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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, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-12574
TEXAS BIOTECHNOLOGY CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-3532643
(State of Incorporation) (I.R.S. Employer
Identification Number)
7000 Fannin, Suite 1920
Houston, Texas 77030
(713) 796-8822
(Address and telephone number of principal executive offices and zip code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $.005 par value American Stock Exchange
Redeemable common stock purchase warrants American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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 [ ]
The approximate aggregate market value of voting stock held by
nonaffiliates of the registrant is $169,433,000 as of March 19, 1999.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The number of shares outstanding of each of the registrant's classes of
common stock as of March 19, 1999:
Title of Class Number of Shares
-------------- ----------------
Common Stock, $.005 par value 34,189,364
Documents incorporated by reference:
Document Form 10-K Parts
-------- ---------------
Definitive Proxy Statement, to be filed within 120 days of III
December 31, 1998 (specified portions)
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DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Report includes "forward looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included in this Report are forward looking
statements. Such forward looking statements include, without limitation,
statements under (a) "Business" regarding Texas Biotechnology Corporation's
expectations for future drug discovery and development and related expenditures
and (b) "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources" regarding TBC's estimate of
sufficiency of existing capital resources and its ability to raise additional
capital to fund cash requirements for future operations. Although TBC believes
that the expectations reflected in such forward looking statements are
reasonable, it can give no assurance that such expectations reflected in such
forward looking statements will prove to have been correct. The ability to
achieve TBC's expectations is contingent upon a number of factors which include
(i) ongoing cost of research and development activities, (ii) cost of clinical
development of product candidates, (iii) attainment of research and clinical
goals of product candidates, (iv) timely approval of TBC's product candidates by
appropriate governmental and regulatory agencies, (v) effect of any current or
future competitive products, (vi) ability to manufacture and market products
commercially, (vii) retention of key personnel and (viii) capital market
conditions.
This Form 10-K may contain trademarks and service marks of other companies.
PART I
ITEM 1. BUSINESS
Texas Biotechnology Corporation ("TBC" or the "Company"), a
biopharmaceutical company, applies innovative drug discovery techniques and its
specialized knowledge of the role of vascular cell biology in vascular diseases
to the design and development of novel pharmaceutical compounds. The Company's
research and development programs are currently focused on inhibitors (also
referred to as antagonists or blockers) of thrombosis, vasospasm/hypertension,
vascular inflammation, vascular proliferative disease, angiogenesis and
apoptosis. The Company was incorporated in Delaware in August 1989 under the
name Cardiology Institute of Texas, Ltd., and its name was changed to Texas
Biotechnology Corporation in October 1990. As of December 31, 1998, the Company
had 84 employees, 69 of whom were engaged in research and development.
References to TBC or the Company include its subsidiary ImmunoPharmaceutics,
Inc. ("IPI") unless otherwise indicated. The Company's research laboratories and
executive offices are located at 7000 Fannin, Suite 1920, Houston, Texas 77030,
(713) 796-8822.
The Company's lead product candidate is NOVASTAN(R), a direct thrombin
inhibitor that is being developed for various indications as an anticoagulant
alternative to heparin. Approximately 390,000 patients treated with heparin in
the U.S. annually develop the immunological reaction known as heparin induced
thrombocytopenia ("HIT") syndrome, which may lead to a potentially
life-threatening thrombosis (blood clot). The Company has initially focused on
the therapeutic and commercial potential of NOVASTAN(R) in this indication.
NOVASTAN(R) is marketed in Japan for ischemic stroke, peripheral arterial
occlusion and hemodialysis in patients with antithrombin III deficiency.
Approximately 164,000 patients have been treated with NOVASTAN(R) in Japan since
its introduction in 1990. TBC has licensed the U.S. and Canadian rights to
NOVASTAN(R) from Mitsubishi Chemical Corporation ("Mitsubishi"). The Company has
entered into a collaboration with SmithKline Beecham plc ("SmithKline")
regarding the commercialization and development of NOVASTAN(R).
The original New Drug Application ("NDA") for NOVASTAN(R) was filed in August
1997, and was granted priority review status. The United States ("U.S.") Food
and Drug Administration (the "FDA") extended the priority review period by 90
days during January, 1998. On May 11, 1998, the Company announced that it had
received a non-approvable letter from the FDA for NOVASTAN(R). The Company
amended its NDA with the FDA for NOVASTAN(R) (argatroban) as an anticoagulant
for use in patients with HIT syndrome on March 19, 1999. While the Company
believes the amendment includes consistent, positive results and supports the
use of NOVASTAN(R) in its proposed indication, the Company cannot predict the
timing or outcome of the FDA decision.
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TBC's internal research has produced several small molecule product
candidates in the areas of vasospasm, hypertension and vascular inflammation.
The Company's lead compound for the treatment of CHF is TBC11251, a synthetic
small molecule receptor antagonist that selectively blocks endothelinA receptors
which are believed to be associated with vasoconstriction (constriction of blood
flow through blood vessels). In the area of vascular inflammation (associated
with asthma, reperfusion injury, or psoriasis), the Company has identified
several compounds, including TBC1269, which in preclinical studies have shown
efficacy in inhibiting acute inflammation. The Company completed its initial
Phase IIa clinical trial for TBC11251 (TBC's lead endothelinA receptor
antagonist ("ETA") compound for vasospasm/hypertension) in congestive heart
failure ("CHF"). In treatment of patients with moderate to severe congestive
heart failure, with intravenous TBC11251, the treated group demonstrated a
statistically significant improvement versus placebo in the primary objective of
improving central hemodynamics, particularly pulmonary artery pressure. In
addition, positive trends were observed in other important cardiovascular
measures. These results will allow the Company to proceed with the program using
oral dosing regimes in additional Phase II studies. The Company also completed a
Phase IIa clinical trial for TBC1269 (TBC's lead selectin antagonist compound
for vascular inflammation) in acute asthma. The trial demonstrated statistically
significant improvement over placebo as measured by reducing eosinophil
recruitment. The Company is currently developing inhaled and topical
formulations of TBC1269 for clinical testing in asthma and psoriasis,
respectively.
Additionally, in the vascular inflammation area, the Company has identified
vascular cell adhesion molecule ("VCAM") antagonists for the intercellular
adhesion observed in atherosclerosis, asthma and rheumatoid arthritis, and is
continuing to optimize lead VCAM compounds to obtain a clinical candidate. The
Company is conducting research in the vascular proliferative disease area (which
can result in coronary restenosis after angioplasty) to identify antagonists
that block fibroblast growth factor ("FGF"), a protein which triggers growth of
smooth muscle cells in blood vessels. The Company is also conducting research
into treatments for the consequences of excess angiogenesis (the formation of
new blood vessels from pre-existing blood vessels) and apoptosis (programmed
cell death). The Company has identified a number of compounds which are
undergoing further optimization prior to selection of clinical candidates.
The TBC strategy is to identify proprietary candidates for targeted
indications, and to selectively commercialize those candidates through
collaborations with other pharmaceutical and biotechnology companies. The
Company has also entered into collaborations with Synthelabo S.A., the
pharmaceutical division of L'Oreal S.A. ("Synthelabo"), and LG Chemical, Ltd.
("LG Chemical") regarding other compounds, as described below. In the future,
the Company intends to directly commercialize its compounds for acute
indications by establishing a hospital-based sales force, and intends to
out-license the compounds in territories outside its targeted markets, as well
as the rights to any non-strategic use of its compounds.
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PRODUCTS IN DEVELOPMENT AND RESEARCH
The following table summarizes the potential indications and the
current status of TBC's compounds in development and research. A more detailed
description of these compounds follows the table.
COMPOUND PIPELINE
- --------------------------------------------------------------------------------------------------------------
TARGET COMPOUND/ CORPORATE
PROGRAM DOSE FORM POTENTIAL INDICATION PARTNERS STATUS(1)
- ---------------- ------------------ -------------------------------- ------------------- ----------------
THROMBOSIS NOVASTAN(R)
Intravenous Anticoagulant Therapy in HIT Mitsubishi & NDA Filed (2)
patients SmithKline Beecham
Intravenous Mitsubishi & Phase III
Anticoagulant Therapy in HIT SmithKline Beecham
patients undergoing angioplasty
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VASOSPASM/ ENDOTHELIN(A)
HYPERTENSION RECEPTOR
ANTAGONIST
TBC11251
Intravenous Congestive Heart Failure LG Chemical Phase II
Oral Congestive Heart Failure LG Chemical Phase I
Hypertension LG Chemical Phase II (3)
TBC3214
Oral Primary Pulmonary Hypertension Preclinical
Congestive Heart Failure Preclinical
Hypertension Preclinical
- --------------------------------------------------------------------------------------------------------------
VASCULAR SELECTIN
INFLAMMATION ANTAGONIST
TBC1269
Intravenous Asthma LG Chemical Phase II
Inhaled Asthma LG Chemical Preclinical
Topical Psoriasis LG Chemical Preclinical
VCAM/VLA-4
TBC3486
Inhaled Asthma Research
Oral Rheumatoid Arthritis Research
- --------------------------------------------------------------------------------------------------------------
VASCULAR FGF ANTAGONIST Coronary Restenosis Post-Angioplasty Synthelabo Research
PROLIFERATIVE
DISEASE
- --------------------------------------------------------------------------------------------------------------
ANGIOGENESIS VEGF ANTAGONIST Diabetic Retinopathy Research
Cancer Research
- --------------------------------------------------------------------------------------------------------------
APOPTOSIS TNF(alpha) Rheumatoid Arthritis Research
ANTAGONIST
CASPASE INHIBITOR Stroke Research
Acute Myocardial Infarction Research
(1) See "Government Regulation."
(2) The original NDA was filed in August 1997, and was granted priority
review status. The FDA extended the priority review period by 90 days
during January, 1998. On May 11, 1998, the Company announced that it
had received a non-approvable letter from the FDA for NOVASTAN(R). The
Company amended its NDA on March 19, 1999. See "Thrombosis Program".
(3) Phase II clinical trials are anticipated to commence during 1999.
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THROMBOSIS PROGRAM
Background. Thrombosis is the formation of a blood clot in a vessel that
causes various vascular diseases depending on the location of the clot. An
arterial clot may lead to heart attack if lodged in a coronary artery, or to
stroke if lodged in an artery that supplies oxygen to the brain. Venous clots
occur principally in the arms or legs (deep vein thrombosis), and may cause
local inflammation, chronic pain and other complications. In some cases, a
venous clot can cause lung injury (pulmonary embolism) by migrating from the
veins to the lungs.
Thrombosis can be treated with anticoagulants, thrombolytic drugs or
surgically. Anticoagulant drugs, which prevent clots from forming, are
characterized as either antithrombotic or antiplatelet drugs. Antithrombotic
drugs block the action of the blood protein thrombin and may be used to treat
both arterial and venous clots. Antiplatelet drugs prevent platelets from
clumping together and are only effective in treating arterial clots. Heparin and
aspirin are the most widely-used antithrombotic and antiplatelet drugs,
respectively. Thrombolytic drugs dissolve existing clots in veins or arteries,
but do not block the formation of new blood clots. Tissue plasminogen activator
("t-PA") and streptokinase ("SK") are two of the most commonly used thrombolytic
drugs. A combination of an anticoagulant and a thrombolytic often achieves the
best therapeutic effect.
Heparin, first discovered over 80 years ago, is the most widely used
injectable anticoagulant. In the U.S., approximately ten million patients
annually receive therapeutic heparin to treat a variety of conditions that
require inhibition of the body's natural clotting mechanism. Each year
approximately 390,000 patients develop a profound immunological reaction to
heparin which is known as HIT. This reaction may lead to a potentially life
threatening thrombosis (blood clot).
Product Candidate - NOVASTAN(R). TBC's lead compound, NOVASTAN(R), is a
non-protein, synthetic small molecule thrombin inhibitor that directly and
selectively binds to and inactivates thrombin in the blood plasma. NOVASTAN(R)
is also effective against thrombin that is bound in blood clots. NOVASTAN(R) is
manufactured and marketed in Japan by Mitsubishi where it is approved for the
treatment of ischemic stroke, peripheral arterial occlusion and hemodialysis in
patients with antithrombin III deficiency. Since introduction in 1990,
approximately 164,000 patients have been treated with NOVASTAN(R) in Japan. TBC
is developing NOVASTAN(R) as an anticoagulant alternative to heparin for the
U.S. and Canadian markets in conjunction with SmithKline. See "-- Research and
Development Collaborations and Licensing Agreements."
In studies conducted by TBC in the U.S., as well as by Mitsubishi in Japan
and Synthelabo in Europe, a significant correlation was identified between the
administered dose of NOVASTAN(R) and the degree of anticoagulation achieved.
Moreover, these studies suggest that the relationship between dose and effect
may be generally predictable over the expected dose-range. As a result, the
Company believes the risk of either insufficient or excessive anticoagulation
associated with small dose changes, as is the case with heparin, should be
reduced. TBC further believes that NOVASTAN(R) could have a superior profile, as
compared with heparin, for efficacy, ease of dosing, speed of achieving
"therapeutic anticoagulation", risk of bleeding and total economic costs of
anticoagulation.
Indication - HIT/HITTS. Because NOVASTAN(R) does not evoke the immune
reaction caused by heparin, the Company believes it should provide a safe and
effective anticoagulant for patients diagnosed with HIT. The Company conducted a
multicenter Phase III study ("ARG-911") that compared 304 patients treated with
NOVASTAN(R) for up to 14 days (160 with HIT and 144 with HIT with thrombosis
syndrome ("HITTS"), with 217 historical control patients. The Company submitted
this trial as part of an NDA on August 15, 1997 and was granted priority review
status. The FDA extended the priority review period by 90 days during January
1998. On May 11, 1998 the Company announced that it had received a
non-approvable letter from the FDA. Based on consultation with representatives
from the FDA, TBC has focused on the collection and analysis of a new more
comparable historical control group as the basis for demonstrating NOVASTAN(R)'s
safety and efficacy. The new historical control includes 193 patients, which
were collected according to a predetermined methodology from the centers that
enrolled the NOVASTAN(R) patients. The amended NDA includes one Phase III
clinical trial involving 304 treated patients and a second follow on supporting
trial involving 263 patients. Both of the Phase III studies were
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comparable with regard to study design, primary and secondary endpoints and
dosing regimen. Both trials were compared to the 193 newly collected historical
control patients. The Company amended its NDA with the FDA for NOVASTAN(R) as an
anticoagulant for use in patients with HIT syndrome on March 19, 1999. While the
Company believes the amendment includes consistent, positive results and
supports the use of NOVASTAN(R) in its proposed indication, the Company cannot
predict the timing or outcome of the FDA decision.
Other Indications. TBC has completed the clinical trials to support the
potential use of NOVASTAN(R) in patients undergoing angioplasty. TBC and
SmithKline intend to submit a supplemental NDA to the FDA following the FDA
decision on the primary indication. TBC is currently considering the development
of NOVASTAN(R) for additional indications. NOVASTAN(R) has been tested for use
as an adjunctive to thrombolytic therapy for acute myocardial infarction
("AMI"). The compound was found to be safe and as effective as heparin for this
indication. NOVASTAN(R) is approved in Japan for ischemic stroke. TBC is
evaluating the feasibility of development of NOVASTAN(R) for stroke and possibly
AMI.
VASOSPASM/HYPERTENSION PROGRAM
Background. Smooth muscle cells in the blood vessel, via a series of
biochemical and morphological events, are directly responsible for mediating
changes in vessel diameter. The regulation of blood flow depends on a delicate
balance between physical and chemical stimuli that cause smooth muscle cells to
relax (vasodilate) or contract (vasoconstrict). 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
and lead to severe tissue damage and loss of function (myocardial infarction or
kidney failure). An essential component of blood vessels is the vascular
endothelium-the cells comprising the innermost lining of all blood vessels.
Recently, it has been determined that the vascular endothelium plays a pivotal
role in maintaining normal blood vessel tone, including blood flow, by producing
substances that regulate the balance between vasodilation and vasoconstriction.
Endothelins are a family of three peptides that are believed to play a
critical role in the control of blood flow. It has been determined that this
multiplicity of endothelin actions on different cell types can be explained by
endothelins' interactions with two distinct receptors, ETA and ETB, on cell
surfaces. In general, ETA receptors are associated with vasoconstriction and
disorders of the cardiovascular and renal systems, while ETB receptors are
primarily associated with vasodilation and disorders of the central nervous
system. There is substantial evidence that endothelins are involved in a variety
of diseases where blood flow is important. These include vasospasm, myocardial
infarction, congestive heart failure, renal disease, subarachnoid hemorrhage and
certain types of hypertension.
Product Candidate - TBC11251. The Company's research program in the
vasospasm/hypertension area is aimed at developing small molecules that inhibit
the binding of ET to its cell surface receptors. The Company believes that
specific agents for each receptor subtype may provide the best clinical utility
and safety. The Company's 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.
TBC scientists have discovered a novel class of low molecular weight compounds
(molecular weight of less than 500 daltons) that antagonize ET binding to the
ETA receptor with high potency (these compounds block ET binding at low compound
concentration). The Company identified lead compounds which mimicked the ability
of ET to bind to the ETA receptor. Further optimization was then used to develop
more potent compounds until the current series of leads was identified. In
addition to their ability to block receptor binding, these compounds
functionally inhibit ET action on isolated blood vessels in vitro acting as
full, competitive antagonists. The lead compounds in this series have been shown
to exhibit in vivo efficacy using various animal models.
TBC11251, a selective ETA inhibitor, has been identified as the Company's
lead compound in this program. The Company believes that a substantial market
opportunity for TBC11251 exists for the treatment of CHF, which is currently
estimated to affect approximately five million people in the U.S. annually. TBC
filed an investigational new drug application ("IND") with the FDA for TBC11251
in late 1996 and has completed the first of its planned Phase II clinical
trials, which was terminated early due to the achievement of statistical
significance with only 24 of
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the planned 45 patients. The Company is considering additional Phase II studies
using additional dosing regimens. In treatment of patients with moderate to
severe CHF, the TBC11251 treated group demonstrated a statistically significant
improvement verses placebo in the primary objective of improving central
hemodynamics, particularly pulmonary artery pressure. In addition, positive
trends were observed in other important cardiovascular measures. These results
will allow the Company to proceed with the program using additional dosing
regimens. The Company also completed Phase I clinical trials with the oral form
of TBC11251. The Company anticipates commencing a Phase II clinical trial during
1999 with the oral formulation of TBC11251 in hypertension.
Other Indications. The Company believes endothelin antagonist compounds may
have other indications. For example, an endothelin antagonist may be used to
treat chronic obstructive pulmonary disease, primary and secondary pulmonary
hypertension, systemic hypertension and prostate cancer. The Company may
consider licensing certain indications to third parties, although no assurance
can be given that the Company will be successful in entering into any such
license.
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 an
injurious agent. These steps include the production of proteins that attract
white blood cells, or leukocytes, to the site of inflammation, the production of
chemicals to destroy the injurious 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, as
during an acute inflammatory reaction leading to a build up of white blood cells
and debris at the inflammation site that causes tissue damage.
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 (sLex) found on the
surface of white blood cells. White blood cells are able to migrate into
inflamed areas because sLex present on the surface of white blood cells binds to
selectin molecules present on activated endothelium. This binding slows the flow
of leukocytes through the bloodstream, which 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 VCAM mediated white blood cell attachment and migration which
helps to localize white blood cells in areas of injury or infection.
The selectins may be involved in acute and chronic inflammatory diseases
such as reperfusion injury (tissue injury caused when blood flow is restored
following removal of an obstruction) and asthma, both primary areas of interest
for the Company. The Company estimates that there are approximately 685,000
patient cases of coronary reperfusion injury in the U.S. annually and that
between fourteen and fifteen million persons in the U.S. suffer from asthma. The
presence of VCAM at sites of endothelial injury leads to an accumulation at
these sites of Very Late Antigen-4 ("VLA-4")-containing white blood cells.
Diseases that are associated with chronic inflammation include asthma,
atherosclerosis or the accumulation of fatty deposits in the artery, psoriasis
and rheumatoid arthritis.
Product Candidate - TBC1269. The Company has developed a computer model of
the selectin/sLex 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, TBC1269, has
shown efficacy both in cell-based and biochemical assays, and in animal models
of inflammation. TBC filed an IND with the FDA for TBC1269 in August 1997. A
Phase IIa clinical trial in allergic asthma was completed during 1998 in mild to
moderate asthmatics. The trial, which involved 21 patients with mild to moderate
asthma, demonstrated statistically significant improvement over placebo as
measured by reducing eosinophil recruitment. Eosinophils are white blood cells
that are involved in many inflammatory diseases, including asthma. Reductions in
lung eosinophils have been shown to improve the course of an asthmatic response.
The Company is currently developing inhaled and topical formulations of TBC1269
for clinical testing in asthma and psoriasis, respectively.
Product Candidate - VCAM/VLA-4. TBC has also identified VCAM antagonists
for the intercellular adhesion observed in atherosclerosis. The Company's
initial lead compounds block the ability of white blood cells to interact
through VCAM and VLA-4. These lead compounds are being modified in an attempt to
improve efficacy. TBC has
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demonstrated efficacy in small molecule antagonists in an animal model of acute
inflammation, suggesting that VCAM/VLA-4 plays a role in this disease process.
These compounds are still in research.
Other Indications. The Company believes these anti-inflammatory compounds
may have applicability in other indications. For example, a selectin antagonist
may be used to treat psoriasis, or a VCAM antagonist may be used to treat
asthma, rheumatoid arthritis and multiple sclerosis. The Company may consider
licensing certain indications to third parties, although no assurance can be
given that the Company will be successful in entering into any such license.
VASCULAR PROLIFERATION DISEASE PROGRAM
Background. Smooth muscle cells in the blood vessel wall proliferate in
response to injury to the vessel. When the endothelial cell layer is damaged,
platelets attach to the vessel surface. Platelets and other cells begin to
release cellular growth factors, including the proteins FGF, platelet-derived
growth factor and thrombin. In response to these growth factors, specific genes
are activated in the smooth muscle cells. The products of these genes stimulate
the smooth muscle cells to move and divide. When the initial damage is slight,
the proliferation is limited to endothelial cell repair. If the damage is more
extensive, the smooth muscle cells continue to proliferate. Eventually, the
proliferation process thickens the vessel wall, reduces the interior size of the
blood vessel and produces a stenosis (a blood vessel with reduced lumen
diameter). This stenosis is comprised primarily of smooth muscle cells and
protein called fibroproliferative material. The process of producing this
fibroproliferative material is referred to as the fibroproliferative response.
Fibroproliferative stenosis differs from stenosis produced by atherosclerotic
plaque, which contains smooth muscle cells, fatty deposits and macrophages (a
type of white blood cell). As with atherosclerotic plaque stenosis, however,
blood flow is restricted, and the tissue served by the vessel is deprived of
oxygen. If the stenosis occurs in a coronary artery, the heart muscle is
deprived of oxygen, and a heart attack may result.
Fibroproliferative material is generally produced in response to extensive
damage to the blood vessel wall as a result of a mechanical injury. Mechanical
injury sufficient to produce the fibroproliferative response often occurs during
procedures designed to repair blood vessels that are occluded by plaque or
thrombus material, such as mechanical reopening of arteries (angioplasty) and
coronary artery bypass graft surgery. Other surgical procedures, including vein
grafts and organ transplants, can also produce fibroproliferative stenosis. When
fibroproliferative stenosis occurs following the removal of the stenosis by
surgical or other means, it is referred to as restenosis. Irrespective of how
the injury is produced, the conditions which lead to the fibroproliferative
response are termed vascular proliferative diseases.
Product Candidate - FGF Antagonist. The Company's research program for
vascular proliferative disease is focused on identifying the factors that
activate cells to proliferate and developing small molecule antagonists to these
factors. Using its knowledge of the signaling pathways through which these
factors stimulate cells to proliferate, the Company seeks to develop compounds
that disrupt the signaling process between cells and prevent unnecessary smooth
muscle cell proliferation.
The Company has focused on FGF because of a growing body of evidence as to
its central role in blood vessel formation. The Company's research has shown
that some components of the signaling pathways used by FGF are important for
smooth muscle cell proliferation. TBC's current effort on FGF involves the
development of small molecules designed to prevent activation of latent FGF, and
to block FGF receptor targets. The Company estimates that approximately 685,000
annual patient cases exist in the U.S. which could utilize an FGF antagonist in
the treatment of coronary restenosis.
Other Applications. The Company believes an FGF antagonist may have other
applications. For example, an FGF antagonist might be developed to treat
rheumatoid arthritis or cancer. The Company may consider licensing certain
indications to third parties, although no assurance can be given that the
Company will be successful in entering into any such license.
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ANGIOGENESIS PROGRAM
Background. Angiogenesis, the formation of new blood vessels from
pre-existing vessels, depends on a delicate balance of local physical and
chemical stimuli acting on the vascular endothelium. Angiogenesis is associated
with numerous physiological processes, including embryogenesis, wound healing,
organ regeneration, and the female reproductive cycle. However, angiogenesis
also plays a major role in the pathogenesis of tumor growth, rheumatoid
arthritis, atherosclerosis, various retinopathies, certain skin diseases and
gingivitis. One of the key factors required for angiogenesis is Vascular
Endothelial Growth Factor ("VEGF"). Increases in VEGF expression may be a common
mechanism underlying diverse, yet inter-related pathologies such as tumor
growth, retinal neovascularization (new blood vessel development in the back of
the eye) and rheumatoid arthritis where tissue hypoxia is a central component.
The VEGF protein is produced by smooth muscle cells and other tissues, including
tumor cells, and is essential for the formation of the new blood vessels.
Antagonists to VEGF may be useful for the prevention of the vascular
complications of diabetes and for limiting the growth of solid tumors and
rheumatoid arthritis.
Product Candidate - VEGF Antagonist. The Company's research program is
directed towards the development of small molecule inhibitors of VEGF. VEGF is a
member of the heparin binding growth factor family, as is FGF. Using similar
technology to that used for the FGF antagonist program, the Company has
discovered small molecule inhibitors of VEGF action. The lead compound has been
shown to effectively prevent VEGF function in vitro. The compound also prevents
the vascular actions of VEGF in a rodent model of angiogenesis. TBC scientists
are currently attempting to further optimize this inhibitor series to identify a
clinical candidate. The Company estimates that approximately 1.1 million solid
organ cancer patient cases occur in the U.S. annually which could utilize a VEGF
antagonist in their treatment.
APOPTOSIS PROGRAM
Background. Over the past few years it has become evident that cells have a
built-in mechanism for programmed death, termed apoptotic death, which is
important in the formation, organization and remodeling of tissues during
development. This mechanism contrasts with necrotic death which is often the
result of hypoxic injury to tissues. There appear to be certain conditions where
apoptosis is thought to contribute to the progression of a disease state. In
particular, much of the tissue damage which develops over time following an
ischemic stroke (resulting from a blood clot) or a heart attack is thought to be
the result of apoptotic death occurring in the tissue. Additionally, diseases
such as rheumatoid arthritis may have components of apoptosis. In this case, the
death of certain cells in a joint, in combination with over-proliferation of
other cells, contribute to the local irritation that is observed. Evidence
suggests this apoptotic process may be stimulated by inflammatory cells in the
tissue. Thus, inhibitors of apoptosis may be useful in treating a number of
disease conditions.
Product Candidates - TNF(alpha) Antagonist, Caspase Inhibitors. The
Company's research in this area is focused on the identification of factors
which contribute to apoptotic death in the heart and brain following a heart
attack or stroke, which occur in 1.1 million and 600,000 patients, respectively,
in the U.S. annually. One of the factors which has been identified as being
important in these and other disease settings is Tumor Necrosis Factor a
("TNF(alpha)"). TBC scientists have identified small molecule antagonists of
this factor which block TNF(alpha)'s ability to bind to and kill cells in vitro.
These compounds are currently undergoing additional optimization prior to
selection of a clinical candidate. In addition to use in heart attack or stroke,
the Company estimates that approximately two million U.S. patient cases occur
annually which could utilize a TNF(alpha) antagonist in the treatment of
rheumatoid arthritis. Caspases are proteases which are responsible for mediating
the cell death signal in various cell types. TBC is currently attempting to
identify lead compounds to block caspase action.
Other Indications. The Company believes a TNF(alpha) antagonist may have
other indications. For example, a TNF(alpha) antagonist might be developed to
treat inflammatory bowel disease. The Company may consider licensing certain
indications to third parties, although no assurance can be given that the
Company will be successful in entering into any such license.
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OTHER INDICATIONS
The Company believes that a number of the small molecule non-carbohydrate
therapeutics that are being developed in its programs may have applications for
other indications. For example, an FGF antagonist might be developed to treat
rheumatoid arthritis, a selectin antagonist to treat psoriasis, transplant
rejection and adult respiratory distress syndrome, and a VCAM antagonist to
treat asthma, rheumatoid arthritis and multiple sclerosis. The Company may
consider licensing certain indications to third parties, although no assurance
can be given that the Company will be successful in entering into any such
license.
RESEARCH AND DEVELOPMENT COLLABORATIONS AND LICENSING AGREEMENTS
The Company has established collaborations with a number of corporations,
research institutions and scientists to further its research and development
objectives. These collaborations are generally conducted pursuant to agreements
that (i) grant the Company a license to, or the option to license, or (ii) grant
other companies the right to develop and market certain technology, patent
rights or material that may be valuable to the Company and its collaborators.
The Company's major licensing and collaboration agreements are summarized below.
Mitsubishi. TBC has entered into the Mitsubishi Agreement to license
Mitsubishi's rights and technology relating to NOVASTAN(R) and to license
Mitsubishi's own proprietary technology developed with respect to NOVASTAN(R).
Under the Mitsubishi Agreement, the Company has an exclusive license to use and
sell NOVASTAN(R) in the U.S. and Canada for all cardiovascular, renal,
neurological and immunological purposes other than use for the coating of
stents. The Company is required to pay Mitsubishi specified royalties on net
sales of NOVASTAN(R) by the Company and its sublicensees after its commercial
introduction in the U.S. and Canada. Either party may terminate the Mitsubishi
Agreement on 60 days notice if the other party defaults in its material
obligations under the agreement, declares bankruptcy or is insolvent, or if a
substantial portion of its property is subject to levy. Unless terminated sooner
pursuant to the above described termination provisions, the Mitsubishi 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. Under
the Mitsubishi Agreement, TBC has access to an improved formulation patent
granted in the U.S. in 1993 which expires in 2010 and a use patent in the U.S.
which expires in 2009. The Company has agreed to pay a consultant involved in
the negotiation of these agreements a royalty based on net sales of products.
SmithKline. In connection with TBC's development and commercialization of
NOVASTAN(R), on August 5, 1997, TBC entered into a Product Development, License
and CoPromotion Agreement with SmithKline (the "SmithKline Agreement") whereby
SmithKline was granted an exclusive sublicense in the U.S. and Canada for the
indications of NOVASTAN(R) that TBC has licensed from Mitsubishi. SmithKline
paid $8.5 million in upfront license fees during August 1997, a $5 million
milestone payment in October 1997, and has agreed to pay up to $15.0 million in
additional milestone payments based on the clinical development and FDA approval
of NOVASTAN(R) for the HIT, HITTS and AMI indications. Future milestone payments
for the AMI indication are subject to SmithKline's agreement to market
NOVASTAN(R) for such indication. TBC was responsible for completing the ongoing
HIT/HITTS clinical trials, with SmithKline providing 60% of the funding for any
additional HIT/HITTS trials (except that SmithKline will pay 100% of the costs
of certain Phase IV trials, if such trials are needed). SmithKline will be
responsible for the marketing of NOVASTAN(R) in the licensed territory for those
indications which SmithKline agrees to develop, subject to TBC's rights to use
its own sales force to co-promote NOVASTAN(R) on a profit sharing basis
following the regulatory approval of NOVASTAN(R) for an additional major
indication beyond HIT.
The parties have also formed a joint development committee to analyze the
development of additional NOVASTAN(R) indications (such as AMI and stroke)
covered by TBC's license from Mitsubishi to be funded 60% by SmithKline.
SmithKline has the exclusive right to commercialize all products arising out of
the collaboration, subject to the obligation to pay royalties on net sales to
TBC and to the rights of TBC to co-promote these products through its own sales
force in certain circumstances. TBC will retain the rights to any indications
which SmithKline determines it does not wish to pursue, subject to the
requirement that TBC may not grant marketing rights to any third parties and
must use its own sales force to commercialize any such indications. Any
indications which TBC
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and SmithKline elect not to develop will be returned to Mitsubishi, subject to
the rights of SmithKline and TBC to commercialize these indications at their
election, with SmithKline 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 Mitsubishi Agreement regarding such indication
will revert to Mitsubishi subject to the right of SmithKline and TBC to
commercialize the indication, with SmithKline having the first opportunity to
commercialize. At this time, SmithKline has no plans to conduct development work
for the AMI and stroke indications. TBC is evaluating the feasibility of
development of NOVASTAN(R) for stroke and possibly AMI.
The SmithKline Agreement generally terminates on a country by country basis
upon the earlier of the termination of TBC's rights under the Mitsubishi
Agreement, the expiration of applicable patent rights or, in the case of certain
royalty payments, the commencement of substantial third-party competition.
SmithKline also has the right to terminate the agreement on a country by country
basis by giving TBC at least three months written notice, based on a reasonable
determination by SmithKline, 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 SmithKline Agreement on 60 days
notice if the other party defaults in its obligations under the agreement,
declares bankruptcy or is insolvent. The Company has agreed to pay an agent
involved in the negotiation of the SmithKline Agreement a fee based on a
percentage of all consideration received by TBC including royalties.
At present, Mitsubishi is the only manufacturer of NOVASTAN(R), and has
entered into the Mitsubishi Supply Agreement with SmithKline to supply
NOVASTAN(R) in bulk in order to meet SmithKline's and TBC's needs under the
SmithKline Agreement. Should Mitsubishi fail during any consecutive nine-month
period to supply SmithKline at least 80% of its requirements, and such
requirements cannot be satisfied by existing inventories, the Mitsubishi Supply
Agreement provides for the nonexclusive transfer of the production technology to
SmithKline. If SmithKline cannot commence manufacturing of NOVASTAN(R) in a
timely manner or if alternate sources of supply are unavailable or uneconomic,
the Company's results of operations would be materially and adversely affected.
In connection with the execution of the SmithKline Agreement, SmithKline
purchased 176,922 shares of TBC's Common Stock for $1.0 million and an
additional 400,000 shares of Common Stock for $2.0 million in connection with a
public offering which closed on October 1, 1997.
Synthelabo. On October 11, 1994, the Company signed a collaborative
agreement with Synthelabo to develop and market compounds for vascular
proliferative disease derived from the Company's research programs. Upon
consummation of the transaction, Synthelabo purchased 1,428,571 shares of Common
Stock for a total of $5.0 million becoming the Company's largest shareholder at
that time and paid the Company a non-refundable licensing fee of $3.0 million.
During 1997, Synthelabo sold all of the Common Stock. In addition, Synthelabo
paid $3.0 million annually in research payments for two years and paid $750,000
for the third year. Synthelabo is not currently paying any research payment
pursuant to the agreement. Synthelabo will pay royalties to TBC based on the net
sales in those areas covered in the agreement. In exchange for the above
consideration, Synthelabo received an exclusive license to manufacture, use, and
sell any products generated from the research, in Europe, the Middle East,
Africa and the countries of the former Soviet Union.
Synthelabo has the right to terminate the agreement any time on or after
October 15, 1997 for any reason and either party has the right to terminate the
contract for breach of any material obligation. If Synthelabo exercises this
termination right, the license granted to Synthelabo will terminate and TBC will
pay Synthelabo a royalty on net sales of any products sold in a certain
territory (Europe, Middle East, Africa and countries of the former Soviet Union)
for a period of time. In addition, Synthelabo may, at its option, require that
the technology be transferred to and the development program be conducted by a
joint venture owned by TBC and Synthelabo should TBC's "net worth", as defined
in the agreement, be less than $5.0 million as of the end of any calendar
quarter during the term of the agreement.
In conjunction with the clinical development of NOVASTAN(R), the Company
and Synthelabo, the European licensee, have mutually agreed to exchange certain
clinical data from the clinical studies of NOVASTAN(R). In addition, the Company
agreed to provide certain data from its studies in exchange for up to $2.92
million as certain
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milestones are met of which approximately $2.88 million has been paid. See
"--Thrombosis Program--Product Candidate-- NOVASTAN(R)" for a discussion of the
clinical trial programs.
LG Chemical. On October 10, 1996, the Company signed a strategic alliance
agreement with LG Chemical to develop and market compounds derived from the
Company's endothelin receptor and selectin antagonist programs for certain
disease indications. Upon consummation of the transaction, LG Chemical purchased
1,250,000 shares of Common Stock for a total of $5.0 million. LG Chemical has
committed to pay $10.7 million in research payments. Of this amount, $4.1
million has already been paid, and $1.0 million will be paid on each of June 30
and December 31 of 1999 and 2000, and $1.3 million will be paid on June 30 and
December 31, 2001. LG Chemical has the right to terminate these future research
payments if TBC fails to meet certain milestones, which milestones will be
established by the parties from time to time in accordance with the agreement.
LG Chemical will pay royalties to TBC, based on net sales, in those geographic
areas covered by the agreement, which include Korea, China, India and certain
other Asian countries, excluding Japan. The Company has agreed to pay its agents
in the contract negotiations a commission on all consideration received
including a royalty on net sales.
TBC TECHNOLOGY
TBC uses a wide variety of technologies to develop pharmaceutical
treatments for cardiovascular diseases. The Company applies its understanding of
vascular biology and advanced drug design techniques to discover novel
therapeutics and to test these therapeutics in-house using in vitro and in vivo
test systems. TBC has assembled a team of scientists with expertise in the
cultivation of human and animal endothelial and smooth muscle cells, signal
transduction in vascular cells, the role of growth factors in blood vessel
formation, the molecular biology of vascular cells, the development and
production of monoclonal antibodies to various targets, the interaction of white
blood cells and endothelial cells and the development of relevant animal models
of human disease. TBC believes that its scientists can study the behavior of
product candidates at all stages of development, from isolated biochemical
assays to whole cells, to intact animals and ultimately, to humans.
To aid in the rapid discovery of novel drugs, TBC has developed an
integrated approach which may allow TBC to discover a broader class of drug
candidates more quickly and at a lower cost than is possible through other
current structure-based discovery methods. For example, TBC has developed a
number of proprietary, highly potent, orally active non-peptide ETA and ETB
receptor antagonists. These compounds have no chiral centers, are easily
scaleable, and may be synthesized in a small number of chemical steps. TBC has
also generated proprietary low molecular weight, small molecule inhibitors of
E-, P-, and L-selectin, potent peptide and small molecule VCAM/VLA-4 inhibitors,
FGF antagonists and vascular endothelial growth factor antagonists.
TBC uses a number of proprietary and non proprietary components including,
Rational Drug Design, Random Library and Selected Library High Throughput
Screening and Virtual Libraries/Focused Compound Libraries to support its drug
development programs.
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. The Company's policy is to file patent
applications to protect technology, inventions and improvements that are
important to the development of its business. The Company has 14 pending U.S.
patent applications (2 of which have been allowed) and 15 issued U.S. patents
covering compounds including selectin inhibitors, endothelin antagonists and
VCAM/VLA-4 antagonists. In addition, the Company has exclusive licenses to three
patents covering rational drug design technology. The Company has also filed
patent applications in certain foreign jurisdictions covering projects that are
the subject of U.S. applications and intends to file additional patent
applications as its research projects develop. The Company licensed the U.S. and
Canadian rights to NOVASTAN(R) in 1993, which included access to an improved
formulation patent granted in 1993 which expires in 2010 and a use patent which
expires in 2009. If any of the NOVASTAN(R) patents remain outstanding at the
time NOVASTAN(R) receives FDA approval, the Company may apply, under the
Waxman/Hatch Act, for up to a five-year extension of one such patent. If all
such patents have expired at the time NOVASTAN(R) receives FDA approval, the
Waxman/Hatch Act will grant the Company NDA exclusivity for up to five years,
during which time
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the FDA may not accept or approve abbreviated applications for generic
variations of NOVASTAN(R). Although the Company believes that the expiration of
the NOVASTAN(R) patents will not have a material adverse effect on the
commercialization of NOVASTAN(R), there can be no assurance that the Company
will be able to take advantage of either the patent term extension or NDA
exclusivity provisions of the Waxman/Hatch Act. Moreover, even if the Company
receives either a patent term extension or NDA exclusivity, there can be no
assurance that generic pharmaceutical manufacturers will not ultimately enter
the market and compete with the Company.
The patent positions of biopharmaceutical firms, including the Company, are
uncertain and involve complex legal and factual questions. Consequently, the
Company does not know whether any of its 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, the Company cannot be certain that it was
the first creator of inventions covered by its pending patent applications or
that it was the first to file patent applications for such inventions. Moreover,
the Company may have to participate in interference proceedings declared by the
U.S. Patent and Trademark Office ("PTO") to determine priority of invention,
which could result in substantial cost to the Company, even if the eventual
outcome is favorable to the Company. TBC has one interference proceeding pending
which involves compounds not currently of commercial interest to TBC. There can
be no assurance that the Company's patents, if issued, would be held valid by a
court of competent jurisdiction. An adverse outcome could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties or require the Company 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 the Company's applications or conflict in certain respects with
claims made under the Company's applications. Such conflict could result in a
significant reduction of the coverage of the Company's 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, no
assurance can be given that the Company would be able to obtain licenses to
these patents at a reasonable cost or develop or obtain alternative technology.
The Company also relies upon trade secret protection for its confidential
and proprietary information. No assurance can be given that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets or disclose
such technology, or that the Company can meaningfully protect its trade secrets.
The Company requires its employees, consultants, members of its scientific
advisory board, outside scientific collaborators and sponsored researchers and
certain other advisors to enter into confidentiality agreements with the Company
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 the Company is to be kept
confidential and not disclosed to third parties except in specific
circumstances. In the case of employees, the agreements provide that all
inventions conceived by the employee are the exclusive property of the Company.
There can be no assurance, however, that these agreements will provide
meaningful protection or adequate remedies for the Company's trade secrets in
the event of unauthorized use or disclosure of such information.
GOVERNMENT REGULATION
Regulation by governmental authorities in the U.S. and other countries will
be a significant factor in the production and marketing of any products which
may be developed by the Company. The nature and extent to which such regulation
may apply to the Company will vary depending on the nature of the specific
product. Virtually all of the Company's products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human therapeutic products are subject to rigorous preclinical and clinical
testing and other approval procedures by the FDA and similar health authorities
in foreign countries. Various federal statutes and regulations also govern or
influence the manufacturing, safety, labeling, storage, record keeping and
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marketing of such products. The process of obtaining these approvals and the
subsequent compliance with appropriate federal and foreign statutes and
regulations requires the expenditure of substantial resources.
The effect of government regulation may be to delay for a considerable
period of time or prevent the marketing of any product that the Company may
develop and/or to impose costly procedures on the Company's activities, the
result of which may be to furnish an advantage to the Company's competitors. Any
delay in obtaining or failure to obtain such approvals would adversely affect
the marketing of the Company's products and its ability to earn product revenue.
In order to perform clinical tests and to produce and market products for
diagnostic or therapeutic use, a company must comply with mandatory procedures
and safety standards established by the FDA, the Health Protection Branch in
Canada, and comparable agencies in foreign countries. The FDA requires that
before beginning human clinical testing of a potential new drug, a company must
file an IND and receive its concurrence. This application is a summary of the
preclinical studies that were conducted to characterize the drug, including
toxicity and safety studies, as well as an in-depth discussion of the human
clinical studies which are being proposed.
The pre-marketing program required for approval of a new drug typically
involves a time-consuming and costly three-phase process. In Phase I, trials are
conducted with a small number of patients to determine a drug's early safety
profile, the pattern of its distribution and metabolism. In Phase II, trials are
conducted with groups of patients afflicted with a target disease in order to
determine a drug's preliminary efficacy and optimal dosages and to expand
evidence of safety. In Phase III, large scale, multi-center comparative trials
are conducted with patients afflicted with a target disease in order to provide
enough data for statistical proof of efficacy and safety required by the FDA and
others. The FDA closely monitors the progress of each of the three phases of
clinical testing and may, in its discretion, reevaluate, alter, suspend or
terminate the testing based on the data that have been accumulated to that point
and its assessment of the risk/benefit ratio to the patient. Upon completion of
such clinical testing, a company typically submits a NDA to the FDA that
summarizes the results and observations of the drug during the clinical testing.
An NDA prefiling submission of the Chemistry, Manufacturing and Control section
may be made prior to the data and other sections of the NDA. Based on its review
of the NDA, the FDA will decide whether or not to approve the drug. This review
process can be quite lengthy, and approval for the production and marketing of a
new pharmaceutical product can require a number of years and substantial
funding. There can be no assurance that any approvals will be granted on a
timely basis, if at all.
Once the sale of a product is approved for marketing, FDA regulations
govern the production process and marketing activities, and a post-marketing
testing and surveillance program may be required to continuously monitor a
product's usage and effects. Product approvals may be withdrawn if compliance
with regulatory standards is not maintained. Other countries in which any
products developed by the Company may be marketed impose a similar regulatory
process.
COMPETITION
General. The development and sale of new drugs for the treatment of
vascular diseases is highly competitive and the Company will face intense
competition from major pharmaceutical companies and biotechnology companies
worldwide. Competition may increase as a result of advances made in the
commercial applicability of technologies and greater availability of capital for
investment in these fields. Companies that complete clinical trials, obtain
required regulatory approvals and commence 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 the Company in recruiting
talented scientists.
TBC has developed a competitive process for expediting rational drug
design. A number of other biopharmaceutical companies use rational drug design
as part of their effort to identify novel pharmaceutical agents. TBC believes
that its drug-design process could lead to more rapid lead drug candidate
identification.
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The Company believes that its ability to compete successfully will depend
on its capability to create and maintain scientifically-advanced technology,
develop proprietary products, attract and retain scientific personnel, obtain
patent or other protection for its products, obtain required regulatory
approvals and manufacture and successfully market products either alone or
through other parties. Many competitors have substantially greater financial,
marketing, and human resources than those of the Company. The Company expects to
encounter significant competition.
NOVASTAN(R). Primary competitors for NOVASTAN(R) in the intravenous heparin
replacement market are initially expected to be bivalirudin, Revasc(R)
(desirudin) and Refludan(R) (lepirudin), manufactured by The Medicines Co.,
Rhone Poulenc Rorer ("RPR") and Hoechst Marion Roussel ("HMR"), respectively.
Bivalirudin and Revasc(R) have completed Phase III clinical trials. Refludan(R)
has received approval in Europe and the U.S for HIT.
Biogen, the originator of bivalirudin, has completed a large Phase III
trial on bivalirudin which demonstrated improved safety versus heparin but only
equal efficacy. As a result of this study, Biogen halted development of
bivalirudin and outlicensed the compound earlier in 1997 to The Medicines Co.
The Company anticipates bivalirudin will have a relatively high cost of goods.
An improved manufacturing process for bivalirudin with a lower cost of goods has
been reported, and may become a competitive factor should the product be
approved for marketing. Bivalirudin has been submitted to the FDA for approval
for use in percutaneous transluminal coronary angioplasty ("PTCA") based on the
previous Phase III trial. On October 26, 1998, an FDA advisory committee
declined to recommend approval of bivalirudin for PTCA.
A hirudin compound, Refludan(R) (lepirudin), from HMR has received approval
in Europe and the U.S. for HIT. On March 11, 1998, HMR received marketing
clearance for Refludan(R) in the U.S. Refludan(R) is also in development as an
adjunct to thrombolytic therapy in AMI. Another hirudin compound, Revasc(R),
from RPR has been studied in two large Phase III trials for AMI and unstable
angina. Both trials, TIMI-9 and GUSTO II, were halted in late 1994 due to
increased hemorrhagic stroke. Both trials resumed with reduced Revasc(R) dosing.
The bleeding complications with Revasc(R) may handicap the product in the
marketplace. As a result, development of Revasc(R) for acute coronary syndrome
has been halted. Revasc(R) has received marketing clearance in Europe for use in
deep venous thrombosis. A third hirudin compound, pegylated-hirudin from Knoll
AG ("Knoll") has begun Phase II development in acute coronary syndromes.
If any of the first generation hirudin-like compounds obtain regulatory
approval in the U.S. or Canada prior to NOVASTAN(R), these drugs may gain a
competitive advantage. Other compounds which may be competitive with NOVASTAN(R)
include napsagatran from Hoffmann-La Roche, Inc. and inogatran and malagatran
from Astra Pharmaceuticals. These compounds are very similar to NOVASTAN(R) and
could have similar pharmacologic profiles. Napsagatran is in Phase II trials for
various indications including unstable angina. Inogatran has been tested in a
Phase II trial for unstable angina. Malagatran is in early clinical development.
A defibrinogenating snake venom, viprinex from Knoll may be submitted for
approval to the FDA for acute ishemic stroke in the near future. The drug may
also be submitted to the FDA for HIT.
Low Molecular Weight Heparins ("LMWH") are newer forms of heparin and are
used in prophylaxis for deep vein thrombosis following orthopedic surgery. Most
LMWH's also carry an immunological risk for precipitating HIT, and are
contraindicated as therapy in patients with HIT. A low molecular weight
heparinoid, Orgaran (danaparoid) from Organon, Inc. has been approved for deep
vein thrombosis. Organon, Inc. has conducted trials with this drug in HIT, and
an FDA filing for HIT may occur in the future.
Endothelin Receptor Antagonist. TBC11251 is a small molecule ETA receptor
antagonist in Phase II clinical development. A number of other companies
including Abbott Laboratories ("Abbott"), Knoll, Bristol-Meyers Squibb and
Zeneca Pharmaceuticals have ETA receptor selective antagonist compounds in Phase
I/II clinical development. ETA receptor-selective compounds from Abbott and
Knoll are in early Phase II development in indications of interest to TBC. The
Company believes its compounds are competitive with those from the other
companies in terms of bioavailability, half-life and potency.
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Selectin Antagonist. TBC1269 is a small molecule selectin antagonist in
Phase II clinical development. Cytel Corporation has developed Cylexin(R), a
carbohydrate selectin antagonist in development for inflammatory disease
targets. This compound has recently completed Phase IIa trials for coronary
reperfusion injury. Although the results of these trials may negatively impact
one of the TBC potential indications (coronary reperfusion injury), the results
should have no impact on TBC1269's primary indication, asthma. Cytel is
currently studying Cylexin(R) in neonatal coronary reperfusion injury and the
compound is in Phase II/III development. The Company believes TBC1269 to have
advantages over Cylexin(R) in terms of potency and cost of manufacture.
Competitive drugs for acute asthma include intravenous steroids such as
Solu-Medrol(R). In spite of known side effects and delay in onset, intravenous
steroids are available generically and, as such, represent substantial price
competition. As for inhaled treatments for chronic asthma, inhaled steroids,
cromones (Tilade(R), Intal(R), etc.) and the leukotriene inhibitors including
Zyflow(R), Accolate(R) and Singulair(R) represent potential chronic
immunomodulator competition.
MANUFACTURING AND MARKETING
TBC relies on its internal resources and third-party manufacturers to
produce compounds for preclinical development. Currently, the Company has no
manufacturing facilities for either the production of biochemicals or the
manufacture of final dosage forms. The Company believes small molecule drugs are
less expensive to manufacture than protein-based therapeutics, and that all of
its existing compounds can be produced using established manufacturing methods,
including traditional pharmaceutical synthesis.
TBC has established supply arrangements with third-party manufacturers for
certain clinical trials and will establish supply arrangements ultimately for
commercial distribution, although there can be no assurance that such
arrangements will be established on reasonable terms. The Company's long-range
plan may involve establishing internal manufacturing of small molecule
therapeutics, including the ability to formulate, fill, label, package and
distribute its products. Under certain circumstances the Company plans to
outsource such manufacturing; however, the Company does not anticipate
developing an internal manufacturing capability for some time, nor is it able to
determine which of its potential products, if any, will be appropriate for
internal manufacturing. The primary factors the Company 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 the SmithKline Agreement, SmithKline has entered into the
Mitsubishi Supply Agreement regarding the manufacture and supply of NOVASTAN(R),
and the Company will not have any direct responsibility regarding the
manufacture and supply of NOVASTAN(R) as it relates to the SmithKline Agreement.
See "--Research and Development Collaborations and Licensing Agreements."
TBC intends to market products for which it gains approval either directly
or through co-promotion or other licensing arrangements with large
pharmaceutical, biopharmaceutical or biotechnology companies. NOVASTAN(R) will
be initially commercialized by SmithKline through a collaboration. In the
future, the Company also plans to establish (i) a targeted, hospital-based sales
force to sell its compounds and (ii) strategic partner relationships for
non-strategic products and for customer groups outside TBC's targeted markets
or, in some cases, to co-promote in such markets with partners to optimize the
value of its products.
HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS
The Company's research and development activities involve the controlled
use of hazardous and radioactive materials. The Company is subject to federal,
state, and local laws and regulations governing the use, manufacture, storage,
handling and disposal of such materials and certain waste products. Management
believes that the Company is in compliance with such laws, regulations and
standards currently in effect and that the cost of compliance with such laws,
regulations, and standards will not have a material adverse effect on the
Company. The Company does not expect to incur any material capital expenditures
for environmental control in the foreseeable future.
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HUMAN RESOURCES
As of December 31, 1998, TBC employed 84 individuals. TBC had 69 employees
engaged directly in research and development activities and 15 in general and
administrative positions. None of the Company's employees is represented by a
labor union. The Company has experienced no work stoppages and believes that its
relations with its employees are good.
The Company's policy is to have each employee enter into a confidentiality
agreement which contains provisions prohibiting the disclosure of confidential
information to anyone outside the Company and requiring disclosure to the
Company of ideas, developments, discoveries or inventions conceived during
employment and assignment to the Company of proprietary rights to such matters
related to the business and technology of the Company.
TBC's success is highly dependent on its ability to attract and retain
qualified scientific and management personnel. In order to commercialize its
products, the Company may need to substantially expand its personnel,
particularly in the areas of clinical trial management, manufacturing, sales and
marketing. The Company faces intense competition for such personnel from other
companies, academic institutions, government entities and other organizations.
There can be no assurance that the Company will be successful in hiring or
retaining qualified personnel.
SCIENTIFIC ADVISORY BOARD AND CONSULTANTS
The Company has assembled a Scientific Advisory Board composed of
distinguished professors from some of the most prestigious medical schools. The
Scientific Advisory Board is assisting the Company in identifying research and
development opportunities, in reviewing with management the progress of the
Company's projects and in recruiting and evaluating scientific staff. Although
the Company expects to receive guidance from the members of its Scientific
Advisory Board, all of its members are employed on a full-time basis by others
and, accordingly, are able to devote only a small portion of their time to the
Company. Management expects to meet with its Scientific Advisory Board members
as a group at least once each year and individually from time to time on an
informal basis. Each of the members of the Scientific Advisory Board has entered
into a consulting agreement with the Company. The Scientific Advisory Board
includes James T. Willerson, M.D., as Chairman, and the following scientists.
Morris J. Karnovsky, M.D. has served since 1972 as Shattuck Professor of
Pathological Anatomy at Harvard Medical School, where he was Chairman of the
Program in Cell and Developmental Biology from 1975 to 1989. Dr. Karnovsky
received the E.B. Wilson Award from the American Society for Cell Biology and
was inducted into the Institute of Medicine by the National Academy of Sciences
in 1991. In 1984, Dr. Karnovsky was elected to serve as President of the
American Society for Cell Biology. He is a member of numerous professional and
honorary societies, editorial boards and is the author or co-author of more than
275 scientific articles.
Ferid Murad, M.D., Ph.D. is Professor and Chairman of the Department of
Integrative Biology and Pharmacology at the University of Texas-Houston Medical
School and the Director of the Institute of Molecular Medicine. Dr. Murad has
received many honors including the Nobel Prize in Medicine in 1998, Ciba Award
in 1988 and the Albert and Mary Lasker Award in Basic Medical Research in 1996.
He is also a member of many professional and honorary societies and is the
author or co-author of more than 300 scientific articles.
Joseph F. Sambrook, Ph.D. is a Professor of Pathology at Melbourne
University, Australia and Director of Research at Peter MacCallum Cancer
Institute. He is a member of various honorary and professional societies,
editorial boards and is the author of more than 150 scientific articles.
Professor Sambrook previously worked for 20 years in the U.S. where he served on
many blue ribbon government and non-government committees.
Ajit Varki, M.D. has been a Professor of Medicine since 1991 and is
currently serving in that position as well as leader of the glycobiology program
at the University of California, San Diego. Dr. Varki served as Instructor in
Medicine at Washington University School of Medicine from 1980 to 1982. He also
served as Assistant Professor of Medicine from 1982 to 1987 and as Associate
Professor of Medicine from 1987 to 1991 at the University of California, San
Diego. In 1975, Dr. Varki received an M.D. from Christian Medical College and
his Post-Doctorate
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in Biochemistry from Washington University from 1979 to 1982. He is a member of
various professional societies and has won numerous awards since 1969. He is
currently president of the American Society for Clinical Investigation. Dr.
Varki is the author or co-author of 160 scientific publications.
Dr. Denton Cooley, Surgeon-in-Chief of the Texas Heart Institute, acts as
an advisory director to the Company.
The Company also has agreements with various outside scientific consultants
who assist the Company in formulating its research and development strategy. All
of the Company's consultants and advisors are employed by employers other than
the Company and may have commitments to or consulting or advisory contracts with
other entities that may affect their ability to contribute to the Company.
ITEM 2. PROPERTIES
TBC leases 29,300 square feet of office and laboratory space in
Houston, Texas, including a 16,671 square foot laboratory facility and a 3,909
square foot animal facility. The remaining area is being used for clinical
development and administrative offices, storage space and additional offices for
scientists. The Company signed a letter of intent to lease approximately 8,591
square feet of additional space within its building to begin during 1999. The
Company's lease expires in December 2000 and includes a renewal option. The
Company may require additional space to accommodate future research and
laboratory needs as necessary to bring products into development and clinical
trials and has an option on additional space in its present facility. The
Company believes that these facilities are adequate for its present needs.
ITEM 3. LEGAL PROCEEDINGS
On November 21, 1994, a class action shareholders' suit was filed in the
United States District Court for the Southern District of Texas, Houston
Division seeking damages in the amount of $16 million. Plaintiffs are two
individuals who purchased shares of the Company on December 16, 1993 following
the Company's initial public offering ("IPO"). In their complaint, plaintiffs
have sued the Company, certain members of the board of directors and certain
officers alleging violations of Sections 11, 12 and 15 of the Securities Act of
1933, as amended (the "Act"). Plaintiffs have also named David Blech, D. Blech &
Co. and Isaac Blech as defendants. On January 23, 1995, the Company and the
members of the board of directors filed a motion to dismiss the plaintiffs'
complaint pursuant to Rule 9(b) and Rule 12b(6) of the Federal Rules of Civil
Procedure. In addition, defendant John Pietruski, Chairman of the Board of
Directors, filed a motion to dismiss the plaintiffs' complaint pursuant to Rule
12(b)(2) of the Federal Rules of Civil Procedure. The Court denied the motion by
the Company and by John Pietruski.
On March 28, 1995, a second class action shareholders' suit was filed in
the United States District Court for the Southern District of New York seeking
unspecified damages. Plaintiffs are eight individuals who purchased shares in
various companies for which D. Blech & Co. acted as an underwriter (or
co-underwriter) or marketmaker. In their complaint, the plaintiffs have sued the
Company alleging violations of Section 10(b) of the Securities Exchange Act of
1934, as Amended (the "Exchange Act") and Rule 10b-5 promulgated thereunder by
the Securities and Exchange Commission (the "Commission"). Plaintiffs named a
number of defendants, including David Blech and D. Blech & Co., four
individuals, two brokerage firms, one investment management company and ten
other companies for which D. Blech & Co. acted as underwriter or marketmaker. On
June 6, 1996, the Court dismissed all of the Exchange Act and common law fraud
claims filed against the Company and its officers and directors, but afforded
those plaintiffs the right to attempt to preserve those claims by repleading
them. The Court ordered that those claims be repleaded no later than July 26,
1996. Plaintiffs did not replead those claims by the deadline, resulting in the
dismissal of all claims against the Company in this litigation.
On August 14, 1995, the Judicial Panel on Multi-District Litigation ordered
that the action filed in the United States District Court for the Southern
District of Texas, Houston Division be transferred to the United States District
Court for the Southern District of New York for coordinated or consolidated
pretrial proceedings with the related actions pending there. In light of the
transfer and consolidation, the Company requested that the New York Court
reconsider the Texas Court's denial of its motion to dismiss as a part of the
Court's consideration of similar motions to dismiss filed by the other defendant
companies for which D. Blech & Co. acted as underwriter. All of these
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19
motions were presented to the Court on February 6, 1996. On June 6, 1996, the
New York Court granted the Company's and its officers' and directors' motion for
reconsideration, but together with all other similar pending motions, denied the
requested relief. Pursuant to the court's order, the Company therefore filed an
answer in the case. The Company also filed a Motion seeking leave of court to
prosecute an immediate appeal of the Court's denial of the Company's Motion to
Dismiss. The Court heard argument on that Motion on October 10, 1996. The motion
was denied on January 16, 1997. On February 3, 1999, the New York Court
certified the action as a class action. The Company is unable to evaluate its
potential outcome at this time. The Company disputes these claims and intends to
contest them vigorously. There can be no assurance, however that the final
disposition of this case will be favorable to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of TBC's stockholders during the
fourth quarter of its fiscal year ended December 31, 1998.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock and redeemable Common Stock purchase warrants trade
separately on the AMEX under the symbols TXB and TXB.WS, respectively.
COMMON STOCK PUBLIC WARRANTS
--------------- ---------------
HIGH LOW HIGH LOW
---- --- ---- ---
YEAR ENDED DECEMBER 31, 1997
First Quarter 7 1/4 3 7/8 2 3/8 11/16
Second Quarter 6 3/16 3 3/4 1 1/2 3/4
Third Quarter 6 1/2 4 9/16 1 9/16 7/8
Fourth Quarter 6 11/16 5 1 5/8 7/8
YEAR ENDED DECEMBER 31, 1998
First Quarter 7 13/16 5 3/8 1 1/2 9/16
Second Quarter 9 1/2 3 3/4 2 3/4 1/8
Third Quarter 6 2 9/16 5/8 1/8
Fourth Quarter 5 1/4 2 7/16 3/4 1/16
As of March 19, 1999 there were approximately 557 holders of record of
Common Stock of the Company and approximately 11,000 beneficial holders. In
addition, there were approximately 18 holders of record of the Public Warrant
and approximately 1,700 beneficial holders. The Company has never paid dividends
and does not anticipate paying any cash dividends in the foreseeable future. The
Company intends to retain any future earnings and capital for use in its
business.
RECENT SALES OF UNREGISTERED SECURITIES
Previously reported in Form 10-Qs.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below as of and for each of the
fiscal years in the five-year period ended December 31, 1998 and are derived
from the Company's audited financial statements. These selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements and
notes thereto.
YEARS ENDED
DECEMBER 31,
-------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Revenues..................................... $ 2,251,681 $ 16,907,780 $ 5,405,776 $ 7,234,002 $ 4,718,785
------------ ------------ ------------ ------------ ------------
Expenses:
Research and development.................. 14,122,671 16,833,135 22,251,895 14,949,822 8,936,004
Charge for purchase of in-process
research and development.............. 133,875 1,075,191 -- 2,061,383 6,404,227
General and administrative................ 4,597,014 5,759,792 4,067,505 4,693,019 3,992,183
Restructuring and impairment of
intangible assets..................... -- -- 421,165 643,750 --
------------ ------------ ------------ ------------ ------------
Total expenses 18,853,560 23,668,118 26,740,565 22,347,974 19,332,414
------------ ------------ ------------ ------------ ------------
Other income:
Interest income......................... 2,087,707 1,122,900 898,039 1,200,921 1,011,251
Interest expense........................ -- -- -- (1,068) (1,315)
Other................................... -- 2,253 -- -- --
------------ ------------ ------------ ------------ ------------
Total other income 2,087,707 1,125,153 898,039 1,199,853 1,009,936
------------ ------------ ------------ ------------ ------------
Net loss................................... $ 14,514,172 $ 5,635,185 $ 20,436,750 $ 13,914,119 $ 13,603,693
Preferred dividend requirement............. 1,690 1,153,282 -- -- --
Net loss applicable to common shares....... 14,515,862 6,788,467 20,436,750 13,914,119 13,603,693
Net loss per common share (1) $ 0.43 $ 0.24 $ 0.87 $ 0.83 $ 0.97
============ ============ ============ ============ ============
Weighted average common shares
used to compute net loss per common share 33,930,276 27,745,700 23,616,033 16,748,995 14,018,269
============ ============ ============ ============ ============
DECEMBER 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Working capital $29,907,191 $42,815,413 $10,109,803 $11,927,296 $22,930,263
Total assets 36,105,980 48,798,282 18,180,121 18,926,499 31,192,345
Stockholders' equity 33,236,220 46,167,066 13,627,406 15,710,125 27,557,596
- ---------------------------
(1) For information concerning calculation of net loss per share, see Note
1(g) of Notes to Consolidated Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since its inception in 1989, the Company has primarily devoted its
resources to fund drug discovery research and development. The Company has been
unprofitable to date and expects to incur substantial losses for the next
several years as the Company invests in product research and development,
preclinical and clinical testing and regulatory compliance. The Company has
sustained net losses of approximately $84.6 million from inception to December
31, 1998. The Company has primarily financed its operations to date through
certain private placements of Common Stock and shareholder loans, which have
raised an aggregate of $21.3 million in net proceeds, the IPO which raised an
aggregate of $24.2 million in net proceeds including the over-allotment sold in
January 1994, a private placement of Common Stock on February 13, 1996, which
raised $13.0 million in net proceeds, a private placement of 5% Preferred Stock
on March 14, 1997, which raised approximately $6.0 million in net proceeds, and
a secondary public offering which closed during October 1997 and raised
approximately $26.7 million in net proceeds.
On July 25, 1994, the Company acquired all of the outstanding stock of IPI
in exchange for 1,599,958 shares of Common Stock, 999,956 shares of escrowed
Common Stock which were released upon satisfaction of certain research
milestones, and contingent stock issue rights to acquire 1,400,000 shares of
which 399,961 shares were issued upon satisfaction of certain research
milestones. IPI's financial results have been included in the Company's
financial statements beginning August 1, 1994. In March 1996, IPI's remaining
operations in California were consolidated with the Company's Houston
operations.
The Company signed a collaborative agreement with Synthelabo on October 11,
1994. Upon consummation of the transaction, Synthelabo purchased 1,428,571
shares of Common Stock for a total of $5.0 million and paid a licensing fee of
$3.0 million. In addition, Synthelabo paid $3.0 million annually in research
payments for two years and paid $750,000 for the third year. During 1996, TBC
signed agreements with Synthelabo to provide copies of certain NOVASTAN(R)
clinical data. Over the life of the agreements TBC may receive as much as $2.92
million, of which $2.88 million has been received as of December 31, 1998.
During October 1996, the Company executed a research and Common Stock
purchase agreement with LG Chemical. LG Chemical purchased 1,250,000 shares of
Common Stock for $5.0 million and committed to pay up to $10.7 million over a
five year period to develop two compounds in clinical development. Of this
amount, $4.1 million has been paid and $1.0 million will be paid on each of June
30 and December 31, of 1999 and 2000, and $1.3 million will be paid on June 30
and December 31, 2001.
In August 1997, the Company entered into the SmithKline Agreement whereby
SmithKline was granted exclusive rights to work with TBC in the development and
commercialization of NOVASTAN(R) in the U.S. and Canada for specified
indications. Upon execution of the agreement, SmithKline paid an $8.5 million
license fee and during October 1997, paid a $5 million milestone payment to TBC
and has committed to pay up to a total of $15.0 million in additional milestone
payments based on the clinical development and FDA approval of NOVASTAN(R) for
the indications of HIT, HITTS and AMI. Future milestone payments for the AMI
indication are subject to SmithKline's agreement to market NOVASTAN(R) for such
indication. In connection with the SmithKline Agreement, SmithKline purchased
176,922 shares of Common Stock for $1.0 million and an additional 400,000 shares
of Common Stock for $2.0 million in conjunction with the Company's public
offering which closed during October, 1997. At this time, SmithKline has no
plans to conduct development work for the AMI and stroke indications. TBC is
evaluating the feasibility of development of NOVASTAN(R) for stroke and possibly
AMI.
The Company's operating results have fluctuated significantly during each
quarter, and the Company anticipates that such fluctuations, largely
attributable to varying research and development commitments and expenditures,
will continue for the next several years.
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RESULTS OF OPERATIONS
Revenues were $2,251,681, $16,907,780 and $5,405,776 during 1998, 1997 and
1996, respectively. For the years 1997 and 1996, respectively, revenues included
$7,500 and $8,939 of product sales from the Company's subsidiary IPI. For the
years 1998, 1997 and 1996, revenues also included $2,251,681, $16,900,280 and
$5,395,110 from research agreements, commercialization agreements and
collaborations with various other companies. Revenues from research agreements
in 1998 includes research payments from LG Chemical, in 1997 includes research
payments from LG Chemical, a license fee of $8,500,000 and a milestone payment
of $5,000,000 and in 1996 includes $2.6 million in research payments from
Synthelabo and $2.3 million for data supplied to Synthelabo. Interest income was
$2,087,707, $1,122,900 and $898,039, for the years 1998, 1997 and 1996,
respectively. Interest income for the year 1998 was significantly higher over
1997 and 1996 due to investment of funds received in conjunction with the
SmithKline Agreement and a secondary public offering of common stock completed
in October 1997.
Research and development expenses decreased 16% from $16,833,135 in
1997 to $14,122,671 in 1998 and decreased 24% from $22,251,895 in 1996 to
$16,833,135 in 1997. The decrease from 1997 to 1998 was due primarily to reduced
spending for clinical trials for NOVASTAN(R) that were completed in 1998 and
one-time charges during 1997 associated with the license of NOVASTAN(R). The
decrease from 1996 to 1997 was primarily due to the decrease in expenses related
to the clinical trials of NOVASTAN(R).
Non cash charges for the purchase of in-process research and development
decreased from $1,075,191 in 1997 to $133,875 in 1998 because of Common Stock
issued pursuant to the NOVASTAN(R) license agreement and a research
collaboration agreement signed in 1998, respectively.
In 1996 the Company charged $421,165 to expense for costs related to
restructuring IPI.
General and administrative expenses decreased 20% from $5,759,792 in 1997
to $4,597,014 in 1998 and increased 42% from $4,067,505 in 1996 to $5,759,792 in
1997. The decrease in 1998 from 1997 and increase in 1997 over 1996 was
primarily because of a $952,919 noncash charge related to the 1997 extension of
the exercise period for certain stock options and an increase in 1997 legal fees
related to patent applications for TBC's compounds.
Rent and related building services, which is a component of both research
and development and general and administrative expense, was approximately
$958,000 in 1998, $956,000 in 1997 and $1,025,000 in 1996. The decrease of
approximately $69,000 in 1997 from 1996 was primarily due to the consolidation
of IPI into TBC and the termination of the lease for the IPI facility.
The Company incurred net losses applicable to common shares of $14,515,862,
$6,788,467 and $20,436,750 for the years ended December 31, 1998, 1997 and 1996,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its research and development activities to date
principally through (i) public offerings and private placements of its equity
securities, (ii) issuances of Common Stock in conjunction with acquisitions and
research and collaboration agreements and exercises of stock options and
warrants, (iii) license fees and milestone and research payments received in
conjunction with research and collaborative agreements, and (iv) investment
income, net of interest expense. During 1998, the Company utilized net cash of
$13,951,755 in operating activities. The use of cash in operations was caused
primarily by the Company's net loss. Investing and financing activities
primarily reflect the utilization of $5,925,269 in net proceeds from the 1997
private placement of the preferred stock and $26,687,521 in net proceeds from
the secondary public offering of Common Stock, net of purchases and redemptions
of short term investments during 1998. In addition, $1,415,640 was provided by
exercise of warrants and stock options. At December 31, 1998, the Company had
cash, cash equivalents, short-term investments and long-term investments of
$30,376,002.
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24
The Company expects to incur substantial research and development
expenditures as it designs and develops small molecule drugs for vascular
diseases. The Company anticipates that operating expenses may increase during
1999 and subsequent years. The Company began to incur costs to develop
NOVASTAN(R) during the third quarter of 1993. These costs will continue during
1999 due to expenses associated with the amendment of the new drug application
with the FDA for NOVASTAN(R) and costs associated with additional clinical and
regulatory work being completed for NOVASTAN(R). The Company also began
incurring clinical trial costs in 1997 for the compounds TBC11251 and TBC1269
and is continuing its clinical trials for these compounds during 1999. In 1999,
the Company expects to begin to incur costs for clinical trials related to
additional compounds. These costs include, among other things, hiring personnel
to direct and carry out all operations related to the clinical trials, hospital
and procedural costs, services of a contract research organization and
purchasing and formulating large quantities of the compound to be used in such
trials. In addition, the Company anticipates that the administrative costs
associated with this effort will be significant. The amounts and timing of
expenditures will depend on the progress of the Company's ongoing research,
clinical development and commercialization efforts.
The Company anticipates that its existing capital resources, research
payments from LG Chemical and its other revenue sources should be sufficient to
fund its cash requirements through the second quarter of the year 2000. This
date is contingent upon various factors, including the rates of patient
enrollment and spending associated with the development and commercialization of
NOVASTAN(R), the level of research, development and clinical trial expenditures
for TBC11251, TBC1269 and other compounds, results of clinical trials, the costs
and timing of regulatory approvals (including NOVASTAN(R)), the success of sales
and marketing efforts for NOVASTAN(R), if approved by the FDA, the exercise of
the Company's publicly traded warrants, if any, which expire on September 30,
1999 and are presently not "in the money", and the timing and terms of future
corporate collaborations, if any, entered into by the Company. If the Company
does not receive timely FDA approval for NOVASTAN(R), or such approval is
significantly delayed or if NOVASTAN(R) cannot be successfully marketed after
FDA approval, the Company will need to re-examine the use of its existing
capital resources. No assurances can be given that the Company will be able to
continue its research and development programs at currently anticipated levels.
Moreover, TBC's agreement with Synthelabo requires the Company to maintain a
"net worth", as defined in the agreement, of at least $5.0 million during the
term of the agreement. If the Company fails to maintain at least $5.0 million of
"net worth", Synthelabo may require that the technology, as defined in the
agreement, be transferred to, and the development program be conducted by, a
joint venture owned by TBC and Synthelabo. The outcome of certain lawsuits that
have been filed against the Company could also have an impact on liquidity. See
Part I, Item 3.
Legal Proceedings.
The Company anticipates that it may need to raise substantial funds for
future operations through collaborative arrangements, public or private issuance
of debt and equity, or other arrangements. These financings could result in the
issuance of equity securities which dilute the existing holders of the Company's
Common Stock. The Company expects that as additional product candidates enter
clinical trials, the Company may incur increased expenditures for laboratory
space, scientific and administrative personnel, and services of contract
research organizations. There can be no assurance that the Company will be able
to obtain such additional financings or establish corporate collaborations on
acceptable terms or in time to fund its research and development programs. It is
likely that the Company's ability to raise additional funds will be adversely
affected by unfavorable results of its clinical trials and the failure to obtain
regulatory approvals for its product candidates, including NOVASTAN(R). In the
event such financing is not obtained, the Company's drug discovery or
development programs may be delayed, scaled back or eliminated. The Company may
also be required in this event to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that it
would not otherwise relinquish.
IMPACT OF INFLATION AND CHANGING PRICES
The pharmaceutical research industry is labor intensive, and wages and
related expenses increase in inflationary periods. The lease of space and
related building services for the Houston facility contains a clause that
escalates rent and related services each year based on the increase in building
operating costs and the increase in the Houston Consumer Price Index,
respectively. To date, inflation has not had a significant impact on the
operations of the Company.
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YEAR 2000 ISSUE
The Year 2000 ("Y2K") issue is the result of computer programs being
written using two digits rather than four to define the applicable year.
Computer equipment, software and other devices with imbedded technology that are
time-sensitive, such as computer systems, related software, research equipment,
alarm systems and telephone systems may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, temporary inability to process data, and may materially impact the
Company's financial condition.
The Company has undertaken various initiatives intended to ensure that it
is prepared for the Y2K issue. The Company is in the process of assessing its
state of readiness. Presently, the Company has reviewed its scientific
equipment, computer systems and related software to identify systems which may
exhibit Y2K issues. This review was performed by internal teams from various
disciplines within the Company. These teams evaluated the Company's equipment,
computer systems and software for Y2K issues and is currently performing testing
to insure proper operation after January 1, 2000. If necessary, specific
remediation plans will be developed for non-compliant items after testing is
completed. As a part of this review the Company will determine the known risks
related to the consequences of a failure to correct any Y2K deficiencies. The
Company has initiated formal communications with material third parties to
determine the extent to which the Company may be vulnerable to those third
parties' failure to remediate their Y2K problems. The Company and its licensee,
SmithKline Beecham plc are dependent upon Mitsubishi Chemical Corporation for
supply of bulk NOVASTAN(R) for clinical trial material and for its inventory
needs should the FDA approve the compound for marketing. The Company has
received communication from Mitsubishi Chemical Corporation which states that it
has undertaken to become Y2K compliant. Any Y2K issues which would result in
significant interruptions of delivery schedules could have a material effect on
the Company's operations. However, the Company is presently not aware of any Y2K
issues that have been encountered by any third party, which could materially
affect the Company's operations.
The Company has developed a contingency plan to address potential Y2K
issues. This contingency plan addresses problems that the Company may encounter
after January 1, 2000 and will be updated to include issues identified during
the course of its remediation efforts and reasonably foreseeable problems that
may arise as a result of Y2K, including, but not limited to computer hardware
and software and research equipment. The contingency plan will be continually
refined as additional information becomes available. However, it is unlikely
that any contingency plan can fully address all events that may arise.
The Company estimates that the costs associated with the Y2K issue will not
be material, and as such will not have a significant impact on the Company's
financial position or operating results. The Company's current estimate of Y2K
remediation costs is approximately $50,000 which may be revised should other
remediation costs be discovered in the review of Y2K issues. However, the
failure to discover or correct a material Y2K problem could result in an
interruption in the Company's normal business activities or operations. Such
failure could materially and adversely affect the Company's results of
operation, liquidity and financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company required to be included in this
Item 8 are set forth in Item 14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
---- --- --------
John M. Pietruski (1)(2)......................... 66 Chairman of the Board of Directors
David B. McWilliams (1).......................... 55 President, Chief Executive Officer and Director
Richard A. F. Dixon, Ph.D. (1)................... 45 Vice President, Research and Director
John McMurdo, M.D................................ 58 Vice President, Clinical Development and Regulatory Affairs
Stephen L. Mueller............................... 51 Vice President, Finance and Administration,
Secretary and Treasurer
Pamela M. Murphy................................. 48 Vice President, Corporate Communications
Joseph M. Welch.................................. 58 Vice President, Business Development
James T. Willerson, M.D. (1)(3).................. 59 Chairman of the Scientific Advisory Board and Director
Ron J. Anderson, M.D. (3)........................ 52 Director
Frank C. Carlucci (2)............................ 68 Director
Robert J. Cruikshank (3)......................... 68 Director
James A. Thomson, Ph.D. (2)...................... 54 Director
(1) Member, Executive Committee of the Board of Directors
(2) Member, Compensation and Personnel Committee of the Board of Directors
(3) Member, Audit Committee of the Board of Directors
The additional information requested by this item will be contained in
the Company's definitive Proxy Statement ("Proxy Statement") for its 1999 Annual
Meeting of Stockholders to be held on May 4, 1999 and is incorporated by
reference from the sections titled "Election of Directors" and "Other
Information - Executive Officers and - Section 16(a) Beneficial Ownership
Reporting Compliance". Such Proxy Statement will be filed with the Securities
and Exchange Commission not later than 120 days subsequent to December 31, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information requested by this item is incorporated by reference from
the section titled "Other Information Executive Compensation" in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 4, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information requested by this item is incorporated by reference from
the section titled "Other Information Principal Stockholders" in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be held on
May 4, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information requested by this item is incorporated by reference from
the sections titled Other Information Compensation Committee Interlocks and
Insider Participation" in the Company's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on May 4, 1999.
25
27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. INDEX TO FINANCIAL STATEMENTS
Reference is made to the Consolidated Financial Statements, the reports
thereon, and the notes thereto commencing at Page F-1 of this Annual
Report on Form 10-K. Set forth below is an index to such Financial
Statements and Schedules.
PAGE
----
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-2
Consolidated Statements of Operations for the years ended December 31, 1998, 1997
and 1996 F-3
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997
and 1996 F-6
Notes to Consolidated Financial Statements F-7
2. INDEX TO EXHIBITS
Information with respect to this Item is contained in the attached
Index to Exhibits.
The Company will furnish a copy of any one or more of these exhibits to
a shareholder who so requests upon receipt of payment for the cost of
duplication and mailing the requested items.
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
All schedules have been omitted since the information is not required or is
not material to require submission of the schedule, or because the
information is included in the financial statements or notes thereto.
26
28
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON
AND STATE OF TEXAS ON THE 25TH DAY OF MARCH, 1999.
TEXAS BIOTECHNOLOGY CORPORATION
By: /s/ STEPHEN L. MUELLER
---------------------------------------------
Stephen L. Mueller
Vice President, Finance and Administration,
Secretary and Treasurer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS AND IN THE CAPACITIES
INDICATED ON THE 25TH DAY OF MARCH, 1999.
SIGNATURE TITLE
--------- -----
/s/ JOHN M. PIETRUSKI Chairman of the Board of Directors
- -------------------------------------------------------
John M. Pietruski
/s/ DAVID B. MCWILLIAMS Director, President and Chief Executive Officer
- -------------------------------------------------------
David B. McWilliams (Principal Executive Officer)
/s/ RICHARD A.F. DIXON Director and Vice President, Research
- -------------------------------------------------------
Richard A.F. Dixon, Ph.D.
/s/ STEPHEN L. MUELLER Vice President, Finance and Administration,
- -------------------------------------------------------
Stephen L. Mueller Secretary and Treasurer
(Principal Financial and Accounting Officer)
/s/ RON J. ANDERSON Director
- ------------------------------------------