic arthritis and ankylosing spondylitis.

 

Animal models, including studies in primates, suggest that RDP58 could decrease levels of TNF-alpha, reduce inflammation, and improve clinical outcomes. Currently marketed TNF-alpha inhibitors work by binding to TNF-alpha after synthesis and excretion by the cell, thus neutralizing TNF-alpha in the blood before it can participate in the inflammatory response. In contrast, we believe RDP58 prevents the translation of TNF-alpha RNA, thereby preventing the synthesis of TNF-alpha protein within the cell. We believe that RDP58 could be a more efficient inhibitor of TNF-alpha as it prevents the synthesis of the protein as opposed to current therapy which attempts to inhibit the effects of its expression post-synthesis.

 

RDP58 is currently being tested in an oral formulation consisting of D-isomer amino acids. This peptide is resistant to enzymatic break-down during the digestive process, which is important for any oral therapeutic agent. Current TNF-alpha inhibitors are only available in non-oral form, either through a subcutaneous injection or through

 

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intravenous administration.

 

Clinical Studies

 

We filed for Clinical Trial Exemption (CTX) with the U.K. Medicines Control Agency (the U.K. equivalent to the U.S. FDA) for RDP58 in September 2001 after successful completion of a Phase I normal volunteer dose escalation safety study. In the Phase I study, three groups of nine healthy volunteers participated in a dose escalation study using 3 doses for a total of 28 days. Oral RDP58 was found to be safe and well tolerated. The CTX allowed us to initiate Phase II proof-of-principle clinical trials in the fourth quarter of 2001. The Phase II trials are prospective, randomized, blinded trials in patients with mild-to-moderate ulcerative colitis or Crohn’s disease. We expect to complete patient enrollment and announce the results of these studies in the second half of 2002. Pending the results of these studies, a clinical development and regulatory pathway will be defined and implemented.

 

Other Preclinical Developments

 

RDP58 is the subject of four additional development programs: neurology, non-IBD gastro-intestinal disorders, dermatology and pulmonary.

 

Neurology.  RDP58 has been studied in the experimental auto-immune encephalomyelitis model of multiple sclerosis in rodents. The model is the standard of preclinical investigation for new therapeutic agents in the treatment of multiple sclerosis. The model requires animals to be injected with myelin basic protein on day 0, thus developing a predictable paralysis of the tail and hind limbs that begins on day 10 (after injection), peaks on day 12-13 and is completely resolved by day 18-20. The paralysis is used to simulate the mechanism of action found in multiple sclerosis. RDP58, when given as a single dose via intra-thecal injection, diminishes the paralysis in a dose dependent manner in this acute model (using doses of 15ug, 45ug and 150ug). At the highest dose, the paralysis appears to be completely eliminated. The timing of the treatment also has an impact on the disease progression. RDP58 can be given as a single dose on day 4, day 7 or day 10 after inoculation with myelin basic protein.

 

The currently approved standard of care for the treatment of multiple sclerosis is beta-interferon. Beta-interferon as a treatment regimen is most efficacious when commenced at the earliest point in the disease’s progression, usually immediately after diagnosis and before any symptoms of the disease present themselves. Furthermore, beta interferon has been shown to be increasingly ineffective as the disease progresses and has shown little efficacy in minimizing or halting symptoms, such as paralysis after they present themselves in a patient. We believe that RDP58 presents a unique opportunity in multiple sclerosis as our preclinical models demonstrate that disease progression may be halted after the presentation of symptoms.

 

Non-IBD Gastro-intestinal disorders.  Chemotherapy-induced diarrhea and diarrhea related to HIV are two significant gastro-intestinal disorders that affect thousands of people each year. CPT-11 is the most active drug against colon adenaocarcinoma, a form of colon cancer. Diarrhea is the most common side effect that limits the amount of CPT-11 that patients can tolerate. Prevention of diarrhea will allow increases in the dosage of CPT-11, potentially increasing their response to this treatment. RDP58 has been shown to significantly decrease the incidence of diarrhea and mortality in a murine model of CPT-11 toxicity. In this model, 93% of mice given 200mg/kg of CPT-11 developed diarrhea and had a 63% mortality rate. In the study, of the mice that were given RDP58 in their drinking water starting three days before treatment with CPT-11, only 33% developed diarrhea and 93% of the animals survived. These preliminary experiments are being followed by studies to prove that RDP58 does not increase the rate of tumor growth and that RDP58 allows an increase in the maximally tolerated dose of CPT-11.

 

HIV-related diarrhea is a malabsorption syndrome that results in nutrient loss and poor drug absorption. This translates into increased weight loss and viral tiers in patients who suffer from HIV-related colitis. Researchers at the University of California at Davis, with the support of scientists at SangStat, were awarded a National Institute of Health grant to study the impact of RDP58 on the gastro-intestinal complications of HIV in the HIV primate model. In this study, RDP58 was found to increase the CD4+ lymphocyte population of the gastrointestinal mucosa. We expect to explore this finding in a pilot clinical trial.

 

Dermatology. TNF-alpha appears to play an important role in psoriasis and possibly in atopic dermatitis. RDP58 has been fashioned into a topical gel that will be used to determine efficacy in these two dermatologic diseases.

 

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Animal toxicology studies are underway. We expect to begin patient studies after completion of the toxicology studies.

 

Pulmonary.  RDP58 is a powder formulation that may be used as an aerosol to provide inhalation therapy for asthma, chronic obstructive pulmonary disease, sarcoidosis and other pulmonary diseases. Preliminary animal experiments have been performed to demonstrate the feasibility of this approach. We are pursuing partners to continue development in this therapeutic arena.

 

Sales and Marketing

 

In the U.S., we market products through our direct sales force. As of December 31, 2001, we had 21 account managers, supervised by three regional sales directors, who call on or sell primarily to the approximately 260 transplant centers in the U.S. A number of the account managers have backgrounds in transplantation, either from selling other transplant products or with clinical backgrounds as nurses or as transplant coordinators in transplant centers. We also have two national account directors who call on group purchasing organizations and managed care groups.

 

Sales to Cardinal Health Inc., McKesson Corporation, AmeriSource and Bergen Brunswig Drug Company accounted for 26%, 18%, 12% and 11%, respectively, of total revenues in 2001. Sales to Cardinal Health Inc. and McKesson Corporation accounted for 13% and 15%, respectively, of total revenues in 2000. Sales to McKesson Corporation accounted for approximately 11% of our total revenues in 1999.

 

We have approximately 32 sales and marketing people throughout the major European markets.

 

Strategic Relationships

 

We evaluate on an ongoing basis potential collaborative relationships with corporate and other partners where such relationships may complement and expand SangStat’s research, development, sales and marketing capabilities.

 

Abbott Laboratories