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UNITED STATES 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, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20117
TEXAS BIOTECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3532643
(State of Incorporation) (I.R.S. Employer
Identification Number)
7000 FANNIN, 20TH FLOOR
HOUSTON, TEXAS 77030
(713) 796-8822
(Address and telephone number of principal executive offices and zip code)
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $.005 PER SHARE
-----------------------------
TITLE OF CLASS
PREFERRED STOCK 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 [X] No [ ]
Indicate iby 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. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]
The approximate aggregate market value of voting stock held by nonaffiliates
of the registrant is $169,054,000 as of June 28, 2002.
The number of shares outstanding of each of the registrant's classes of
common stock as of March 12, 2003:
TITLE OF CLASS NUMBER OF SHARES
------------------------ ----------------
Common Stock, 43,916,898
$.005 par value
Documents incorporated by reference:
DOCUMENT FORM 10-K PARTS
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Definitive Proxy Statement, III
to be filed within
120 days of December 31, 2002
(specified portions)
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included in and incorporated by reference into this Form 10-K are
forward-looking statements. These forward-looking statements include, without
limitation, statements regarding our estimate of the sufficiency of our existing
capital resources and our ability to raise additional capital to fund cash
requirements for future operations, and regarding the uncertainties involved in
the drug development process and the timing of regulatory approvals required to
market these drugs. Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we cannot give any assurance that
such expectations reflected in these forward-looking statements will prove to
have been correct.
When used in this Form 10-K, the words "expect," "anticipate," "intend,"
"plan," "believe," "seek," "estimate" and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements
contain these identifying words. Because these forward-looking statements
involve risks and uncertainties, actual results could differ materially from
those expressed or implied by these forward-looking statements for a number of
important reasons, including those discussed under "Management's Discussion and
Analysis of Financial Condition and Results of Operations", "Additional Risk
Factors" and elsewhere in this Form 10-K.
You should read these statements carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results or our future financial condition, or state other
"forward-looking" information. You should be aware that the occurrence of any of
the events described in the risk factors and elsewhere in this Form 10-K could
substantially harm our business, results of operations and financial condition
and that upon the occurrence of any of these events, the trading price of our
common stock could decline, and you could lose all or part of your investment.
We cannot guarantee any future results, levels of activity, performance or
achievements. Except as required by law, we undertake no obligation to update
any of the forward-looking statements in this Form 10-K after the date of this
Form 10-K.
This Form 10-K may contain trademarks and service marks of other companies.
2
PART I
ITEM 1 -- BUSINESS
OVERVIEW
Texas Biotechnology Corporation was incorporated in Delaware in 1989 and is
sometimes referred to in this report as TBC, we or us. We are a
biopharmaceutical company focused on the discovery, development and
commercialization of novel, synthetic, small molecule compounds for the
treatment of a variety of cardiovascular, vascular and related inflammatory
diseases. Our research and development programs are focused on inhibitors (also
referred to as antagonists or blockers) that can interrupt certain disease
processes. Our programs seek to address unmet medical needs in areas where our
compounds will have the greatest likelihood of improving the lives of patients
suffering from cardiovascular diseases, thrombocytopenia, pulmonary arterial
hypertension ("PAH"), heart failure and inflammatory diseases such as asthma.
Argatroban is our first marketed product. Argatroban was approved by the U.S.
Food and Drug Administration ("FDA") in 2000 for the prophylaxis or treatment of
thrombosis in patients with heparin-induced thrombocytopenia ("HIT") and for
patients with or at risk for HIT undergoing percutaneous coronary intervention
("PCI"). Argatroban was approved in Canada in 2002 for use as anticoagulant
therapy in patients with heparin-induced thrombocytopenia syndrome ("HITS"). The
drug is being marketed in the U.S. and Canada by GlaxoSmithKline, plc ("GSK")
and has been on the market in the U.S. and Canada since November 2000 and June
2002, respectively. GSK is our development, manufacturing and marketing partner
for Argatroban.
Presently, we have four major product development programs.
- Endothelin Antagonist Program. We are developing sitaxsentan, an
endothelin(A) receptor antagonist, or ET(A), for the treatment of PAH.
During June 2000, we formed a partnership, ("ICOS-TBC"), with ICOS
Corporation ("ICOS") to develop and commercialize ET(A) receptor
antagonists. During 2002, ICOS-TBC successfully completed a Phase IIb/III
clinical trial in PAH with sitaxsentan. TBC3711, a second generation
ET(A), has previously completed Phase I clinical trials and may be
developed for cardiovascular or other diseases. In January 2003, ICOS
announced that they had reached a conclusion that joint development of the
endothelin receptor antagonist program by ICOS-TBC should not continue.
ICOS and TBC are currently negotiating the terms pursuant to which TBC
could independently continue the program. The financial terms of this
transaction are subject to ongoing negotiations between the two companies.
- Thrombosis. During 2002, we completed a Phase II human clinical trial for
Argatroban as a mono-therapy treatment for acute ischemic stroke. The
clinical trial met the primary endpoint based on safety. In light of a
lack of a positive overall efficacy trend and the high risk and high costs
associated with stroke trials, it is unlikely that we will proceed
independently with a full Phase III program. Currently, Argatroban is
being evaluated, in a clinical trial, in combination with recombinant
tissue Plasminogen Activator ("rt-PA") as a new approach to the treatment
of acute ischemic stroke by an investigator at the University of Texas
Medical School at Houston.
- Vascular Inflammation Program. Revotar Biopharmaceuticals AG ("Revotar"),
our majority owned German affiliate located in Berlin is developing a
selectin antagonist, bimosiamose, for the treatment of asthma and
psoriasis. The intravenous form of the drug demonstrated positive
anti-inflammatory effects in Phase II clinical trials. Revotar was formed
during 2000, to further the development of this program. Revotar has
completed Phase I clinical trials for asthma utilizing an inhaled form of
bimosiamose. A Phase IIa clinical trial is currently being conducted with
an inhaled form of bimosiamose and a Phase IIa clinical trial in psoriasis
is planned to commence during 2003, using a topical formulation. A Phase
IIa proof-of-concept clinical trial in psoriasis, completed during 2002
with an injectable form of bimosiamose, demonstrated signs of activity. We
are also conducting research with respect to other cell adhesion molecules
including vascular cell adhesion molecule, or VCAM, junctional adhesion
molecules, or JAM 2/3 and several integrins including very late antigen 4,
or VLA-4, (alpha)4(beta)7 and others to develop antagonists for the
treatment of asthma, rheumatoid arthritis, multiple sclerosis, restenosis
and inflammatory bowel disease. We have signed a collaboration and license
agreement for the VLA-4 program with Schering-Plough LTD and
3
Schering-Plough Corporation (collectively "Schering-Plough") and have
received a milestone from Schering-Plough for nominating a compound as a
clinical candidate. Additionally, we are conducting research on backup
VLA-4 antagonists for Schering-Plough under this agreement.
- Vascular Disease. Many disease processes involve changes in blood vessels
and heart tissue. There are numerous mediators, like endothelin, which may
contribute to the development of these diseases. Several of these act
through G-protein coupled receptors, GPCRs, to carry out their action. We
are conducting research on urotensin and other GPCRs to identify
inhibitors which could be useful in treating diseases including congestive
heart failure, ("CHF"), ischemic stroke and acute myocardial infarction.
BUSINESS STRATEGY
The key elements of our business strategy are as follows:
Maximize sales of Argatroban
Our marketing, manufacturing and distribution partner, GSK, began selling
Argatroban in the U.S. during November 2000, and in Canada during June 2002, as
an anticoagulant for prophylaxis or treatment of thrombosis in patients with
HIT. In addition:
- during 2002, we received approval from the FDA on our supplementary New
Drug Application ("sNDA") for Argatroban for use in patients, with or at
risk for HIT, undergoing PCI;
- during 2002, GSK created a hospital based sales force and initiated
programs to increase its sales efforts on Argatroban in the U.S. and
Canada that could have a positive effect on our royalties from GSK;
- Argatroban is currently being evaluated, in a clinical trial, in
combination with rt-PA as a new approach to the treatment of acute
ischemic stroke by an investigator at the University of Texas Medical
School at Houston. Argatroban is approved and sold in Japan by Mitsubishi
Pharma Corporation ("Mitsubishi"), the licensor of Argatroban as
mono-therapy for an indication of acute ischemic stroke; and
- we have completed initial studies to evaluate the use of Argatroban in
hemodialysis patients and in PCI.
Complete the clinical development of sitaxsentan and commercialize the
compound worldwide
We intend to initiate a pivotal Phase III clinical trial with sitaxsentan in
2003 with the goal of filing a new drug application with the FDA for use of
sitaxsentan in patients with PAH. We intend to commercialize the compound on a
worldwide basis by ourselves or through licensee arrangements:
- During 2002, ICOS-TBC completed a Phase IIb/III clinical trial to assess
the safety and efficacy of sitaxsentan in patients with New York Heart
Association ("NYHA") class II, III and IV PAH. Based on the results of
this clinical trial and meeting with the FDA, TBC believes that
development of sitaxsentan should be continued.
- In January 2003, ICOS announced that they had reached a conclusion that
joint development of the endothelin receptor antagonist program, through
ICOS-TBC, should not continue. ICOS has indicated that it is willing to
transfer the endothelin antagonist program in its entirety, including
sitaxsentan, to us. The financial terms of this transaction are subject to
ongoing negotiations between the two companies. This will allow us to
increase our ownership and the potential commercial benefit of the program
from 50% to 100%.
Focus on the identification and development of new drugs for the treatment
of diseases involving the vascular endothelium
Injury to the vascular endothelium is a common cause of many of the most
profound diseases affecting patients today, such as ischemic heart disease,
hypertension, congestive heart failure, and asthma. By concentrating on this
area, we can be relatively efficient in our drug discovery, development and
commercialization efforts. This efficiency extends to the following areas:
4
- Research -- Our efforts are predominantly focused toward the treatment and
prevention of interrelated diseases of the vascular endothelium,
exploiting our research group's expertise in the area of vascular biology;
- Computer aided drug design -- We utilize computers to rapidly develop drug
candidates derived from our vascular biological efforts and to identify
new targets from information discovered by the Human Genome Project; and
- Clinical investigators and consultants -- We work with key opinion leaders
and consultants experienced in vascular diseases to assist in clinical
development, product planning and the regulatory approval process.
Focus on the identification and development of small molecule drug
candidates
Synthetic, small molecule therapeutics have several advantages over protein
and peptide based large molecules. Small molecules generally are not
immunogenic, can typically be protected with composition-of-matter patents and
can be produced by conventional lower cost pharmaceutical manufacturing methods.
Participate in the sales and marketing in the United States and Canada 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 upfront payments, milestone payments and a
royalty on sales may reduce some of our risks, particularly for diseases outside
our strategic interest or in territories outside of the United States and
Canada. In the future, however, we may decide that the risk-return profile
favors developing and then marketing and selling products on a co-promotion
basis or by ourselves. Therefore, when and if we deem it appropriate, we intend
to participate in the sales and marketing of our products in the United States
and Canada.
5
THERAPEUTIC PROGRAMS AND PRODUCTS IN DEVELOPMENT
The following table summarizes the potential therapeutic indications and
development status for certain of our clinical, preclinical and research product
candidates and is qualified in its entirety by the more detailed information
appearing elsewhere in this Form 10-K.
TARGET COMPOUND/
PROGRAM DOSE FORM INDICATION STATUS(1)
- -------------------- -------------------------- ------------------------------- -----------------
THROMBOSIS ARGATROBAN
Intravenous Anticoagulant therapy for Marketed product
prophylaxis or treatment of
patients with HIT
Intravenous Anticoagulant therapy for Marketed product
patients, with or at risk for
HIT, undergoing PCI
- --------------------------------------------------------------------------------------------------------------
VASOSPASM/ ENDOTHELIN(A) RECEPTOR
HYPERTENSION ANTAGONIST
Sitaxsentan (TBC11251)
Oral Pulmonary Arterial Hypertension Phase III
TBC3711
Oral Pulmonary Arterial Hypertension Phase I completed
UROTENSIN RECEPTOR Various Research
ANTAGONIST
OTHER GPCRS Various Research
- --------------------------------------------------------------------------------------------------------------
VASCULAR SELECTIN ANTAGONIST (BEING
INFLAMMATION DEVELOPED BY REVOTAR)
Bimosiamose (TBC1269)
Inhaled Asthma Phase IIa
Topical Psoriasis and atopic dermatitis Phase IIa
VCAM/VLA-4 ANTAGONIST
TBC4746
Oral Asthma Preclinical
Multiple Sclerosis Preclinical
Rheumatoid Arthritis Preclinical
(ALPHA)4(BETA)7 ANTAGONIST
TBC3804
Oral Inflammatory Bowel Disease Research
OTHER CELL ADHESION Various Research
MOLECULES
- --------------------------------------------------------------------------------------------------------------
(1) Preclinical compounds are compounds undergoing toxicology and
pharmaceutical development in preparation for human clinical testing.
Research compounds are compounds undergoing basic evaluation and
optimization to establish a lead clinical candidate.
6
THROMBOSIS PROGRAM
ARGATROBAN
Background. Thrombosis, the lodging of a blood clot in a vessel, causes
various vascular diseases, depending on the location of the clot. An arterial
clot may lead to heart attack if lodged in a coronary artery, or stroke if
lodged in an artery that supplies oxygen to the brain. Venous clots occur
principally in the arms or legs (deep vein thrombosis), and may cause local
inflammation, chronic pain and other complications. In some cases, a venous clot
can cause lung injury (pulmonary embolism) by migrating from the veins to the
lungs.
Thrombosis can be treated surgically or through drug therapy with
anticoagulant and thrombolytic drugs. Anticoagulant drugs prevent clots from
forming. Heparin and aspirin are the most widely used antithrombotic drugs.
Heparin, first discovered over 80 years ago, is the most widely used
injectable anticoagulant. In the U.S., approximately ten million patients
annually receive therapeutic heparin to treat a variety of conditions that
require inhibition of the body's natural clotting mechanism. Each year over
300,000 of these patients develop a profound immunological reaction to heparin
that is known as heparin-induced thrombocytopenia. The condition is
characterized by a paradoxical tendency to form clots. That puts the patient at
risk of major complications such as acute myocardial infarction, ischemic
stroke, amputation or death. It is also very difficult to administer heparin
dosages.
Current Therapies. In conjunction with GSK, we obtained approval for
Argatroban as an anticoagulant for prophylaxis or treatment of thrombosis in
patients with HIT in the U.S. and Canada. GSK began marketing Argatroban in the
U.S. in November 2000. Argatroban is a synthetic direct thrombin inhibitor that
directly and selectively binds to and inactivates thrombin in the blood plasma.
Argatroban is manufactured and marketed in Japan by Mitsubishi where it is
approved as a treatment for ischemic stroke, peripheral arterial occlusion and
hemodialysis in patients with antithrombin III deficiency, a clotting disorder
that does not respond to heparin. Since the product's introduction in 1990, more
than 200,000 patients have been treated with Argatroban in Japan. Other
measures, such as inline filters, are sometimes used to remove clots, but are
highly invasive and involve patient trauma. Simply stopping heparin alone may be
insufficient, as a significant number of patients will progress to experience
severe outcomes. Clinical studies that we conducted in the U.S. have shown a
significant correlation between the administered dose of Argatroban and the
degree of anticoagulation achieved. This is potentially important as it suggests
that the relationship between dose and effect of Argatroban is generally very
predictable over the expected dose-range. As a result, we believe there is
little risk of either insufficient or excessive anticoagulation occurring from
small dose changes of Argatroban. Other product advantages for Argatroban
include a rapid onset of action, a relatively short half-life and an absence of
immunogenicity.
Clinical Trial Status. During 2002, we completed a multi-center,
placebo-controlled Phase II clinical trial (ARGIS-I) for the use of Argatroban,
as monotherapy, in patients with ischemic stroke. During February 2003, we
reported the Phase II trial results that met the primary endpoint related to
safety. In light of a lack of an overall efficacy trend, and the high risk and
high costs associated with stroke trials, it is unlikely that Texas
Biotechnology will proceed independently with a full Phase III program. However,
given the relatively positive safety outcome, and the high rate of stroke
occurrence in HIT patients, some physicians may choose to use Argatroban in
place of heparin in some patient populations. Currently, Argatroban is being
evaluated in a clinical trial, in combination with rt-PA as a new approach to
the treatment of acute ischemic stroke by an investigator at the University of
Texas Medical School at Houston. Argatroban is approved and sold in Japan by
Mitsubishi, the licensor of Argatroban, as mono-therapy for an indication of
acute ischemic stroke. With GSK, we are conducting clinical trials to evaluate
the use of Argatroban in hemodialysis patients and for use in PCI.
Competition in HIT. Primary competitors for Argatroban in its initial
indication are Refludan(R) (lepirudin), marketed by Berlex Laboratories,
Orgaran(R) (danaparoid sodium), manufactured by N.V. Organon, a unit of Akzo
Nobel, and Angiomax (R) (bivalirudin) manufactured by The Medicines Company.
Refludan(R) (lepirudin, Berlex). This product received approval in Europe in
1997 and in the U.S. in 1998 for anticoagulation in patients with HIT to prevent
further thromboembolic (clotting) complications. Refludan(R) has been associated
with the development of an adverse immune response in up to 40% of patients
receiving Refludan(R). Several cases of anaphylaxis have been reported upon
re-exposure to Refludan(R). Although the full clinical impact of development of
these antibodies is unknown, we understand that the anticoagulant effects of
Refludan(R) may
7
become unpredictable in patients developing these antibodies. Additionally
Refludan(R) is renally excreted while Argatroban is hepatically excreted. Berlex
has stated they plan to submit for a HIT prevention label claim in the future.
Orgaran(R) (danaparoid sodium, N.V. Organon). This product is a low
molecular weight heparinoid, a heparin-like compound extracted from pigs.
The product was approved in the U.S. in 2001 for prevention of deep venous
thrombosis following hip surgery. However, approximately one in ten HIT
patients receiving Orgaran(R) will develop the HIT syndrome exactly as if
the patient received heparin. Orgaran(R) is not approved in the U.S. for
HIT and is used on an off-label basis only.
Angiomax(R) (bivalirudin, The Medicines Company). This product received
approval in the U.S. in 2001 for use as an anticoagulant in patients with
unstable angina undergoing percutaneous transluminal coronary angioplasty
("PTCA"). Angiomax(R) represents the third direct thrombin inhibitor approved in
the U.S. Angiomax(R) is not approved for the treatment of HIT. The Medicines
Company has stated their intention to expand the Angiomax(R) label to include
the treatment and prevention of HIT.
Other Indications. Argatroban may be useful in other disease settings where
predictable anticoagulation is desired. Argatroban may be effective in
hemodialysis and PCI, particularly in patients who develop problems when given
heparin.
Competition for Argatroban in Other Indications. Competitors for
Argatroban in other applications include:
- Revasc(R) (desirudin, Aventis/Novartis A.G.), recombinant hirudin, is
approved in Europe for the prevention of deep vein thrombosis following
hip surgery, but has been associated with intracranial hemorrhage and
antibody production;
- Melagatran (AstraZeneca plc) is in Phase III trials and is being developed
as a treatment for deep vein thrombosis. They have stated that they intend
to file an NDA during 2003; and
- Arixtra(R) (pentasaccharide, Sanofi-Synthelabo) was approved in the U.S.
in 2002 for the prevention of deep vein thrombosis and pulmonary embolism.
8
VASOSPASM/HYPERTENSION PROGRAM
Background. Smooth muscle cells in the blood vessel are responsible directly
for mediating vessel diameter. The regulation of blood flow depends on a
delicate balance between physical and chemical stimuli that cause smooth muscle
cells to relax (vasodilatation) or contract (vasoconstriction). Chronic periods
of excessive vasoconstriction in the peripheral circulation can lead to
disturbances in blood pressure (hypertension) or heart function (congestive
heart failure), whereas acute episodes of intense vasoconstriction (vasospasm)
can restrict blood flow leading to severe tissue damage and organ failure
(myocardial infarction or kidney failure). It has been determined that the
vascular endothelium (innermost lining) plays a pivotal role in maintaining
normal blood vessel tone, including blood flow, by producing substances that
regulate the balance between vasodilatation and vasoconstriction.
Endothelin is a peptide that is believed to play a critical role in the
control of blood flow. The action of endothelin can be explained by its
interactions on cell surfaces with two distinct receptors, endothelin-A (ET(A))
and endothelin-B (ET(B)). In general, ET(A) receptors are associated with
vasoconstriction, while ET(B) receptors are primarily associated with
vasodilatation. There is substantial evidence that endothelin is involved in a
variety of diseases where blood flow is important. These include vasospasm,
congestive heart failure and certain types of hypertension.
Our research program in the vasospasm/hypertension area is aimed at
developing small molecules that inhibit the binding of endothelin to its cell
surface receptors. Our scientists believe that specific agents for each receptor
subtype may provide the best clinical utility and safety. Our initial focus has
been to develop a highly potent and selective small molecule based ET(A)
receptor antagonist. An antagonist, or inhibitor, blocks the effects of a ligand
at its receptor. A ligand is a chemical messenger, which binds to a specific
site on a target molecule or cell. Our scientists have discovered a novel class
of low molecular weight compounds that antagonize endothelin binding to the
ET(A) receptor with high potency. We identified lead compounds which mimicked
the ability of endothelin to bind to the ET(A) receptor. We then used further
optimization techniques to develop more potent compounds until the current
series of lead candidates were identified. In addition to their ability to block
endothelin, binding to its receptor, these compounds functionally inhibit
endothelin action on isolated blood vessels in vitro acting as full, competitive
antagonists. The lead compounds in this series have been shown to exhibit in
vivo efficacy using various animal models. In addition, sitaxsentan and bosentan
have demonstrated efficacy in human clinical trials, including patients with
pulmonary hypertension.
Current Therapies. Current treatments for PAH remain unsatisfactory and new
treatments are needed. At present, epoprostenol (Flolan(R)-GSK), bosentan
(Tracleer(R)-Actelion), and treprostinil (Remodulin(R)-United Therapeutics) are
approved treatments for patients with PAH.
Epoprostenol, a vasodilator requiring continuous infusion through a central
venous catheter and special infusion pump, is costly, is associated with
significant adverse events including those related to its delivery, and is
typically reserved by clinicians for patients with NYHA functional class IV
status. Bosentan, a nonselective ET-1 receptor antagonist, is the first oral
agent approved for the treatment of PAH, and is indicated in patients with World
Health Organization (WHO) functional class III and IV symptoms. Bosentan is also
associated with significant potential for hepatotoxicity, teratogenicity, and
reduction of male fertility. Treprostinil, a prostaglandin analog requiring
administration through a chronic subcutaneous pump, is associated with a high
incidence of local injection site reactions. A selective oral endothelin
antagonist, if successful, may provide a significant benefit to these patients.
Partnership. During 2000, we formed ICOS-TBC, a partnership with ICOS, to
co-develop and commercialize endothelin antagonist compounds. As part of the
agreement, ICOS made an upfront payment and a milestone payment to ICOS-TBC,
which in turn distributed these payments to TBC. In January 2003, ICOS announced
that they had reached a conclusion that joint development of the endothelin
receptor antagonist program, through ICOS-TBC should not continue. ICOS and TBC
are currently negotiating the terms pursuant to which we could independently
continue the program. The financial terms of this transaction are subject to
ongoing negotiations between the two companies. This could allow us to increase
our ownership and the potential commercial benefit of the program from 50% to
100%. The partners equally funded the cost of research and development through
the end of 2002. After 2002, we are responsible for all costs of the program.
Product Candidate -- TBC11251 - Sitaxsentan. The lead endothelin antagonist,
sitaxsentan, is being developed for the indication of PAH. PAH is a disease with
high mortality and an average survival time of approximately four
9
years from the time of diagnosis. Sitaxsentan, a highly selective endothelin-A
receptor antagonist, may provide a distinct advantage over current therapies
including the non-specific endothelin receptor antagonist Tracleer(R).
Clinical Trial Status. -- We filed an investigational new drug application,
also referred to as an IND, with the FDA for sitaxsentan in late 1996. To date,
three Phase IIa clinical trials have been completed, one in congestive heart
failure patients, one in essential hypertension patients and one in pulmonary
arterial hypertension patients. In a follow-on extension trial,
treatment-related hepatitis was observed in two patients and one of these
patients died. Following analysis of the open-label Phase IIa clinical trial and
extension studies and discussions with the FDA, ICOS-TBC initiated a Phase
IIb/III clinical trial (STRIDE) of sitaxsentan, at lower doses, for the
treatment of PAH in the second quarter of 2001. During 2002, ICOS-TBC completed
the STRIDE clinical trial to assess the safety and efficacy of sitaxsentan in
patients with NYHA class II, III and IV pulmonary arterial hypertension. The
trial enrolled 178 patients who were randomized to either sitaxsentan 100 mg,
sitaxsentan 300 mg, or placebo treatment once a day.
The primary endpoint of the Phase IIb/III STRIDE trial was change in percent
of predicted peak VO2 from baseline to week 12. The results showed a
statistically significant improvement for the 300 mg dose group compared with
placebo treatment (7% relative improvement). The primary endpoint was not
statistically significant for the 100 mg dose group. A secondary endpoint was
change in 6-minute walk distance from baseline to week 12. The results showed
statistically significant improvement for both the sitaxsentan 100 mg and 300 mg
groups, compared with placebo treatment. The 6-minute walk test is the most
widely used efficacy test for drugs treating PAH. The clinical effectiveness of
each of the two sitaxsentan dose groups was equivalent for 6- minute walk
distance (9% relative improvement). NYHA class improvement, another important
measure that reflects limitations in physical activity, was also statistically
significant for the sitaxsentan 100 mg and 300 mg dose groups compared with
placebo treatment.
Based on the results of this clinical trial and meeting with the FDA, TBC
believes that development of sitaxsentan should be continued. Based on concerns
the FDA has raised regarding the class, such as hepatic toxicity and
reproductive abnormalities, which may or may not be associated with our
compounds, we are pursuing indications with unmet medical needs such as PAH.
Product Candidate -- TBC3711. TBC3711 is our second endothelin antagonist
compound and has been selected as the next clinical candidate. We believe
TBC3711 is more selective and more potent than sitaxsentan and that a potential
market opportunity for TBC3711 exists for the treatment of PAH and other
diseases. ICOS-TBC has completed Phase I clinical studies with TBC3711 and is
evaluating the development plan for the compound.
Other Indications. We believe endothelin antagonist compounds may
provide therapeutic value in several other indications.
Competition. A number of companies including Abbott Laboratories, and Myogen,
Inc., have ET(A) receptor selective antagonist compounds in clinical
development. ET(A) receptor-selective compounds from Abbott are in early Phase
III development. They have reported mixed results from a Phase III trial in
severe hormone resistant prostate cancer patients. The compound reduced pain and
PSA levels, but failed to delay disease progression. They are conducting
additional studies in other cancer groups. Myogen has begun a Phase IIa trial
for their ET(A) compound in PAH. We believe our compounds are competitive with
those from the other companies in terms of bioavailability (how much reaches the
appropriate body system), half-life (how long the drugs last in the body) and
potency. Several companies have non-selective endothelin antagonists in
development. Actelion Ltd., a biotechnology company located in Switzerland, and
Genentech, Inc. received approval from the FDA to market Tracleer (R) (bosentan)
for the treatment of PAH during 2001. We believe that selective endothelin
blockers like sitaxsentan will be preferred by physicians since selective ET(A)
blockers block the negative effects of endothelin at the ET(A) receptor, and do
not block the beneficial effects of endothelin at the ET(B) receptor.
Non-selective antagonists block both the ET(A) and the ET(B) receptors.
Abbott/Knoll's development of darusentan and Actelion's development of Tracleer
for heart failure have generated negative data. It is not known if the negative
clinical data is due to a class effect, trial design or specific to the
compounds themselves.
In addition to endothelin antagonists, Pfizer is conducting a Phase II trial
in the use of Viagra (R) in PAH. If phosphodiesterase 5 inhibitors ("PDE-5
inhibitor") demonstrate a benefit in PAH patients, we believe they will be used
as additive therapy with endothelin antagonists.
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VASCULAR INFLAMMATION PROGRAM
Background. Inflammation is the body's natural defense mechanism that fends
off bacterial, viral and parasitic infections. The inflammatory response
involves a series of events by which the body attempts to limit or destroy a
foreign agent. These steps include the production of proteins that attract white
blood cells, or leukocytes, to the site of inflammation, the production of
chemicals to destroy the foreign agent and the removal of the resulting debris.
This process is normally self-limiting and not harmful to the individual.
However, in certain instances, the process may be overly active, such as during
an acute asthma attack where an immediate inflammatory reaction occurs. In
addition, in diseases such as atherosclerosis or rheumatoid arthritis, the
inflammatory reaction leads to a build up of white blood cells and debris at the
inflammation site that causes tissue damage over longer periods of time.
The initial interaction between white blood cells and the endothelial cell
layer is mediated by a group of adhesion molecules known as selectins. The
selectins are a family of three proteins, two of which are found on inflamed
endothelium, which bind to the carbohydrate sialyl Lewis x, also referred to as
sLe(X), found on the surface of white blood cells. White blood cells are able to
migrate into inflamed areas because sLe(X) present on the surface of white blood
cells binds to selectin molecules present on activated endothelium. This binding
slows the flow of white blood cells or leukocytes through the bloodstream. This
is one of the first steps in the movement of white blood cells from the blood
into the tissue. The second step in this process is vascular cell adhesion
molecule, referred to as VCAM, mediated white blood cell attachment and
migration which helps to localize white blood cells in areas of injury or
infection. The presence of VCAM at sites of endothelial injury leads to an
accumulation at these sites of the integrin very late antigen-4, or VLA-4, which
are contained in white blood cells. Such accumulation can provoke an
inflammatory response.
Current Therapies. The major anti-inflammatory compounds are corticosteroids,
leukotriene blockers and immunosuppressants such as cyclosporin. While
effective, the time to onset of action of these compounds may be significant.
Corticosteroids also have significant side effects including growth suppression
in children, cataract formation, and general intolerance. The antagonist
compounds we are developing may provide efficacy with fewer of these side
effects.
Product Candidate -- Bimosiamose is being developed by Revotar, our majority
owned affiliate. Our scientists have developed a computer model of the
selectin/sLe(X) complex and used it to produce a novel class of synthetic, small
molecule compounds that inhibit the selectin-mediated cellular adhesion that
occurs during inflammation. The lead compound in the series, bimosiamose, has
shown efficacy both in cell-based and biochemical assays, and in animal models
of inflammation. A Phase IIa clinical trial for bimosiamose's intravenous use in
asthma was completed in 1998. Results of this trial, which involved 21 patients,
demonstrated significant reductions in cellular inflammation and allowed
improved breathing. The inhaled form of bimosiamose has been tested in Phase I
clinical trials completed during 2001 for the treatment of asthma and a Phase
IIa clinical trial was completed and showed signs of activity, utilizing an
injectable form of bimosiamose as a proof-of-concept for psoriasis. During 2002,
Revotar began a Phase II clinical trial in asthma, utilizing the inhaled form
and intends to commence a Phase IIa clinical trial in psoriasis utilizing the
topical form during 2003.
German Affiliate -- Revotar Biopharmaceuticals, AG. During 2000, Revotar
Biopharmaceuticals, AG, a German affiliate, was formed and we retained a 55.2%
ownership percentage. With headquarters in Berlin, Germany, Revotar was formed
to perform research and development of novel small molecule compounds and to
develop and commercialize selectin antagonists that TBC licensed to Revotar.
Upon formation, Revotar received certain development and commercialization
rights to the Company's selectin antagonist compounds as well as rights to
certain other TBC research technology for use in certain territories. Revotar
also received approximately $5 million in funding from three German venture
capital funds and has access to certain German government scientific grants.
During 2001, Revotar entered into a research agreement regarding macrophage
migration inhibitory factor (MIF) with the Fraunhofer Institute in Stuttgart,
Germany. We amended our license and research agreement with Revotar during 2003
to better reflect the commercial priorities of each company. Under the amended
agreement, Revotar will have exclusive worldwide rights to bimosiamose for the
treatment of asthma and other inflammatory indications as well as rights outside
of North America for topical indications. Texas Biotechnology will have
exclusive worldwide rights for the use of bimosiamose in organ transplant as
well as exclusive North American rights to all topical indications. Under the
amended agreement, each party has certain revenue sharing and royalty
obligations. In 2002, the stockholders of Revotar executed an agreement to
provide approximately $4.5 million in unsecured loans, of which our commitment
was approximately $3.4 million. Under the loan agreement, we have advanced
approximately $1.2
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million to Revotar during 2002. We believe that Revotar's existing funds, the
remaining commitments under the loan agreement and proceeds under German
government scientific grants will be sufficient to fund Revotar into the first
quarter of 2004. In order to continue to operate beyond that time, Revotar will
need to seek additional funding through collaborative arrangements and/or
through public or private financings in the future.
Clinical Trial Status. - The inhaled form of bimosiamose has been tested by
Revotar in Phase I clinical trials completed during 2001 for the treatment of
asthma and a Phase IIa clinical trial was completed in Germany utilizing an
injectable form of bimosiamose as a proof-of-concept for psoriasis. During 2002,
Revotar began a Phase IIa clinical trial in asthma, utilizing the inhaled form
and intends to initiate a Phase IIa clinical trial in psoriasis utilizing the
topical form during 2003.
Product Candidate -- VCAM/VLA-4 Antagonists. We have also identified
antagonists for the VCAM-dependent intercellular adhesion observed in asthma,
which blocks the ability of white blood cells to interact through VCAM and
VLA-4. VLA-4 antagonists represent a new class of compounds that has shown
promise in multiple preclinical animal models of asthma. These lead compounds
are being modified in an attempt to develop an orally available clinical
candidate. In preclinical animal studies, our scientists have demonstrated that
a small molecule VLA-4 antagonist can be effective in blocking acute
inflammation, suggesting that VCAM/VLA-4 plays a role in this disease process.
During 2002, TBC4746 was nominated as a clinical candidate and pursuant to our
agreement with Schering-Plough, we received a milestone payment.
Product Candidate -- (alpha)4(beta)7 Antagonists. The integrin
(alpha)4(beta)7, which is closely related to VLA-4, is present on leukocytes
which locate in the gastrointestinal system. Inhibitors of (alpha)4(beta)7 may
be useful in treating inflammatory conditions of the gut such as inflammatory
bowel disease (estimated 300,000 U.S. patients).
Research Collaboration with Schering-Plough. -- On June 30, 2000, we entered
into a worldwide research collaboration and license agreement to discover,
develop and commercialize VLA-4 antagonists with Schering-Plough. The primary
focus of the collaboration will be to discover orally available VLA-4
antagonists as treatments for asthma. Under the terms of the agreement,
Schering-Plough obtains the exclusive worldwide rights to develop, manufacture
and market all compounds from TBC's library of VLA-4 antagonists, as well as the
rights to a second integrin antagonist. TBC is responsible for optimizing a lead
compound and additional follow-on compounds. Schering-Plough is supporting
research at TBC and will be responsible for all costs associated with the
worldwide product development program and commercialization of the compound. In
addition to reimbursing research costs, Schering-Plough paid an upfront license
fee and will pay development milestones and royalties on product sales resulting
from the agreement. Total payments to TBC for both the VLA-4 and an additional
program, excluding royalties, could reach $87.0 million. During 2002, TBC4746
was nominated as a clinical candidate and pursuant to our agreement with
Schering-Plough, we received a milestone payment.
Competition. Several companies have programs aimed at inhibiting cell
adhesion molecules and integrins, like (alpha)4(beta)7 and VCAM/VLA-4. We are
not aware of any competing product antagonists of these classes, which are
currently in clinical development. While no oral VCAM/VLA-4 inhibitors are in
clinical development, Biogen, Inc. and Elan Corporation plc have obtained
positive Phase II data with Antegren(R), a monoclonal antibody against VLA-4, in
multiple sclerosis and inflammatory bowel disease. They are planning to conduct
Phase III studies with this product.
VASCULAR DISEASE
Background and current status. Many disease processes involve changes in
blood vessels and heart tissue. There are numerous mediators, like endothelin,
which may contribute to the development of these diseases. Several of these act
though G-protein coupled receptors, GPCRs, to carry out their action. We are
conducting research on urotensin and other GPCRs to identify inhibitors which
could be useful in treating diseases including CHF, ischemic stroke and acute
myocardial infarction. There are numerous companies studying these and other
GPCRs. We believe our projects are competitive with these other programs.
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RESEARCH AND DEVELOPMENT COLLABORATIONS AND LICENSING AGREEMENTS
We have established, and intend to continue to establish, collaborations with
a number of corporations, research institutions and scientists to further our
research and development objectives and expedite the commercialization of our
products. Our major licensing and collaboration agreements are summarized below:
Mitsubishi Pharma Corporation ("Mitsubishi"). We entered into an agreement
with Mitsubishi to license Mitsubishi's rights and technology relating to
Argatroban and to license Mitsubishi's own proprietary technology developed with
respect to Argatroban (the "Mitsubishi Agreement"). Under the agreement with
Mitsubishi, we have an exclusive license to use and sell Argatroban in the U.S.
and Canada for all cardiovascular, renal, neurological and immunological
purposes other than use for the coating of stents. We are required to pay
Mitsubishi specified royalties on net sales of Argatroban by us and our
sublicensees after its commercial introduction in the U.S. and Canada. Either
party may terminate the agreement with Mitsubishi on 60 days notice if the other
party defaults in its material obligations under the agreement, declares
bankruptcy or becomes insolvent, or if a substantial portion of its property is
subject to levy. Unless terminated sooner, the agreement with Mitsubishi expires
on the later of termination of patent rights in a particular country or 20 years
after first commercial sale of products in a particular country. Under the
Mitsubishi Agreement, we have access to an improved formulation patent granted
in the U.S. in 1993, which expires in 2010, and a use patent in the U.S., which
expires in 2009. We have agreed to pay a consultant involved in the negotiation
of this agreement a royalty based on net sales of Argatroban. During 2000, we
signed an additional agreement with Mitsubishi that provides us with royalties
on sales of Argatroban in certain European countries, up to a total of $5.0
million in milestones for the development of ischemic stroke and certain other
provisions. During 2001, we received $2.0 million of these milestones less
certain Japanese withholding taxes. Additional milestones are dependent on
further development of Argatroban in the indication of ischemic stroke. During
2002, we completed a Phase II human clinical trial for Argatroban as a
monotherapy treatment for acute ischemic stroke. The clinical trial met the
primary safety endpoint and showed positive results in the secondary safety
endpoint. In light of a lack of an overall efficacy trend and the high risk and
high costs associated with stroke trials, it is unlikely that we will proceed
independently with a full Phase III program.
GlaxoSmithKline. In connection with our development and commercialization of
Argatroban, on August 5, 1997, we entered into an agreement with GSK whereby GSK
was granted an exclusive sublicense in the U.S. and Canada for the indications
of Argatroban that we have licensed from Mitsubishi. GSK has paid $8.5 million
in upfront license fees and $12.5 million in milestone payments and has agreed
to pay up to an additional $7.5 million in additional milestone payments based
on the clinical development and FDA approval of Argatroban for the acute
myocardial infarction indication. We are evaluating the feasibility of
development of Argatroban for other indications including use in hemodialysis
and PCI.
The agreement with GSK provides for the formation of a joint development
committee to analyze the development of additional Argatroban indications (such
as PCI) covered by our license from Mitsubishi. The joint development is to be
funded 60% by GSK, except Phase IV trials are paid 100% by GSK. Except as
discussed below, GSK has the exclusive right to commercialize all products
arising out of the collaboration, subject to the obligation to pay royalties on
net sales to us and our rights to co-promote these products through our own
sales force in certain circumstances. We will retain the rights to any
indications that GSK determines it does not wish to pursue (such as ischemic
stroke), subject to the requirement that we may not grant marketing rights to
any third parties, and must use our own sales force to commercialize any such
indications. Any indications that GSK and TBC elect not to develop will be
returned to Mitsubishi, subject to the rights of GSK and TBC to commercialize
these indications at TBC's election, with GSK having the first opportunity to
commercialize. Mitsubishi may also request the joint development committee to
develop new indications inside or outside the licensed field of use, and if the
joint development committee determines that it does not want to proceed with any
such indication, all rights under the agreement with Mitsubishi regarding such
indication will revert to Mitsubishi subject to our and GSK's right to
commercialize the indication, with GSK having the first opportunity to
commercialize.
The agreement with GSK generally terminates on a country-by-country basis
upon the earlier of the termination of our rights under the agreement with
Mitsubishi, the expiration of applicable patent rights, or in the case of
certain royalty payments, the commencement of substantial third-party
competition. GSK also has the right to terminate the agreement on a country by
country basis by giving us at least three months written notice that the
commercial profile of the product in question would not justify continued
development or marketing in that country. In addition, either party may
terminate the agreement on 60 days notice if the other party defaults in its
obligations under the agreement,
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declares bankruptcy or becomes insolvent. We agreed to pay an agent involved in
the negotiation of this agreement a fee based on a percentage of all
consideration we receive, including royalties, from sales of Argatroban.
At present, Mitsubishi is the only manufacturer of Argatroban, and has
entered into an agreement with GSK to supply Argatroban in bulk to meet GSK's
needs. Should Mitsubishi fail during any consecutive nine-month period to supply
GSK at least 80% of its requirements, and such requirements cannot be satisfied
by existing inventories, the agreement provides for the nonexclusive transfer of
the production technology to GSK. If GSK cannot commence manufacturing of
Argatroban in a timely manner or if alternate sources of supply are unavailable
or uneconomical, our results of operations would be harmed. GSK has informed us
that they will be finishing and packaging in a GSK facility in the future.
In connection with the execution of our agreement with GSK, GSK purchased
176,922 shares of common stock for $1.0 million and an additional 400,000 shares
of common stock for $2.0 million in connection with the secondary public
offering, which closed on October 1, 1997.
ICOS-TBC L.P. In June 2000, we entered into a limited partnership agreement
with ICOS to form ICOS-TBC. The partnership was formed to develop and globally
commercialize endothelin-A receptor antagonists from the TBC endothelin
antagonist program. ICOS-TBC has made an upfront license fee payment and
milestone payment for the development and commercialization of products
resulting from the collaboration and the partners equally funded the cost of
research and development through the end of 2002. In January 2003, ICOS
announced that they had reached a conclusion that joint development of the
endothelin receptor antagonist program, through ICOS-TBC should not continue.
ICOS and TBC are currently negotiating the terms pursuant to which TBC could
independently continue the program. The financial terms of this transaction are
subject to ongoing negotiations between the two companies. If TBC is successful
in obtaining 100% ownership of the program, TBC's share of the costs and
potential commercial benefit of the program will increase from 50% to 100%. See
Note 8 to the Consolidated Financial Statements for a discussion of this
transaction.
Schering-Plough. In June 2000, TBC and Schering-Plough entered into a
worldwide research collaboration and license agreement to discover, develop and
commercialize VLA-4 antagonists, with Schering-Plough having rights to a second
integrin antagonist target. In addition to funding research costs,
Schering-Plough paid TBC an upfront license fee and milestone payment, and will
pay us additional development milestones and royalties on product sales
resulting from the agreement. Total payments to us for both programs, excluding
royalties, could reach $87.0 million. See Note 8 to the Consolidated Financial
Statements for a discussion of this transaction.
Revotar Biopharmaceuticals, AG. During September 2000, Revotar was formed and
we transferred to Revotar certain development and commercialization rights to
our selectin antagonist program as well as rights to other proprietary
technology. See Note 9 to the Consolidated Financial Statements for a discussion
of this transaction. The primary focus of Revotar has been on the design and
initiation of a Phase I trial for bimosiamose using the inhaled formulation of
the drug, which was completed during 2001. During 2002, Revotar began a Phase
IIa clinical trial in asthma, utilizing the inhaled form and intends to commence
a Phase IIa clinical trial in psoriasis utilizing the topical form in 2003.
LICENSES AND PATENTS
Because of the substantial length of time and expense associated with
developing new pharmaceutical products, the biotechnology industry places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. Our policy is to file patent applications
to protect technology, inventions and improvements that are important to the
development of our business. We have 18 pending U.S. patent applications and 34
issued U.S. patents covering compounds including selectin inhibitors, endothelin
antagonists and VCAM/VLA-4 antagonists. In addition, we have exclusive licenses
to three patents covering rational drug design technology. We have also filed
patent applications in certain foreign jurisdictions covering projects that are
the subject of U.S. applications and intend to file additional patent
applications as our research projects develop.
We in-licensed the U.S. and Canadian rights to Argatroban in 1993, which
included access to an improved formulation patent granted in 1993, which expires
in 2012, and a use patent for the use of Argatroban as a fibrinolysis-enhancing
agent, which expires in 2009. The Mitsubishi composition of matter patent on
Argatroban has expired. We have access to other patents held by Mitsubishi,
however, these are not being utilized currently.
14
Argatroban received FDA approval on June 30, 2000. We currently market
Argatroban and enjoy market exclusivity pursuant to the Waxman/Hatch Act that
provides protection from competition until June 30, 2005. We can obtain an
extension under Waxman/Hatch until December 31, 2005 under certain circumstances
pertaining to submission of pediatric data. Argatroban is currently marketed in
a formulation that is covered under a formulation patent that expires in 2010.
We will also be submitting a process patent, that expires in 2019, to the FDA
for inclusion in the FDA Orange Book of Approved Drug Products. Following
expiration of Waxman/Hatch protection, it is possible that generic manufacturers
may be able to produce Argatroban without violating the formulation or process
patents.
The patent positions of biopharmaceutical firms, including us, are uncertain
and involve complex legal and factual questions. Consequently, we do not know
whether any of our applications will result in the issuance of patents or, if
any patents are issued, whether they will provide significant proprietary
protection or will be circumvented or invalidated. Since patent applications in
the U.S. are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature often lags behind actual
discoveries, we cannot be certain that we were the first creator of inventions
covered by our pending patent applications or that we were the first to file
patent applications for such inventions. Moreover, we may have to participate in
interference proceedings declared by the U.S. Patent and Trademark Office,
commonly known as the PTO, to determine priority of invention, which could
result in substantial cost to us, even if the eventual outcome is favorable to
us. We have no interference proceedings pending which involve compounds
currently of commercial interest to us. We cannot assure you that our patents,
if issued, would be held valid by a court of competent jurisdiction. An adverse
outcome could subject us to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require us to cease using
such technology.
The development of therapeutic products for cardiovascular applications is
intensely competitive. Many pharmaceutical companies, biotechnology companies,
universities and research institutions have filed patent applications or
received patents in this field. Some of these applications or patents may be
competitive with our applications or conflict in certain respects with claims
made under our applications. Such conflict could result in a significant
reduction of the coverage of our patents, if issued. In addition, if patents are
issued to other companies that contain competitive or conflicting claims and
such claims are ultimately determined to be valid, we cannot assure you that we
would be able to obtain licenses to these patents at a reasonable cost or
develop or obtain alternative technology.
We also rely upon trade secret protection for our confidential and
proprietary information. We cannot assure you that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets or disclose such technology, or that
we can meaningfully protect our trade secrets.
We require our employees, consultants, members of our scientific advisory
board, outside scientific collaborators and sponsored researchers and certain
other advisors to enter into confidentiality agreements with us that contain
assignment of invention clauses. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with us is to be kept confidential and not disclosed
to third parties except in specific circumstances. In the case of our employees,
the agreements provide that all inventions conceived by the employee are our
exclusive property. We cannot assure you, however, that these agreements will
provide meaningful protection or adequate remedies for our trade secrets in the
event of unauthorized use or disclosure of such information.
GOVERNMENT REGULATION
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, record keeping, labeling,
promotion and marketing and distribution of pharmaceutical products. Failure to
comply with applicable regulatory requirements may subject a company to
administrative or judicially imposed sanctions such as:
- warning letters;
- civil penalties;
15
- criminal prosecution;
- injunctions;
- product seizure;
- product recalls;
- total or partial suspension of production; and
- FDA refusal to approve pending New Drug Application ("NDA") applications
or NDA supplements to approved applications.
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 IND, which must become effective before
clinical testing may commence;
- adequate and well-controlled clinical trials to establish the safety and
effectiveness of the drug for each indication;
- the submission of an NDA to the FDA; and
- FDA review and approval of the NDA prior to any commercial sale or
shipment of the drug.
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. Preclinical tests must be conducted in compliance with
Good Laboratory Practice guidelines and compounds for clinical use must be
formulated according to compliance with Good Manufacturing Practice, or cGMP,
requirements. The results of preclinical testing are submitted to the FDA as
part of the IND and NDA.
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
expenses.
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 are conducted in accordance with Good Clinical
Practice guidelines, 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, which 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
16
- preliminarily support the efficacy of the drug in specific, targeted
indications.
If a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluation, 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 an NDA is
prepared and submitted to the FDA. FDA approval of the NDA is required before
marketing 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 an 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 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.
Currently, for a standard review, the FDA takes approximately twelve months in
which to review the NDA and respond to the applicant. In 1997, Congress enacted
the Food and Drug Administration Modernization Act, in part, to ensure the
availability of safe and effective drugs by expediting the FDA review process
for certain new products. This act establishes a statutory program for the
approval of fast track products (those drugs which address unmet medical needs
for serious and life-threatening conditions). Under this act, the FDA has six
months 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 may 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. The approvable letter may 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 post-marketing testing and surveillance to monitor the drug's safety or
efficacy, or impose other conditions, commonly referred to as Phase IV trials.
If the FDA's evaluation of either 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.
Notwithstanding the submission of any requested additional data or information
in response to an approvable or not approvable letter, the FDA ultimately may
decide that the application does not satisfy the regulatory criteria for
approval. Once granted, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or problems occur following initial
marketing.
Manufacturing. Each domestic drug manufacturing facility must be registered
with FDA. Domestic drug manufacturing establishments are subject to periodic
inspection by the FDA and must comply with cGMP. Further, we or our third party
manufacturer must pass a preapproval inspection of its manufacturing facilities
by the FDA before obtaining marketing approval of any products. To supply
products for use in the United States, foreign manufacturing establishments must
comply with cGMP and are subject to periodic inspection by the FDA or
corresponding regulatory agencies in countries under reciprocal agreements with
the FDA. We use and will continue to use third party manufacturers to produce
our products in clinical and commercial quantities. There can be no guarantee
that future FDA inspections will proceed without any compliance issues requiring
the expenditure of money or other resources.
Foreign Regulation of Drug Compounds. Whether or not FDA approval has been
obtained, approval of a product by comparable regulatory authorities is
necessary in foreign countries prior to the commencement of marketing of the
product in those countries. 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
17
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 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 disposal of
hazardous materials and waste products. Although we believe that our safety
procedures for handling and disposing of hazardous materials comply with the
standards prescribed by laws and regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated completely. In
the event of an accident, we could be held liable for any damages that result.
This liability could exceed our resources or not be covered by our insurance.
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.
COMPETITION
The development and sale of new drugs for the treatment of vascular and
inflammatory diseases is highly competitive and we will face intense competition
from major pharmaceutical companies and biotechnology companies all over the
world. Competition is likely to increase as a result of advances made in the
commercial application of technologies and greater availability of funds for
investment in these fields. Companies that complete clinical trials, obtain
required regulatory approvals and initiate commercial sales of their products
before their competitors may achieve a significant competitive advantage. In
addition, significant research in biotechnology and vascular medicine may occur
in universities and other nonprofit research institutions. These entities have
become increasingly active in seeking patent protection and licensing revenues
for their research results. They also compete with us in recruiting talented
scientists and business professionals.
We believe that our ability to compete successfully will depend on our
ability to create and maintain scientifically-advanced technology, develop
proprietary products, attract and retain scientific and other personnel, obtain
patent or other protection for our products, obtain required regulatory
approvals and manufacture and successfully market products through other
companies, through co-promotion agreements or alone. Many of our competitors
have substantially greater financial, marketing, and human resources than we do.
We expect to encounter significant competition.
MANUFACTURING AND MARKETING
We rely on our internal resources and third-party manufacturers to produce
compounds for preclinical development. Currently, we have no manufacturing
facilities for either the production of biochemicals or the manufacture of final
dosage forms. We believe small molecule drugs are less expensive to manufacture
than protein-based therapeutics, and that all of our existing compounds can be
produced using established manufacturing methods, including traditional
pharmaceutical synthesis.
We have established supply arrangements with third-party manufacturers for
certain clinical trials and have established and will establish supply
arrangements ultimately for commercial distribution, although there can be no
assurance that such arrangements will be established on reasonable terms. Our
long-range plan may involve establishing internal manufacturing of small
molecule therapeutics, including the ability to formulate, fill, label, package
and distribute our products. However, for the foreseeable future we plan to
outsource such manufacturing. We do not anticipate developing an internal
manufacturing capability for some time, nor are we able to determine which of
our potential products, if any, will be appropriate for internal manufacturing.
The primary factors we will consider in making this determination are the
availability and cost of third-party sources, the expertise required to
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manufacture the product and the anticipated manufacturing volume. Pursuant to
our agreement with GSK, GSK entered into an agreement with Mitsubishi regarding
the manufacture and supply of Argatroban, and we will not, therefore, have any
direct responsibility regarding the manufacture and supply of Argatroban as it
relates to the agreement with GSK.
EMPLOYEES
As of December 31, 2002, we employed 104 individuals. During January 2003, we
implemented a restructuring plan that reduced our work force to 82. Of our
restructured work force, 66 employees are engaged directly in research and
development activities and 16 in general and administrative positions. None of
our employees are represented by a labor union. We have experienced no work
stoppages and believe that relations with our employees are good. We also
maintain consulting agreements with a number of scientists at various
universities and other research institutions.
CONSULTANTS AND SCIENTIFIC ADVISORS
We have assembled a scientific advisory board composed of distinguished
professors from some of the most prestigious medical schools. The scientific
advisory board assists us in identifying research and development opportunities,
in reviewing with management the progress of our projects and in recruiting and
evaluating scientific staff. Although we expect to receive guidance from the
members of our scientific advisory board, all of its members are employed on a
full-time basis by others and, accordingly, are able to devote only a small
portion of their time to us. Management expects to meet with its scientific
advisory board members as a group approximately once each year and individually
from time to time on an informal basis. We have entered into a consulting
agreement with each member of the scientific advisory board. The Scientific
Advisory Board includes James T. Willerson, M.D., as Chairman, and the following
scientists.
Ferid Murad, M.D., Ph.D. is Professor and Chairman of the Department of
Integrative Biology and Pharmacology at the University of Texas-Houston Medical
School and the Director of the Institute of Molecular Medicine. Dr. Murad has
received many honors including the Nobel Prize in Medicine in 1998, the Ciba
Award in 1988 and the Albert and Mary Lasker Award in Basic Medical Research in
1996. He is also a member of many professional and honorary societies and is the
author or co-author of more than 300 scientific articles.
Ajit Varki, M.D. has been a Professor of Medicine since 1991 and is
currently serving in that position as well as leader of the glycobiology
program at the University of California, San Diego. Dr. Varki served as
Instructor in Medicine at Washington University School of Medicine from
1980 to 1982. He also served as Assistant Professor of Medicine from 1982
to 1987 and as Associate Professor of Medicine from 1987 to 1991 at the
University of California, San Diego. In 1975, Dr. Varki received an M.D.
from Christian Medical College and his Post-Doctorate in Biochemistry from
Washington University from 1979 to 1982. He is a member of various
professional societies and has won numerous awards since 1969. He is
currently president of the American Society for Clinical Investigation.
Dr. Varki is the author or co-author of 160 scientific publications.
Denton Cooley, M.D., Surgeon-in-Chief of the Texas Heart Institute,
acts as an advisory director to us.
We also have agreements with various outside scientific consultants who
assist us in formulating our research and development strategy. All of our
consultants and advisors are employed by other employers and may have
commitments to or consulting or advisory contracts with other entities that may
affect their ability to work with us.
INTERNET WEBSITE
Our Internet website can be found at www.tbc.com. We make available free of
charge, or through the "Investor Relations" section of our Internet website at
www.tbc.com, access to our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to those reports filed
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably
practicable after such material is filed, or furnished to the Securities and
Exchange Commission.
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ADDITIONAL RISK FACTORS
Stockholders and potential investors in shares of our stock should carefully
consider the following risk factors, in addition to other information in this
Form 10-K. We are identifying these risk factors as important factors that could
cause our actual results to differ materially from those contained in any
written or oral forward-looking statements made by or on behalf of us. We are
relying upon the safe-harbor for forward-looking statements and any such
statements made by or on behalf of us are qualified by reference to the
following cautionary statements, as well as to those set forth elsewhere in this
Form 10-K.
RISKS RELATED TO OUR BUSINESS, INDUSTRY AND STRATEGY
THERE IS UNCERTAINTY IN THE DEVELOPMENT OF OUR PRODUCTS AND IF WE DO NOT
SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS, WE WILL NOT BE PROFITABLE.
In November 2000, we began to market our first product, Argatroban, through
our agreement with GSK. However, the royalties produced to date by Argatroban
have not made us profitable. To date, the majority of our resources have been
dedicated to the research and development of Argatroban and other small molecule
drugs for certain vascular and related inflammatory diseases. The commercial
applications of our product candidates will require further investment,
research, development, preclinical and clinical testing and regulatory
approvals, both foreign and domestic. We cannot assure you that we will be able
to develop, produce at reasonable cost, or market successfully, any of our
product candidates. Further, these product candidates may require complex
delivery systems that may prevent or limit their commercial use. All of our
products will require regulatory approval before they may be commercialized.
Products, if any, resulting from our research and development programs other
than Argatroban, are not expected to be commercially available for a number of
years, and we cannot assure you that any successfully developed products will
generate substantial revenues or that we will ever be profitable.
WE FACE SUBSTANTIAL COMPETITION THAT MAY RESULT IN OTHERS DEVELOPING AND
COMMERCIALIZING PRODUCTS MORE SUCCESSFULLY THAN WE DO.
The biopharmaceutical industry is highly competitive. Our success will depend
on our ability to develop products and apply technology and to establish and
maintain a market for our products. Potential competitors in the U.S. and other
countries include major pharmaceutical and chemical companies, specialized
biotechnology firms, universities and other research institutions. Many of our
competitors have substantially greater research and development capabilities and
experience and greater manufacturing, marketing and financial resources than we
do. Accordingly, our competitors may develop products or other novel
technologies that are more effective, safer or less costly than any that have
been or are being developed by us or may obtain FDA approval for products more
rapidly than we are able.
We expect significant competition for Argatroban for the treatment of HIT.
The products that compete with Argatroban include:
- Refludan(R), which was approved by the FDA in 1997 for the treatment of
HIT;
- Orgaran(R), which is a low molecular weight heparinoid that has been
approved for the treatment of deep vein thrombosis, but is believed to be
used without an approved indication ("off-label") for the treatment of HIT
in the U.S.; and
- Angiomax(R), which is approved for use in the U.S. as an anticoagulant in
patients with unstable angina undergoing percutaneous transluminal
coronary angioplasty.
We may also face competition for Argatroban in indications other than HIT,
when and if such indications are approved by the FDA, including:
- Revasc(R), which is used in the treatment of deep vein thrombosis
following hip surgery and has received regulatory approval in Europe;
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- Angiomax(R), which is in Phase III clinical trials for acute coronary
syndromes and conducting clinical trials in HIT patients;
- Arixtra(R), which is approved for the prevention of deep vein thrombosis
and pulmonary embolism; and
- Melagatran, which is being developed as a treatment for deep vein
thrombosis and is in Phase III trials.
We cannot assure you that technological development by others will not render
our products or product candidates uncompetitive or that we will be successful
in establishing or maintaining technological competitiveness.
WE ARE DEPENDENT ON THIRD PARTIES TO FUND, MARKET AND DEVELOP OUR PRODUCTS,
INCLUDING ARGATROBAN.
We rely on strategic relationships with our corporate partners to provide the
financing, marketing and technical support and, in certain cases, the technology
necessary to develop and commercialize certain of our product candidates. We
have entered into an agreement with Mitsubishi to license rights and technology
relating to Argatroban in the U.S. and Canada for specified therapeutic
indications. Either party may terminate the Mitsubishi agreement on 60 days
notice if the other party defaults in its material obligations under the
agreement, declares bankruptcy or becomes insolvent, or if a substantial portion
of its property is subject to levy. Unless terminated sooner due to the
above-described termination provisions, the agreement with Mitsubishi expires on
the later of the termination of patent rights in a particular country or 20
years after the first commercial sale of products in a particular country.
We also entered into an agreement with GSK in 1997 whereby we granted an
exclusive sublicense to GSK relating to the continued development and
commercialization of Argatroban. This agreement provides for the payment of
royalties and certain milestone payments upon the completion of various
regulatory filings and receipt of regulatory approvals. The agreement generally
terminates on a country-by-country basis upon the earlier of the termination of
our rights under the agreement with Mitsubishi, the expiration of applicable
patent rights, or in the case of certain royalty payments, the introduction of a
substantial competitor for Argatroban by another pharmaceutical company. GSK
also has the right to terminate the agreement on a country by country basis by
giving us at least three months written notice based on a reasonable
determination by GSK that the commercial profile of the therapeutic indication
in question would not justify continued development or marketing in that
country. In addition, either we or GSK may terminate our agreement on 60 days
notice if the other party defaults in its obligations under the agreement,
declares bankruptcy or becomes insolvent.
ICOS-TBC has the responsibility for developing endothelin antagonist
compounds from our research program. Should the partners not be able to
successfully conduct the research and clinical development of the compounds, we
could be adversely affected. There is no guarantee that the partnership will
have adequate funds to pursue its research and clinical goals or that the effort
will be successful. In January 2003, ICOS announced that they had reached a
conclusion that joint development of the endothelin receptor antagonist program,
through ICOS-TBC should not continue. ICOS and we are currently negotiating the
terms pursuant to which we could independently continue the program. We are
entirely responsible for independently funding future development activities of
ICOS-TBC subsequent to 2002 which we believe will be between $19 and $21 million
in 2003. A delay in reaching an agreement with ICOS could adversely affect or
delay the development of the endothelin receptor antagonist program.
In 2002, the stockholders of Revotar executed an agreement to provide
approximately $4.5 million in unsecured loans, of which our commitment was
approximately $3.4 million. Under the loan agreement, we have advanced
approximately $1.2 million to Revotar during 2002. We believe that Revotar's
existing funds, the remaining commitments under the loan agreement and proceeds
under German government scientific grants will be sufficient to fund Revotar
into the first quarter of 2004. In order to continue to operate beyond that
time, Revotar will need to seek additional funding through collaborative
arrangements and/or through public or private financings in the future.
Our collaboration and license agreement with Schering-Plough for VLA-4
antagonists contains a provision that allows for termination of the research
program upon one hundred eighty days written notice to us.
Our success will depend on these and any future strategic alliances. There
can be no assurance that we will satisfy the conditions required to obtain
additional research or milestone payments under the existing agreements or that
we can prevent the termination of these agreements. We cannot assure you that we
will be able to enter into
21
future strategic alliances on acceptable terms. The termination of any existing
strategic alliances or the inability to establish additional collaborative
arrangements may limit our ability to develop our technology and may have a
material adverse effect on our business or financial condition.
RISKS RELATING TO CLINICAL AND REGULATORY MATTERS
THE REGULATORY APPROVAL PROCESS IS COSTLY AND LENGTHY AND WE MAY NOT BE ABLE
TO SUCCESSFULLY OBTAIN ALL REQUIRED REGULATORY APPROVALS.
The preclinical development, clinical trials, manufacturing, marketing and
labeling of pharmaceuticals are all subject to extensive regulation by numerous
governmental authorities and agencies in the U.S. and other countries. We must
obtain regulatory approval for each of our product candidates before marketing
or selling any of them. It is not possible to predict how long the approval
processes of the FDA or any other applicable federal, state or foreign
regulatory authority or agency for any of our products will take or whether any
such approvals ultimately will be granted. Positive results in preclinical
testing and/or early phases of clinical studies offer no assurance of success in
later phases of the approval process. Generally, preclinical and clinical
testing of products can take many years, and require the expenditure of
substantial resources, and the data obtained from these tests and trials can be
susceptible to varying interpretation that could delay, limit or prevent
regulatory approval. Any delay in obtaining, or failure to obtain, approvals
could adversely affect the marketing of our products and our ability to generate
product revenue.
The risks associated with the approval process include:
- delays or rejections in the regulatory approval process based on the
failure of clinical or other data to meet expectations, or the failure of
the product to meet a regulatory agency's requirements for safety,
efficacy and quality; and
- regulatory approval, if obtained, may significantly limit the indicated
uses for which a product may be marketed.
OUR CLINICAL TRIALS COULD TAKE LONGER TO COMPLETE AND COST MORE THAN WE
EXPECT, WHICH MAY RESULT IN OUR DEVELOPMENT PLANS BEING SIGNIFICANTLY
DELAYED.
We will need to conduct clinical studies of all of our product candidates.
These studies are costly, time consuming and unpredictable. Any unanticipated
costs or delays in our clinical studies could cause us to expend substantial
additional funds or to delay or modify our plans significantly, which would harm
our business, financial condition and results of operations. The factors that
could contribute to such cost, delays or modifications include:
- the cost of conducting human clinical trials for any potential product.
These costs can vary dramatically based on a number of factors, including
the order and timing of clinical indications pursued and the development
and financial support from corporate partners; and
- intense competition in the pharmaceutical market, which may make it
difficult for us to obtain sufficient patient populations or clinician
support to conduct our clinical trials as planned.
EVEN IF WE OBTAIN MARKETING APPROVAL, OUR PRODUCTS WILL BE SUBJECT TO ONGOING
REGULATORY OVERSIGHT, WHICH MAY AFFECT THE SUCCESS OF OUR PRODUCTS.
Any regulatory approvals that we receive for a product may be subject to
limitations on the indicated uses for which the product may be marketed or
contain requirements for potentially costly post-marketing follow-up Phase IV
studies. After we obtain marketing approval for any product, the manufacturer
and the manufacturing facilities for that product will be subject to continual
review and periodic inspections by the FDA and other regulatory authorities. The
subsequent discovery of previously unknown problems with the product or with the
manufacturer or facility may result in restrictions on the product or
manufacturer, including withdrawal of the product from the market.
If we fail to comply with applicable regulatory requirements, we may be
subject to fines, suspension or withdrawal of regulatory approvals, product
recalls, seizure of products, operating restrictions and criminal prosecution.
22
RISKS RELATING TO FINANCING OUR BUSINESS
WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT, AND WE MAY
NOT BE SUCCESSFUL IN RAISING ADDITIONAL FUNDS IN THE FUTURE.
We have been unprofitable to date and expect to incur operating losses for
the next several years as we invest in product research and development,
preclinical and clinical testing and regulatory compliance. We will require
substantial additional funding to complete the research and development of our
product candidates, to establish commercial scale manufacturing facilities, if
necessary, and to market our products. We have accumulated approximately $148.2
million in net losses through December 31, 2002. Estimates of our future capital
requirements will depend on many factors, including:
- market acceptance and commercial success of Argatroban;
- expenses and risks associated with clinical trials to expand the
indications for Argatroban;
- continued scientific progress in our drug discovery programs;
- the magnitude of these programs;
- progress with preclinical testing and clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the costs involved in filing, prosecuting and enforcing patent claims;
- competing technological and market developments and changes in our
existing research relationships;
- our ability to maintain and establish additional collaborative
arrangements; and
- effective commercialization activities and arrangements.
Subject to these factors, we anticipate that our existing capital resources
and other revenue sources, should be sufficient to fund our cash requirements
through 2004. Notwithstanding revenues, which may be produced through sales of
potential future products if approved, we anticipate that we will need to secure
additional funds to continue the required levels of research and development to
reach our long-term goals. We intend to seek such additional funding through
collaborative arrangements and/or through public or private financings.
We cannot assure you that additional financing will be available or, if
available, that it will be available on acceptable terms. If additional funds
are raised by issuing securities, further dilution of the equity ownership of
existing stockholders will result. If adequate funds are not available, we may
be required to delay, scale back or eliminate one or more of our drug discovery
or development programs or obtain funds through arrangements with collaborative
partners or others that may require us to relinquish rights to certain of our
technologies, product candidates or products that we would not otherwise
relinquish.
WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR OPERATING RESULTS.
We have historically experienced, and expect to continue to experience for
the foreseeable future, significant fluctuations in our operating results. These
fluctuations are due to a number of factors, many of which are outside of our
control, and may result in volatility of our stock price. Future operating
results will depend on many factors, including:
- demand for our products;
- regulatory approvals for our products;
23
- the timing of the introduction and market acceptance of new products by us
or competing companies; and
- the timing and magnitude of certain research and development expenses.
RISKS RELATED TO ONGOING OPERATIONS
WE ARE DEPENDENT ON QUALIFIED PERSONNEL.
Our success is highly dependent on our ability to attract and retain
qualified scientific and management personnel. The loss of the services of the
principal members of our management and scientific staff including Bruce D.
Given, M.D., our President and Chief Executive Officer, and Richard A.F. Dixon,
Ph.D., our Senior Vice President, Research and Chief Scientific Officer, may
impede our ability to bring products to market. In order to commercialize
products, we must maintain and expand our personnel as needs arise in the areas
of research, clinical trial management, manufacturing, sales and marketing. We
face intense competition for such personnel from other companies, academic
institutions, government entities and other organizations. We cannot assure you
that we will be successful in hiring or retaining qualified personnel. Managing
the integration of new personnel and our growth in general could pose
significant risks to our development and progress.
We also rely on consultants and advisors to assist us in formulating our
research and development strategy. All our consultants and advisors are either
self-employed or employed by other organizations, and they may have other
commitments such as consulting or advisory contracts with other organizations
that may affect their ability to contribute to us.
THE HAZARDOUS MATERIAL WE USE IN OUR RESEARCH AND DEVELOPMENT COULD RESULT IN
SIGNIFICANT LIABILITIES, WHICH MAY EXCEED OUR INSURANCE COVERAGE.
Our research and development activities involve the use of hazardous
materials. While we believe that we are currently in substantial compliance with
federal, state and local laws and regulations governing the use of these
materials, accidental injury or contamination may occur. Any such accident or
contamination could result in substantial liabilities, which could exceed the
policy limits of our insurance coverage and financial resources. Additionally,
the cost of compliance with environmental and safety laws and regulations may
increase in the future.
WE MAY BE SUED FOR PRODUCT LIABILITY, WHICH MAY PREVENT OR INTERFERE WITH THE
DEVELOPMENT OR COMMERCIALIZATION OF OUR PRODUCTS.
Because our products and product candidates are new treatments, with limited,
if any, past use on humans, serious undesirable and unintended side effects may
arise. We may be subject to product liability claims that are inherent in the
testing, manufacturing, marketing and sale of pharmaceutical products. These
claims could expose us to significant liabilities that could prevent or
interfere with the development or commercialization of our products and
seriously impair our financial position. Product liability insurance is
generally expensive for biopharmaceutical companies such as ours. We maintain
product liability insurance coverage for claims arising from the use of our
products in clinical trials prior to FDA approval. Under the agreements with
Mitsubishi and GSK, we maintain product liability insurance to cover claims that
may arise from the sale of Argatroban. Our existing coverage will not be
adequate as we further develop products and continue to sell Argatroban. We
cannot assure you that we will be able to maintain our existing insurance
coverage or obtain additional coverage on commercially reasonable terms for
liability arising from the use of our other products in the future. Also, this
insurance coverage and our resources may not be sufficient to satisfy any
liability resulting from product liability claims and a product liability claim
may have a material adverse effect on our business, financial condition or
results of operations.
RISKS RELATING TO PRODUCT MANUFACTURING AND SALES
WE HAVE VERY LIMITED MANUFACTURING, MARKETING OR SALES EXPERIENCE.
We have very limited manufacturing, marketing or product sales experience. If
we develop any additional commercially marketable products, we cannot assure you
that contract manufacturing services will be available in sufficient capacity to
supply our product needs on a timely basis. If we decide to build or acquire
commercial scale manufacturing capabilities, we will require additional
management and technical personnel and additional capital.
24
If in the future, we decide to perform sales and marketing activities
ourselves, we would face a number of additional risks, including:
- - we may not be able to attract and build a significant marketing or
sales force;
- - the cost of establishing a marketing or sales force may not be
justifiable in light of product revenues; and
- - our direct sales and marketing efforts may not be successful.
WE CANNOT ASSURE YOU THAT THE RAW MATERIALS NECESSARY FOR THE MANUFACTURE OF
OUR PRODUCTS WILL BE AVAILABLE IN SUFFICIENT QUANTITIES OR AT A REASONABLE
COST.
Complications or delays in obtaining raw materials or in product
manufacturing could delay the submission of products for regulatory approval and
the initiation of new development programs, each of which could materially
impair our competitive position and potential profitability. We can give no
assurance that we will be able to enter into any other supply arrangements on
acceptable terms, if at all.
WE ARE DEPENDENT ON A SINGLE SUPPLIER OF ARGATROBAN.
At the present time, Mitsubishi is the only manufacturer of Argatroban in
bulk form. Mitsubishi has entered into a supply agreement with GSK to supply
Argatroban in bulk to meet GSK's and our needs. Should Mitsubishi fail during
any consecutive nine-month period to supply GSK with at least 80 percent of its
requirements, and such requirements cannot be satisfied by existing inventories,
the supply agreement with Mitsubishi provides for the nonexclusive transfer of
the production technology to GSK. However, in the event Mitsubishi terminates
manufacturing Argatroban or defaults in its supply commitment, we cannot assure
you that GSK will be able to commence manufacturing of Argatroban in a timely
manner or that alternate sources of bulk Argatroban will be available at
reasonable cost, if at all. If GSK cannot commence the manufacturing of
Argatroban or alternate sources of supply are unavailable or are not available
on commercially reasonable terms, it could harm our profitability. In addition,
finishing and packaging has only been arranged with one manufacturing facility
in the U.S. GSK has informed us that they will be finishing and packaging in a
GSK facility sometime in the future.
OUR PRODUCTS, EVEN IF APPROVED BY THE FDA OR FOREIGN REGULATORY AGENCIES, MAY
NOT BE ACCEPTED BY HEALTH CARE PROVIDERS, INSURERS OR PATIENTS.
If any of our products, including Argatroban, 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, market acceptance depends
on the effectiveness of our marketing strategy and the availability of
reimbursement for our products.
THE SUCCESSFUL COMMERCIALIZATION OF OUR PRODUCTS IS DEPENDENT ON
PHARMACEUTICAL PRICING AND THIRD-PARTY REIMBURSEMENT.
In recent years, there have been numerous proposals to change the health care
system in the United States. Some of these proposals have included measures that
would limit or eliminate payments for medical procedures and treatments or
subject the pricing of pharmaceuticals to government control. In addition,
government and private third-party payors are increasingly attempting to contain
health care costs by limiting both the coverage and the level of reimbursement
of drug products. Consequently, the reimbursement status of newly approved
health care products is highly uncertain, and there can be no assurance that
third-party coverage will be available or that available third-party coverage
will enable us to maintain price levels sufficient to realize an appropriate
return on our investment in product development. Our long-term ability to market
products successfully may depend in part on the extent to which reimbursement
for the cost of such products and related treatment will be available.
Third-party payors are increasingly challenging the prices of medical products
and services. Furthermore, inadequate third-party coverage may reduce market
acceptance of our products. Significant changes in the health care system in the
United States or elsewhere could have a material adverse effect on our business
and financial performance.
25
Sitaxsentan is likely to require distribution through a limited access
program which may make patient access and reimbursement more difficult.
Tracleer(R) is distributed pursuant to such a program.
RISKS RELATING TO INTELLECTUAL PROPERTY
WE MAY NOT BE ABLE TO PROTECT PROPRIETARY INFORMATION AND OBTAIN PATENT
PROTECTION.
We actively seek patent protection for our proprietary technology, both in
the U.S. and in other areas of the world. However, the patent positions of
pharmaceutical and biotechnology companies, including us, are generally
uncertain and involve complex legal, scientific and factual issues. Intellectual
property is an uncertain and developing area of the law that is potentially
subject to significant change. Our success will depend significantly on our
ability to:
- obtain patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
We cannot assure you that patents issued to or licensed by us will not be
challenged, invalidated or circumvented, or that the rights granted will provide
competitive advantages to us. We cannot assure you that our patent applications
or pending patent applications, if and when issued, will be valid and
enforceable and withstand litigation. We cannot assure you that others will not
independently develop substantially equivalent, generic equivalent or
superseding proprietary technology or that an equivalent product will not be
marketed in competition with our products, thereby substantially reducing the
value of our proprietary rights. We may experience a significant delay in
obtaining patent protection for our products as a result of a substantial
backlog of pharmaceutical and biotechnology patent applications at the PTO.
Because patent applications in the U.S. are maintained in secrecy until patents
issue, other competitors may have filed or maintained patent applications for
technology used by us or covered by pending applications without our being aware
of these applications. In addition, patent protection, even if obtained, is
affected by the limited period of time for which a patent is effective. The
Mitsubishi composition of matter patent on Argatroban has expired. Moreover,
even if we have a patent or NDA exclusivity, we cannot assure you that generic
pharmaceutical manufacturers will not ultimately enter the market and compete
with us or that competitors might develop a different formulation of Argatroban.
We could also incur substantial costs in defending any patent infringement
suits or in asserting any patent rights, including those granted by third
parties, in a suit with another party. The PTO could institute interference
proceedings involving us in connection with one or more of our patents or patent
applications, and such proceedings could result in an adverse decision as to
priority of invention. The PTO or a comparable agency in a foreign jurisdiction
could also institute re-examination or opposition proceedings against us in
connection with one or more of our patents or patent applications and such
proceedings could result in an adverse decision as to the validity or scope of
the patents.
We may be required to obtain licenses to patents or other proprietary rights
from third parties. We cannot assure you that any licenses required under any
patents or proprietary rights would be made available on acceptable terms, if at
all. If we are unable to obtain required licenses, we could encounter delays in
product introductions while we attempt to design around blocking patents, or we
could find that the development, manufacture or sale of products requiring such
licenses could be foreclosed.
IF WE ARE UNABLE TO KEEP OUR TRADE SECRETS CONFIDENTIAL, OUR TECHNOLOGY AND
INFORMATION MAY BE USED BY OTHERS TO COMPETE AGAINST US.
We rely significantly on trade secrets, know-how and continuing technological
advancement to maintain our competitive position. We try to protect this
information by entering into confidentiality agreements with our employees and
consultants, which contain assignment of invention provisions. Notwithstanding
these agreements, others may gain access to these trade secrets, such agreements
may not be honored and we may not be able to protect effectively our rights to
our unpatented trade secrets. Moreover, our trade secrets may otherwise become
known or independently developed by our competitors.
26
RISKS RELATED TO OUR COMMON STOCK OUTSTANDING
OUR STOCK PRICE COULD BE VOLATILE.
The stock market has from time to time experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. In particular, the market price of our common stock, like
that of the securities of other biopharmaceutical companies, has been and may be
highly volatile. Factors such as announcements concerning technological
innovations, new commercial products or procedures by us or our competitors,
proposed governmental regulations and developments in both the U.S. and foreign
countries, disputes relating to patents or proprietary rights, publicity
regarding actual or potential medical results relating to products under
development by us or our competitors, public concern as to the safety of
biotechnology products, and economic and other external factors, as well as
period-to-period fluctuations and financial results, may have a significant
effect on the market price of our common stock.
From time to time, there has been limited trading volume with respect to our
common stock. In addition, there can be no assurance that there will continue to
be a trading market or that any securities research analysts will continue to
provide research coverage with respect to our common stock. It is possible that
such factors will adversely affect the market for our common stock.
On March 21, 2003, Nasdaq informed us that for the last 30 consecutive
trading days, the bid price of our common stock has closed below the minimum
$1.00 per share requirement for continued inclusion in The Nasdaq National
Market. Therefore, in accordance with Nasdaq Rules, we will be provided 180
calendar days, or until September 17, 2003, to regain compliance. If, at any
time before September 17, 2003, the bid price of our common stock closes at
$1.00 per share or more for a minimum of 10 consecutive trading days, The Nasdaq
will provide written notification that we have achieved compliance with this
rule. If compliance with this rule cannot be demonstrated by September 17, 2003,
the Nasdaq will provide written notification that our securities will be
delisted. At that time, we may appeal this determination to a Listing
Qualifications Panel or may apply to transfer our securities to The Nasdaq Small
Cap Market.
THE NUMBER OF SHARES OF OUR COMMON STOCK ELIGIBLE FOR FUTURE SALE, INCLUDING
WARRANTS, WHICH ARE CURRENTLY EXERCISABLE, COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR STOCK.
As of December 31, 2002, we have reserved approximately 6.0 million shares of
common stock for issuance under outstanding options, warrants and other
contingent agreements. Approximately 5.8 million of these shares of common stock
are registered for sale or resale on currently effective registration
statements, and the holders of substantially all of the remaining shares of
common stock are entitled to registration rights. The issuance of a significant
number of shares of common stock upon the exercise of stock options and
warrants, or the sale of a substantial number of shares of common stock under
Rule 144 or otherwise, could adversely affect the market price of the common
stock.
CERTAIN ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND
DELAWARE LAW MAY DETER OR PREVENT A CHANGE IN CONTROL OF OUR COMPANY, EVEN IF
THAT CHANGE WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.
Our Certificate of Incorporation and the provisions of Section 203 of the
Delaware General Corporation Law contain certain provisions that may delay or
prevent an attempt by a third party to acquire control of us. Additionally, we
adopted a Shareholder Rights Plan in January 2002 that may delay or prevent such
attempt by a third party to acquire control of us. In addition, the severance
provisions of employment agreements with certain members of management could
impede an attempted change of control by a third party.
ITEM 2 -- PROPERTIES
We lease 15,490 square feet of office space in Bellaire, Texas for our
administrative, marketing, clinical development and regulatory departments. The
lease expires July 31, 2005 with an option to extend the lease to December 31,
2005, provided we give ninety (90) days prior written notice.
We also lease 31,359 square feet of office and laboratory space in another
building in Houston, Texas for our research department, including a 21,621
square foot laboratory facility and a 3,909 square foot animal facility. The
27
remaining area is being used for clinical development, computer modeling,
storage space and additional offices for scientists. Our lease expires in
December 2005. Additionally, we lease 658 square feet in the building for use as
storage space on a monthly basis.
Revotar leases 8,800 square feet of office and laboratory space in Berlin,
Germany. Their lease expires in September 2006.
We may require additional space to accommodate future research and laboratory
needs as necessary to bring products into development and clinical trials.
ITEM 3 -- LEGAL PROCEEDINGS
None
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our shareholders during the fourth
quarter of our fiscal year ended December 31, 2002.
28
PART II
ITEM 5 -- MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Our common stock began trading on The Nasdaq National Market on June 19, 2001
under the symbol "TXBI" before which our common stock was traded on the American
Stock Exchange under the symbol "TXB".
On March 21, 2003, Nasdaq informed us that for the last 30 consecutive
trading days, the bid price of our common stock has closed below the minimum
$1.00 per share requirement for continued inclusion in The Nasdaq National
Market. Therefore, in accordance with Nasdaq Rules, we will be provided 180
calendar days, or until September 17, 2003, to regain compliance. If, at any
time before September 17, 2003, the bid price of our common stock closes at
$1.00 per share or more for a minimum of 10 consecutive trading days, Nasdaq
will provi