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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, 2003
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-20117
ENCYSIVE PHARMACEUTICALS INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3532643
(State of Incorporation) (I.R.S. Employer
Identification
Number)
6700 WEST LOOP, 4TH FLOOR
BELLAIRE, TEXAS 77401
(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
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |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 $211,850,000 as of June 30, 2003.
The number of shares outstanding of each of the registrant's classes of
common stock as of March 1, 2004:
TITLE OF CLASS NUMBER OF SHARES
-------------- ----------------
Common Stock, $.005 par value 52,642,748
Documents incorporated by reference:
DOCUMENT FORM 10-K PARTS
--------------------------------------- ----------------
Definitive Proxy Statement, to be filed III
within
120 days of December 31, 2003
(specified portions)
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1
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 "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Additional 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.
As used in this Form 10-K, the words "we," "our," "us," "Encysive," and
the "Company" refer to Encysive Pharmaceuticals Inc., its predecessors and
subsidiaries, except as otherwise specified. This Form 10-K may contain
trademarks and service marks of other companies.
2
PART I
ITEM 1 -- BUSINESS
OVERVIEW
Encysive Pharmaceuticals is a biopharmaceutical company engaged in the
discovery, development and commercialization of novel, synthetic, small molecule
compounds to address unmet medical needs. Our research and development programs
are predominantly focused on the treatment and prevention of interrelated
diseases of the vascular endothelium and exploit our expertise in the area of
the intravascular inflammatory process, referred to as the inflammatory cascade,
and vascular diseases. We have successfully developed one Food and Drug
Administration, or FDA, approved drug, Argatroban, for the treatment of
heparin-induced thrombocytopenia, or HIT, that is marketed by GlaxoSmithKline,
PLC, also referred to as GlaxoSmithKline or GSK. Our lead drug candidate,
Thelin(TM) (sitaxsentan), is an endothelin receptor antagonist in Phase III
clinical trials for the treatment of pulmonary arterial hypertension, or PAH.
In addition, we have earlier stage clinical product candidates in development
including TBC3711, a next generation endothelin receptor antagonist, and
bimosiamose, being developed by our majority-owned German affiliate, Revotar
Biopharmaceuticals AG, or Revotar. Our executive offices are located at 6700
West Loop South, 4th Floor, Bellaire, Texas 77401. Our telephone number is
(713) 796-8822.
Thelin(TM)
Thelin(TM) is being developed as a treatment for PAH, a life-threatening
disease characterized by the constriction of blood vessels leading to the lungs.
This constriction leads to very high blood pressure in the pulmonary arteries as
the heart struggles to pump blood to the lungs. PAH patients suffer from extreme
shortness of breath and, as the disease progresses, are less able to perform the
daily activities of living. Over time, PAH leads to right ventricular failure
(heart failure) and death. PAH may be a primary condition, perhaps caused by
genetic factors, or secondary to other diseases like autoimmune diseases (such
as scleroderma or lupus), congenital heart disease, HIV infection or cirrhosis
of the liver. PAH is an orphan disease (defined in the U.S. as a prevalence of
less than 200,000 patients) that industry research analysts estimate to afflict
approximately 80,000 to 100,000 individuals worldwide, mostly women.
It has been determined that the vascular endothelium plays a pivotal role
in maintaining normal blood vessel tone, including blood flow, by producing
substances such as endothelin that regulate the balance between vasoconstriction
and vasodilation. The vascular actions of endothelin can be explained by its
interactions on cell surfaces with two distinct receptors, endothelin-A, or ETA,
and endothelin-B, or ETB. In general, ETA receptors on vascular smooth muscle
cells are associated with vasoconstriction, while ETB receptors, predominantly
found on endothelial cells, are primarily associated with vasodilation.
Thelin(TM) is 6,500 times more selective for ETA receptors than for ETB
receptors. We believe that selective endothelin antagonists, like Thelin(TM),
will be preferred by physicians because ETA receptor antagonists block the
negative vasoconstrictive effects of endothelin at the ETA receptor, but do not
block the beneficial vasodilative effects of endothelin at ETB receptors present
on endothelial cells. In addition, Thelin(TM) has other favorable
characteristics including oral administration and once daily dosing.
We believe available treatments for PAH are inadequate. Patients with
moderate disease are treated with calcium channel blockers, diuretics and
anticoagulants. As the disease progresses, the standard treatment for the
disease consists of systemic prostacyclins, which require continuous 24-hour
intravenous or subcutaneous infusions. An orally-administered endothelin
receptor antagonist, bosentan (Tracleer(R)), is also available. Bosentan is
administered twice daily and is a non-selective endothelin receptor antagonist.
The cost of prostacyclin therapy currently averages over $100,000 annually per
patient while bosentan therapy costs approximately $33,000 per patient annually
in the United States and approximately 41,000 Euros per patient annually in
Europe.
These treatments have been shown to more than double median survival time
of PAH patients. However, there is an ongoing need for additional
pharmacological alternatives for the treatment of PAH due to the fact that PAH
patients respond differently to the range of currently available therapies and
the limitations of these therapies. We believe Thelin(TM)'s selectivity to ETA
as well as its once daily dosing will represent advantages to PAH patients.
3
In 2002, we successfully completed and announced results of our STRIDE 1
Phase IIb/III pivotal study in PAH with Thelin(TM). We have initiated and are
currently enrolling a Phase III pivotal clinical trial, STRIDE 2. In June 2003,
we received a Special Protocol Assessment, also referred to as an SPA, which is
a binding written agreement between a clinical trial sponsor and the FDA on the
design of pivotal trials, confirming that, if successful, the STRIDE 2 trial
results, together with the results from STRIDE 1 and planned supportive trials,
will be sufficient for the submission to the FDA of Thelin(TM)'s new drug
application, or NDA.
STRIDE 2 is a 240-patient trial enrolling patients with Class II-IV PAH,
as classified by the World Health Organization, or WHO, of primary or secondary
causes. STRIDE 2 is of 18 weeks duration and tests two doses of Thelin(TM) (100
mg and 50 mg), versus placebo, dosed once daily in a double-blind fashion. In
addition, a randomized bosentan arm is included. A total of 50 to 70 centers
worldwide will participate. The primary endpoint of STRIDE 2 is six-minute walk
distance, and secondary endpoints include change in functional class, shortness
of breath and the occurrence of clinical deterioration events. We anticipate
enrollment will be completed in the spring of 2004 with results available in the
second half of 2004. We anticipate that the NDA submission may occur between the
end of 2004 and the first quarter of 2005.
We have worldwide commercialization rights to Thelin(TM). Upon regulatory
approval we intend to commercialize Thelin(TM) in North America through our own
specialty sales force. We are seeking a marketing partner or partners for sales
in the rest of the world.
Argatroban
Argatroban, licensed from Mitsubishi Pharma Corporation or Mitsubishi and
developed in North America by Encysive, is a synthetic direct thrombin
inhibitor approved by the FDA in 2000. It is indicated for prophylaxis or
treatment of thrombosis for patients with HIT, a profound allergic reaction to
anticoagulation therapy with heparin, and for use in HIT patients undergoing
precutaneous coronary intervention. Argatroban was approved in Canada in 2002
for use as an anticoagulant therapy in patients with HIT syndrome. GSK markets
Argatroban in the U.S. and Canada, and has Waxman Hatch market exclusivity in
the U.S. until June 2005. A pediatric study is underway which could prolong
exclusivity in the U.S. to the end of 2005. In 2003, Encysive earned royalties
from the sales of Argatroban totaling $5.4 million and expects to earn
royalties of $6.7-7.6 million in 2004.
Other Development Programs
In addition to Thelin(TM) and Argatroban, we have a number of projects in
clinical and preclinical development. TBC3711, a next generation ETA receptor
antagonist, has completed Phase I clinical development for the treatment of PAH.
TBC3711 is more selective and more potent than Thelin(TM).
Our majority-owned German affiliate, Revotar, is developing bimosiamose, a
selectin antagonist discovered in Encysive's laboratories, that is designed to
block inflammatory cells from leaving the vascular space to travel to tissue
sites of inflammation. Revotar recently initiated Phase IIa clinical trials
evaluating the use of topical bimosiamose for the treatment of psoriasis and
atopic dermatitis. An inhaled version of bimosiamose has completed a 12-patient
proof-of-concept study in asthma that demonstrated a statistically significant
improvement in the late asthmatic response, the same target addressed by inhaled
steroid use in asthma. Revotar plans to seek a licensing partner for inhaled
bimosiamose.
We have entered into a worldwide research collaboration and license
agreement with Schering-Plough Corporation and Schering-Plough LTD, which are
collectively referred to as Schering-Plough to discover, develop and
commercialize VLA-4 antagonists. Schering-Plough is in the final stages of
pre-clinical development with TBC4746, an oral VLA-4 antagonist. If this work
is successful, the next development step would be to initiate studies in human
volunteers. VLA-4 is a potential target in the inflammatory cascade taking
place within the vasculature. TBC4746 has the potential to address a number of
diseases, including asthma and multiple sclerosis.
Encysive's Research Programs
Our research efforts are concentrated on targets within the vasculature,
and the potential indications of our drug candidates include cardiovascular
diseases and a potentially wide variety of inflammatory diseases involving two
complementary sets of targets. The first set of targets relate to vascular
G-protein coupled receptors, or GPCRs. Historically, GPCRs have been some of the
most amenable targets for developing commercially successful pharmaceuticals,
such as beta-blockers, antihistamines, and most anti-psychotics and
anti-depressants. Endothelin receptors, targeted by Thelin(TM) and TBC3711, are
examples of GPCRs.
4
Encysive also has developed expertise in pharmacologically intervening in
the intravascular inflammatory cascade, representing a second set of
intravascular targets. Bimosiamose and TBC4746 are examples of drug candidates
that we designed to target two distinct steps in this cascade, the selectins and
VLA-4, respectively. Some of the targets in this cascade are GPCRs. Thus, our
focus on endothelial cell and related vascular biology has opened up a broad
range of disease targets with high unmet medical need.
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/ COMMERCIALIZATION
PROGRAM DOSE FORM INDICATION STATUS(1) RIGHTS(2)
------- --------- ---------- --------- ---------
THROMBOSIS ARGATROBAN
Intravenous Anticoagulant therapy for Marketed product GlaxoSmithKline
prophylaxis or treatment of
patients with HIT
Intravenous Anticoagulant therapy for Marketed product GlaxoSmithKline
patients, with or at risk for
HIT, undergoing PCI
VASOSPASM/ ENDOTHELIN(A) RECEPTOR
HYPERTENSION ANTAGONIST
Thelin(TM) (Sitaxsentan)
Oral Pulmonary Arterial Hypertension Phase III Encysive
TBC3711
Oral Pulmonary Arterial Hypertension Phase I completed Encysive
UROTENSIN RECEPTOR Various Research Encysive
ANTAGONIST
OTHER GPCRS Various Research Encysive
VASCULAR SELECTIN ANTAGONIST (BEING
INFLAMMATION DEVELOPED BY REVOTAR)
Bimosiamose
Inhaled Asthma Phase IIa Revotar
Topical-North America Psoriasis and atopic dermatitis Phase IIa Encysive
Topical-Outside North America Psoriasis and atopic dermatitis Phase IIa Revotar
VCAM/VLA-4 ANTAGONIST
TBC4746
Oral Asthma Preclinical Schering Plough
Multiple Sclerosis Preclinical Schering Plough
Rheumatoid Arthritis Preclinical Schering Plough
(ALPHA)4(BETA)7 ANTAGONIST
TBC3804
Oral Inflammatory Bowel Disease Research Schering Plough
OTHER CELL ADHESION MOLECULES Various Research Encysive
(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.
(2) Royalties are paid to Mitsubishi for sales of Argatroban and could
possibly be paid to Revotar for bimosiamose, but we receive royalties for
Argatroban from GlaxoSmithKline. There is a possibility that in the future
we could receive royalties from Revotar and Schering Plough.
5
VASOSPASM/HYPERTENSION PROGRAM
THELIN(TM)
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 (vasodilation) 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 vasodilation 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 and
endothelin-B. In general, ETA receptors are associated with vasoconstriction,
while ETB receptors are primarily associated with vasodilation. 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 ETA 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 ETA
receptor with high potency. We identified lead compounds that mimic the ability
of endothelin to bind to the ETA 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 outside the body acting as full, competitive
antagonists. The lead compounds in this series have been shown to exhibit
efficacy inside the body using various animal models. In addition, Thelin(TM)
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) owned by GSK),
bosentan (Tracleer(R) owned by Actelion), and treprostinil (Remodulin(R) owned
by United Therapeutics) are treatments currently approved by the FDA 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 the most severe symptoms, New
York Heart Association (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 moderate to severe NYHA/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.
Product Candidate -- sitaxsentan - Thelin(TM). Our lead endothelin
antagonist, Thelin(TM), is being developed for the indication of PAH. PAH is a
disease with high mortality and an average survival time of approximately four
years from the time of diagnosis. Thelin(TM), a highly selective endothelin-A
receptor antagonist, may provide a distinct advantage over current therapies
including the non-selective endothelin receptor antagonist Tracleer(R).
6
Clinical Trial Status. -- To date, we have conducted Phase II studies with
Thelin(TM) in three diseases -- congestive heart failure, essential hypertension
and PAH. In the first Phase II study of Thelin(TM) in PAH patients, Thelin(TM)
demonstrated significant benefits in six-minute walking distance, certain key
hemodynamic measurements and change in NYHA functional class. In a follow-on
extension to this trial, two patients developed treatment-related hepatitis and
one of these patients died. Following analysis of this trial and its extension
and subsequent discussion with the FDA, in the second quarter of 2001, Encysive,
L.P. initiated a second Phase IIb/III clinical trial (STRIDE 1) of Thelin(TM) in
PAH patients, but at lower doses than previously studied. The results from
STRIDE 1 were encouraging and were the basis for continued development. In June
2003, we received a SPA confirming that the results from STRIDE 1 and a proposed
Phase III pivotal clinical trial, STRIDE 2, together with planned supportive
trials, would be sufficient for the submission to the FDA of an NDA for
Thelin(TM).
We have initiated, and are currently enrolling patients into STRIDE 2.
STRIDE 2 is a 240-patient trial enrolling patients with mild to severe NYHA/WHO
Class II-IV PAH, of various causes. STRIDE 2 is of 18 weeks duration and tests
two doses of Thelin(TM) (100 mg and 50 mg), versus placebo, dosed once daily in
a double-blind fashion. In addition, a randomized, single-blind bosentan arm is
included. A total of 50 to 70 centers worldwide are participating. The primary
endpoint of STRIDE 2 is a six-minute walk distance, and secondary endpoints
include change in functional class, shortness of breath and the occurrence of
clinical deterioration events. We anticipate enrollment will be completed in the
spring of 2004 with results available in the second half of 2004. Assuming
STRIDE 2 is successful, we anticipate that the NDA submission may occur between
the end of 2004 and the first quarter of 2005.
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 Thelin(TM) and that a potential
market opportunity for TBC3711 exists for the treatment of PAH and other
diseases. Encysive, L.P. 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 selective ETA receptor antagonist compounds in clinical
development. Selective ETA receptor compounds from Abbott and Myogen are in
Phase III development. Abbott has reported mixed results from a Phase III trial
in severe hormone resistant prostate cancer patients, and they are conducting
additional studies in other cancer groups. Myogen has begun a Phase III trial
for ambrisentan in PAH and a Phase II trial of darusentan in refractory
essential hypertension. 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 Thelin(TM) will be preferred by physicians since selective ETA
blockers block the negative effects of endothelin at the ETA receptor, and do
not block the beneficial effects of endothelin at the ETB receptor.
Non-selective antagonists block both the ETA and the ETB receptors.
In addition to endothelin antagonists, Pfizer is conducting clinical
trials of Viagra (R) in PAH. If Viagra (R) demonstrates a benefit in PAH
patients, we believe it will be used as additive therapy with endothelin
antagonists.
THROMBOSIS PROGRAM
ARGATROBAN
Background. In clinical use for over 50 years, heparin is an important and
widely used anticoagulant for the prevention, or prophylaxis or treatment of
thromboembolic disease and numerous other applications. Unfortunately, heparin
can cause serious adverse events. One of the most important of these is HIT. HIT
was first identified in the 1970s and emerged in the 1990s as one of the
foremost immunohematologic issues confronting physicians.
HIT is a potentially devastating prothrombotic disease that is caused by
heparin-dependent antibodies that can develop after a patient has been on
heparin for five or more days or may develop sooner if there has been previous
heparin exposure. The most devastating consequence of HIT is the paradoxical
thrombotic state and potential for generation of blood clots that develops as a
result of being treated with heparin. All patients exposed to heparin, given by
any route or at any dose, are at risk of developing HIT. This includes patients
receiving unfractionated heparin (at full therapeutic doses and low prophylactic
doses, including the minute amounts in heparin flushes and on heparin-coated
catheters) as well as low-molecular-weight heparin.
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.
7
Current Therapies. Argatroban is a synthetic direct thrombin inhibitor
developed in response to the urgent clinical need for a safe and effective
alternative to heparin in HIT with or without thrombosis. Argatroban meets the
requirements of the ideal anticoagulant for both the prophylaxis and treatment
of HIT and associated thrombotic complications. As the first and only direct
thrombin inhibitor approved for both the prophylaxis and treatment of thrombosis
in HIT, Argatroban provides physicians with an effective anticoagulant that does
not interact with heparin-dependent antibodies, offers a predictable
dose-response relationship and is minimally monitored.
Clinical Trial Status. During 2002, we completed ARGIS-I, a multi-center,
placebo-controlled Phase II clinical trial 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 we 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.
Argatroban is approved and sold in Japan by Mitsubishi, the licensor of
Argatroban, as mono-therapy for an indication of acute ischemic stroke.
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 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 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.
German Affiliate -- Revotar Biopharmaceuticals, AG. During 2000, Revotar
Biopharmaceuticals, AG, a German company, 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 we licensed to Revotar. Upon
formation, we licensed to Revotar certain development and commercialization
rights to Encysive's selectin antagonist compounds as well as rights to certain
other Encysive 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. 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. Encysive 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.
8
In 2002, the stockholders of Revotar executed an agreement to provide
Revotar approximately $4.5 million in unsecured loans, of which our commitment
was approximately $3.4 million. Under the loan agreement, we have advanced
approximately $2.2 million and Revotar's minority shareholders have advanced
approximately $1.5 million to Revotar as of December 31, 2003. Revotar's
management has informed us that they intend to borrow the remaining Encysive
commitment of $1.2 million in early 2004. 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 2005. 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. During 2004, to conserve
cash, Revotar terminated a research agreement regarding macrophage migration
inhibitory factor with the Fraunhofer Institute in Stuttgart, Germany.
Clinical Trial Status. - A Phase IIa clinical trial with an inhaled form
of bimosiamose was completed in the second quarter of 2003 and positive
preliminary results were released in August 2003. A Phase IIa clinical trial in
psoriasis and atopic dermatitis commenced during the fourth quarter of 2003
using a topical formulation of biosiamose.
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 white blood
cells 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 1,200,000 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 is 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 Encysive's library of VLA-4 antagonists, as well
as the rights to a second integrin antagonist. Encysive is responsible for
optimizing a lead compound and additional follow-on compounds. Schering-Plough
is supporting research at Encysive 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 Encysive 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. If not
extended, our research on additional follow-on compounds and research funding
from Schering-Plough will terminate on June 30, 2004.
Competition. Several companies have programs aimed at inhibiting cell
adhesion molecules and integrins, like (alpha)4(beta)7 and VCAM/VLA-4. Biogen
Idec, Inc. and Elan Corporation plc have obtained positive data in human trials
of multiple sclerosis and inflammatory bowel disease with Antegren(R), a
monoclonal antibody against VLA-4.
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 GPCRs, to carry out their action. We are conducting research on urotensin
and other GPCRs to identify inhibitors that could be useful in treating diseases
including chronic heart failure, 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.
9
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. 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 agreement provides us 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. GSK is also obligated to pay Mitsubishi royalties on sales of
Argatroban. As of December 31, 2003, we had paid Mitsubishi approximately
$483,000 in royalty payments under the agreement. We have also paid Mitsubishi a
$500,000 milestone payment under the agreement, and no additional milestone
payments are payable to Mitsubishi under the agreement. Either party may
terminate the 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, the agreement 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. If our agreement with Mitsubishi is
terminated, we would lose all rights to Argatroban including our right to
receive revenues from the sale of Argatroban. Under the agreement, we have
access to a formulation patent granted in the U.S. in 1993, which expires in
2012, and a process patent that expires in 2017. 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 and 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, in August 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. No additional
license fees or milestone payments are payable to us by GSK under the agreement.
We are evaluating with GSK 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. As of December 31, 2003, we had received
approximately $10.7 million in royalty payments from GSK under the agreement. 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 Encysive elect
not to develop will be returned to Mitsubishi, subject to the rights of GSK and
Encysive to commercialize these indications at Encysive'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, declares bankruptcy or becomes insolvent. If
our agreement with GSK is terminated, we would no longer receive royalties from
GSK's sales of Argatroban and we may experience delays and incur expenses in
attempting to commercialize Argatroban. 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
10
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.
Encysive L.P. In June 2000, we entered into a limited partnership
agreement with ICOS to form ICOS-TBC, L.P., also referred to as ICOS-TBC. The
partnership was formed to develop and globally commercialize endothelin-A
receptor antagonists from the Encysive endothelin antagonist program. ICOS-TBC
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 informed us that they had reached a conclusion that
joint development of the endothelin receptor antagonist program should not
continue, and Encysive agreed to be responsible for all costs of the program
thereafter. In April 2003, we purchased ICOS's interest in ICOS-TBC and changed
the name of ICOS-TBC to Encysive, L.P. The results of Encysive, L.P. are
included in our consolidated financial statements for all periods subsequent to
April 2003.
Schering-Plough. In June 2000, Encysive 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 Encysive an aggregate of $4 million in upfront license fees
and milestone payments, and may pay us additional development milestones of $39
million regarding the development of VLA-4 antagonists, and $38 million
regarding the development of a second integrin antagonist. We are not currently
developing the second integrin antagonist. Schering-Plough will also pay us
royalties on product sales resulting from the agreement. Total payments to us
for both programs, excluding royalties, could reach $87.0 million. As of
December 31, 2003, we had received approximately $11.8 million in research
payments from Schering-Plough under the agreement. See Note 9 to the
Consolidated Financial Statements for a discussion of this transaction. Although
we and Schering-Plough agreed to extend the agreement through June 2004,
Schering-Plough can terminate the research program upon 180 days written notice
to us. If this agreement is terminated, we will lose Schering-Plough's funding
for the research costs in addition to development milestones and royalties on
product sales resulting from the agreement.
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 10 to the Consolidated Financial Statements for a
discussion of this transaction. Currently, Revotar has 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.
We have exclusive worldwide rights for the use of bimosiamose in organ
transplant as well as exclusive North American rights to all topical
indications. 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. A Phase IIa clinical trial was completed in
Germany utilizing an injectable form of bimosiamose as a proof-of-concept for
psoriasis, and demonstrated activity. A Phase IIa clinical trial with an inhaled
form of bimosiamose was completed in the second quarter of 2003 and positive
preliminary results were released in August 2003. A Phase IIa clinical trial in
psoriasis and atopic dermatitis commenced during the fourth quarter of 2003
using a topical formulation.
Our license agreement with Revotar provides that we will receive royalties
from Revotar based on sales of products by Revotar or its licensees, and in
certain events, we will receive a portion of royalties, license fees and
milestones received by Revotar from its licensees, if any. Revotar will also
receive royalties on sales of products by us and our licensees.
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 8 pending U.S. patent applications and 40
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 a formulation patent granted in 1993, which expires
in 2012, and a process patent that expires in 2017. 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. Argatroban
received FDA approval on June 30, 2000. Under the agreement, Mitsubishi has the
right to bring any suit or action for infringement of the patent rights granted
thereunder; provided,
11
however, if Mitsubishi fails to take action with respect to any infringement, we
have the right the bring any appropriate suit or action against the infringer
based upon any patent with the patent rights granted thereunder that has a claim
that specifically covers a licensed product. GSK currently markets Argatroban
and enjoys 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 2012 and a
process patent that expires in 2017. 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.
Other patents relevant to our key therapeutic programs are discussed in
the following table:
Program Product US Patent No. Expiration Relevance
------- ------- ------------- ---------- ---------
Inflammation Bimosiamose US 5,622,937 April 29, 2014 Composition of matter patent
(TBC1269) for TBC1269 (bimosiamose)
Bimosiamose US 5,712,387 May 20, 2016 Process patent for
(TBC1269) bimosiamose synthesis
Integrin/VLA-4 US 6,262,084 April 15, 2019 Composition of matter patents
for integrin antagonists
Integrin/VLA-4 US 6,194,448 April 16, 2018 Composition of matter patents
for integrin antagonists
Integrin/VLA-4 US 6,096,773 April 15, 2019 Composition of matter patents
for integrin antagonists
Pulmonary Thelin(TM) US 6,342,610 November 5, 2013 Composition of matter patent
Hypertension for endothelin antagonists
Thelin(TM) US 6,432,994 April 28, 2017 Composition of matter patent
for endothelin antagonists
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. 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.
12
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;
- clinical hold;
- criminal prosecution;
- injunctions;
- product seizure;
- product recalls;
- total or partial suspension of production; and
- FDA refusal to approve pending 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 Investigational New Drug application
(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 current 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
13
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, and 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
- 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 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 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 and 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.
14
Manufacturing. Each domestic drug manufacturing facility must be
registered with the 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 our or 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 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 have not had any claims to
date on our general liability insurance relative to hazardous materials and
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 financial
resources or not be covered by our general liability insurance, which has a
policy limit of $7 million. 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.
15
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 compounds 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
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. In anticipation of the assumed successful
completion of STRIDE 2 and approval of Thelin(TM) by the FDA and other
regulatory bodies, we have initiated preparations for an eventual product
launch, through activities such as conducting market research, preparation of
educational materials, and planning for additional clinical trials for
Thelin(TM).
EMPLOYEES
As of December 31, 2003, we employed 92 individuals in the U.S. 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.
AVAILABLE INFORMATION
Our Internet website can be found at www.encysive.com. We make available
free of charge, or through the "Investor Relations" section of our Internet
website at www.encysive.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.
16
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 need to be
delivered by means other than orally, such as intraveneous or inhalation, which
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 may
not be commercially available for a number of years, if at all, and we cannot
assure you that any successfully developed products will generate substantial
revenues or that we will ever be profitable.
WE HAVE A HISTORY OF OPERATING AND NET LOSSES AND WE MAY NEVER BECOME
PROFITABLE.
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, regulatory compliance and commercialization.
At December 31, 2003, we had an accumulated deficit of approximately $183.5
million, and for the fiscal years ended December 31, 2003, 2002 and 2001 we have
incurred net losses of approximately $35.3 million, $23.5 million and, $19.1
million, respectively. We will require substantial additional funding to
complete the research and development of our product candidates, to establish
commercial scale manufacturing facilities, if necessary, to market our products.
To become profitable, we, either alone or with our collaborators, must
successfully develop, manufacture and market our product candidates, or continue
to identify, develop, acquire, manufacture and market other new product
candidates. We may never have any significant revenues or become profitable.
IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL WHEN NEEDED, WE WILL BE
UNABLE TO CONDUCT OUR OPERATIONS AND DEVELOP OUR POTENTIAL PRODUCTS.
We have financed our research and development activities and other
operations primarily through public and private offerings of our common stock
and from funds received through our development and funding collaborations,
research agreements and partnerships. We also have received royalty revenue from
sales of Argatroban. In December 2003, we sold 7,475,000 shares of common stock
in a public offering and realized net proceeds of approximately $45.4 million.
As of December 31, 2003, we had cash, cash equivalents and investments in
marketable securities of approximately $85.5 million.
We expect to continue to incur substantial research and development
expenditures as we design and develop biopharmaceutical products for the
prevention and treatment of cardiovascular and other diseases. We also
anticipate that our operating expenses will increase in subsequent years
because:
- we expect to incur significant expenses in conjunction with
additional clinical trial costs for Thelin(TM) and research and
clinical trial costs for development of bimosiamose and expect to
begin to incur costs for clinical trials related to additional
compounds; and
- we expect to incur additional costs in future periods related to
Argatroban in complying with ongoing FDA requirements and possible
clinical trial expenditures for additional therapeutic indications,
and
- If Thelin(TM) receives regulatory approval, we will incur
significant commercialization expenses.
17
We anticipate that our existing capital resources and other revenue
sources, should be sufficient to fund our cash requirements into the third
quarter of 2005. We also anticipate that we will need to secure additional funds
to continue the required levels of research and development to complete the
development and submit an NDA for Thelin(TM) and to reach our other current
long-term goals. We anticipate that the NDA submission may occur between the end
of year 2004 and first quarter of 2005. We intend to seek such additional
funding through collaborative arrangements and/or through public or private
financings, if required. Our strategy for managing our capital requirements
includes seeking to license rights to Thelin(TM) for select markets, while
preferably retaining North American rights. We cannot assure you that such
funding or licensing arrangements will be available on acceptable terms. As we
review our research and development programs, we may also consider various
measures to reduce our costs in order to effectively utilize our capital
resources. In early 2003, we implemented changes to reduce our operating costs,
including reducing our research and administration staff. If we are unable to
successfully access additional funding, we may be forced to take further cost
reduction measures. These adjustments may include scaling back, delaying or
terminating one or more research or development programs, curtailing capital
expenditures or reducing business development and other operating activities. We
may also consider seeking collaborators for our product candidates at an earlier
stage than otherwise would be desirable and on terms that are less favorable
than might otherwise be available or relinquishing, licensing or otherwise
disposing of rights to technologies, product candidates or products that we
would otherwise seek to develop or commercialize ourselves on terms that are
less favorable than might otherwise be available.
OUR DECISION TO CONTINUE TO DEVELOP AND GLOBALLY COMMERCIALIZE
ENDOTHELIN-A RECEPTOR ANTAGONISTS WITHOUT ICOS COULD ADVERSELY AFFECT OUR
FINANCIAL POSITION AND OUR COMMERCIAL PROSPECTS.
In June 2000, we entered into an agreement with ICOS to form ELP to
develop and globally commercialize endothelin-A receptor antagonists. In April
2003, we purchased ICOS' share of ELP for $4 million paid at closing, and $4
million and $2 million to be paid 12 and 18 months after closing, respectively,
plus interest. ICOS concluded its participation in the endothelin development
program as part of its commitment to focusing ICOS' development efforts on its
other drug candidates. As a result, we are currently responsible for all costs
and expenses of ELP, and our endothelin development program, incurred after
December 31, 2002. These costs and expenses will be significant and we will need
to seek additional funding and/or find a suitable collaborator to continue the
development and commercialization of endothelin-A receptor antagonists,
including Thelin(TM) and TBC3711.
ENDOTHELIN ANTAGONISTS AS A CLASS MAY GENERATE LIVER ABNORMALITIES
Liver and fetal abnormalities have previously been recognized as
complications related to the endothelin antagonist class of drug. Fetal
abnormalities with respect to this class of drug have been detected in animal
studies. Liver abnormalities in the STRIDE 1 trial reversed in all cases with
discontinuation of the drug. The most frequent adverse events that occurred in
patients receiving Thelin(TM) and that were more common than in placebo-treated
patients, were headache, peripheral edema, nasal congestion and dizziness. We
have initiated STRIDE 2, a pivotal Phase III trial in PAH. In June 2003, we
received a SPA from the FDA confirming that STRIDE 2, together with the results
of STRIDE 1 and planned supportive trials will be sufficient for filing an NDA.
We cannot assure you that similar liver abnormalities will not occur in
STRIDE 2 or other clinical studies related to our endothelin development program
or in commercial usage after approval. If we are unable to clearly demonstrate
that Thelin(TM) provides an acceptable risk-benefit profile as compared to
currently approved therapies, we are not likely to receive regulatory approval
to market Thelin(TM), which could prevent us from generating meaningful revenue
or achieving profitability.
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;
- 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.
18
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 have 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;
- 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, has completed Phase III trials and is under regulatory
review.
A number of companies, including Abbott Laboratories and Myogen, Inc.,
have ETA compounds in clinical development and while Abbott Laboratories'
compound is presently being evaluated for treatment of cancer, we cannot assure
you that it will not compete with Thelin(TM). If Myogen, Inc.'s compound
receives regulatory approval, it will be in competition with Thelin(TM). Myogen
has begun two Phase III trials for its ETA compound in PAH. 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. In addition to endothelin antagonists, Pfizer is conducting
clinical trials with Viagra(R) for use in treating PAH. If phosphodiesterase 5
inhibitors such as Viagra(R) demonstrate a benefit in PAH patients, we believe
they will be used as additive therapy with endothelin antagonists.
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.
19
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 on 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. If
our agreement with Mitsubishi is terminated, we will lose all rights to
Argatroban including our right to receive revenues from the sale of Argatroban,
which would have a material adverse effect on our business and financial
condition.
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 on its obligations under the agreement,
declares bankruptcy or becomes insolvent. If our agreement with GSK is
terminated, we will no longer receive royalties from GSK's sales of Argatroban
and we may experience delays and incur expenses in attempting to commercialize
Argatroban.
As previously discussed, we entered into a worldwide research
collaboration and license agreement to discover, develop and commercialize VLA-4
antagonists with Schering-Plough. Under the terms of the agreement,
Schering-Plough obtained the exclusive worldwide rights to develop, manufacture
and market all compounds from our library of VLA-4 antagonists, as well as the
rights to a second integrin antagonist. We are responsible for optimizing a lead
compound and additional follow-on compounds. Schering-Plough is supporting our
research and reimburses us for 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 us for both the VLA-4 and an additional program,
excluding royalties, could reach $87.0 million. Although we and Schering-Plough
have recently agreed to extend the agreement for another year, through June
2004, Schering-Plough can terminate the research program upon 180 days written
notice to us. If this agreement is terminated, we will lose Schering-Plough's
funding for the research costs in addition to development milestones and
royalties on product sales resulting from the agreement.
Our success will depend on these and any future strategic alliances. We
cannot assure you 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 also cannot assure you
that we will be able to enter into 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 and
financial condition.
IF REVOTAR IS UNABLE TO OBTAIN ADDITIONAL FUNDING, INCLUDING THE
ADDITIONAL FUNDING THAT WE ARE OBLIGATED TO PROVIDE, WE MAY LOSE OUR
RIGHTS TO COMMERCIALIZE BIMOSIAMOSE.
Revotar is developing a selectin antagonist, bimosiamose, for the
treatment of asthma and psoriasis. Currently, Revotar has 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.
We have exclusive worldwide rights for the use of bimosiamose in organ
transplant as well as exclusive North American rights to all topical
indications. In 2002, we and the other 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 advanced
approximately $2.2 million to Revotar as of December 31, 2003, and Revotar's
minority shareholders advanced approximately $1.5 million in 2003. We are not
obligated to advance any funds to Revotar in excess of our $3.4 million
commitment, and we have no present intention of advancing any other funds to
Revotar in excess of such commitment. We believe that Revotar's existing funds,
the remaining $1.2 million commitment under the loan agreement and proceeds
under German government scientific grants will be sufficient to fund Revotar
into the first quarter of 2005. 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. We
cannot assure you that such funding will be available
20
on acceptable terms. Revotar is actively seeking a partner or partners for the
inhaled indications of bimosiamose, however if Revotar is unable to obtain
additional funding, Revotar will no longer be able to continue its operations,
and may have to consider various methods of maximizing shareholder value,
including the sale or liquidation of its assets to its stockholders or third
parties.
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. For example, we licensed rights to Argatroban in 1993, and
incurred costs, including preclinical research studies and clinical trials costs
of approximately $43 million prior to its approval by the FDA in June 2000. 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;
- regulatory approval, if obtained, may significantly limit the
indicated uses for which a product may be marketed; and
- reliance on FDA guidance in our development plans.
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. Many
factors affect patient enrollment, including the size of the patient
population, the proximity of patients to clinical sites, the
eligibility criteria for the trial, competing clinical trials and
new drugs approved for the conditions we are investigating. Other
companies are conducting clinical trials and have announced plans
for future trials that are seeking or likely to seek patients with
the same diseases as those we are studying. Competition for patients
in cardiovascular disease trials is particularly intense because of
the limited number of leading cardiologists and the geographic
concentration of major clinical centers. Our Phase III clinical
trial program for Thelin(TM), STRIDE 2, includes a placebo control
group, which may also decrease the pace of enrollment. As a result
of all of these factors, our trials may take longer to enroll
patients than we anticipate.
21
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. We have not
incurred any material expenses related to the post-marketing review of
Argatroban; however, it is likely that post-marketing expenses for Thelin(TM)
could be more significant than those incurred with Argatroban.
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.
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. Drs. Given and Dixon, as well as
other members of our management team and scientific staff, have employment
agreements with us, which provide for initial one-year terms that renew
automatically for successive additional one-year periods unless either party
provides notice at least sixty days before the scheduled expiration. We do not
maintain key person insurance on any members of our management team and
scientific staff. Our success is also dependent on our maintaining and expanding
our personnel as needs arise in the areas of research, clinical trial
management, manufacturing, sales and marketing in order to commercialize
products. 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 our
financial resources or not be covered by our general liability insurance, which
has a policy limit of $7 million. Additionally, the cost of compliance with
environmental and safety laws and regulations may increase in the future.
22
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. Under the
agreements with Mitsubishi and GSK, we also maintain product liability insurance
to cover claims that may arise from the sale of Argatroban. Our existing
coverage has policy limits of up to $15 million for claims arising from clinical
trials or from the sale of Argatroban. Our existing coverage will not be
adequate as we further develop products and as sales of Argatroban continue. 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 or sale 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 AND SALES EXPERIENCE.
We have very limited manufacturing, marketing and 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.
Upon regulatory approval, we intend to commercialize Thelin(TM) in North
America through our own specialty sales force. As a result, 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 cannot assure
you 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 supplier 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
supplying 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.
23
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 we cannot assure you 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.
Thelin(TM) belongs to a class of drug called endothelin antagonists, which
may cause liver and fetal abnormalities. Tracleer(R) (bosentan), a product of
Actelion, Inc., also belongs to this class of drug, and the FDA, as a condition
for the approval of Tracleer(R), required that Actelion distribute Tracleer(R)
via a limited access program. A limited access program is a distribution system
which seeks to manage the post marketing risk of an approved medication through:
(i) limited distribution of the medication through a number of specialty
distributor pharmacies; (ii) registration of all practitioners prescribing the
medication; (iii) registration of all patients receiving the medication; (iv)
written certification by the practitioner that the medication is being
prescribed for a medically appropriate use; (v) review of safety warnings with
the patient by the practitioner; and (vi) an ongoing comprehensive program to
monitor, collect, track and report adverse event and other safety related
information from patients receiving the medication. We believe that since
Thelin(TM) belongs to the same class of drug as Tracleer(R), the FDA will
require that Thelin(TM) be distributed though a limited access program that may
make patient access and reimbursement more difficult.
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.
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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 U.S.
Patent and Trademark Office, also referred to as the PTO. Other competitors may
have filed or maintained patent applications for technology used by us or
covered by pending applications. In addition, patent protection, even if
obtained, is affected by the limited period of time for which a patent is
effective.
GSK currently markets Argatroban and enjoys 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 2012 and a process patent that expires in
2017. 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.
We could also incur substantial costs in filing and prosecuting patent
claims, 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. As of the date of this
report, there are no suits, interference proceedings, re-examination proceedings
or opposition proceedings, pending or, to our knowledge, threatened against us,
with respect to patents issued to or licensed by us or with respect to any
patent applications filed by us.
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
requir