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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER: 0-23736
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GUILFORD PHARMACEUTICALS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1841960
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6611 TRIBUTARY STREET
BALTIMORE, MARYLAND 21224
(410) 631-6300
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
TITLE OF CLASS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
As of February 28, 1997, the aggregate value of the 14,038,620 shares of
Common Stock of the Registrant issued and outstanding on such date, excluding
3,003,039 shares held by all affiliates of the Registrant, was approximately
$292,442,897. This figure is based on the closing sales price of $26.50 per
share of the Registrant's Common Stock as reported on the Nasdaq National Market
System on February 27, 1997.
Number of shares of Common Stock outstanding as of February 28,
1997: 14,038,620
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the
Part of the Form 10-K into which the document is incorporated:
None
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Guilford is a biopharmaceutical company engaged in the development and
commercialization of novel products in two principal areas: (i) targeted and
controlled drug delivery systems using proprietary biodegradable polymers for
the treatment of cancer and other diseases; and (ii) therapeutic and diagnostic
products for neurological diseases and conditions.
The Company's first product in its drug delivery business is GLIADEL(R)
wafer ("GLIADEL"), a novel treatment for glioblastoma multiforme, the most
common and rapidly fatal form of brain cancer. GLIADEL was cleared for marketing
by the United States Food and Drug Administration ("FDA") in September 1996 for
use as an adjunct to surgery to prolong survival in patients with recurrent
glioblastoma multiforme for whom surgical resection is indicated. GLIADEL was
commercially launched in the United States on February 25, 1997 by the Company's
marketing partner, RPR. Rhone-Poulenc Rorer Pharmaceuticals, Inc. (together with
its parent, Rhone-Poulenc Rorer, Inc., "RPR") is submitting marketing
applications in other countries and the Company and RPR are planning further
clinical trials of GLIADEL to seek to expand its labeling. The Company also
intends to broaden its line of polymer-based oncology products through the use
of other chemotherapeutic agents, different polymer systems and various
formulations, and may also consider developing polymer drug delivery for other
applications.
The Company's lead neurological product candidate is DOPASCAN(R) Injection
("DOPASCAN"), a radiolabeled tropane derivative that is being developed for the
diagnosis and monitoring of Parkinson's disease. The Company has completed
enrollment in a multi-center Phase II clinical trial of DOPASCAN in the United
States and is preparing to commence Phase III clinical trials later this year.
The Company also is developing other neurological product candidates, including:
(i) neurotrophic drugs to promote nerve growth and repair, which may have
applications for spinal cord injuries, peripheral neuropathies and
neurodegenerative diseases, such as Alzheimer's disease and Parkinson's disease;
(ii) neuroprotective drugs to reduce neuronal damage due to stroke or severe
head trauma; and (iii) drugs to treat addictive disorders.
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PRODUCT AND DEVELOPMENT PROGRAMS
The following table summarizes the current status of the Company's product,
product candidates and research programs:
PROGRAM/PRODUCT CANDIDATES DISEASE INDICATIONS/CONDITIONS STATUS (1) CORPORATE PARTNER
- --------------------------- ------------------------------ --------------------------- ---------------------------
DRUG DELIVERY BUSINESS
GLIADEL Recurrent glioblastoma Market RPR,
(3.85% BCNU) multiforme Orion Farmos (Scandinavia)
Initial treatment of malignant Phase III(2) RPR,
glioma Orion Farmos (Scandinavia)
GLIADEL Malignant glioma Phase I RPR,
(6.5% up to 20% BCNU) Orion Farmos (Scandinavia)
Other polymer-based Various cancers Research RPR (3)
products
NEUROLOGICAL PRODUCTS
DOPASCAN Imaging agent to diagnose and Phase II DRL (Asia) (4)
monitor Parkinson's disease
NEUROTROPHIC DRUGS
Neuroimmunophilin ligands Nerve growth and repair Preclinical --
(Parkinson's disease,
Alzheimer's disease, multiple
sclerosis, stroke, spinal cord
injury and peripheral
neuropathies)
NEUROPROTECTIVE DRUGS
Pre-synaptic glutamate Stroke, severe head trauma, Research --
inhibitors ALS, epilepsy and Parkinson's
disease
NOS inhibitor Stroke, severe head trauma Research --
PARS inhibitor Stroke, severe head trauma Research --
ADDICTION THERAPEUTICS
Dopamine transporter ligand Cocaine addiction Research --
- ---------------
(1) "Research" includes initial research related to specific molecular targets,
synthesis of new chemical entities and assay development for the
identification of lead compounds. "Preclinical" includes testing of lead
compounds in vitro and in animal models, pharmacology and toxicology
testing, product formulation and process development prior to the
commencement of clinical trials.
(2) Trials are expected to commence in mid-1997.
(3) RPR has certain rights of first offer.
(4) Japan, Korea and Taiwan.
Development and commercialization of the Company's product and product
candidates is subject to numerous risks and uncertainties, certain of which are
set forth in this annual report.
DRUG DELIVERY BUSINESS
The Company's drug delivery business currently involves the use of
biodegradable polymers for targeted and controlled drug delivery of
chemotherapeutic drugs to treat cancer. Delivering high drug concentrations
locally for a sustained period of time may increase the efficacy of chemotherapy
in controlling tumor growth and may decrease the side effects associated with
systemic drug administration. Guilford has developed expertise in the discovery,
clinical development and manufacturing of polymer-based drug delivery products.
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GLIADEL
The Company's first product in its drug delivery business is GLIADEL, a
novel treatment for malignant glioma, the most common and rapidly fatal form of
primary brain cancer. GLIADEL is a white wafer about the size of a dime made of
a proprietary biodegradable polymer which contains the cancer chemotherapeutic
drug BCNU (carmustine). Up to eight GLIADEL wafers are implanted in the cavity
created when a neurosurgeon removes the brain tumor. The wafers gradually
degrade in the cavity and deliver BCNU directly to the tumor site in high
concentrations for an extended period of time without exposing the rest of the
body to the toxic side effects of BCNU. GLIADEL is used to complement standard
therapy with surgery, radiation therapy and systemic chemotherapy in patients
with recurrent glioblastoma multiforme. In a North American Phase III clinical
trial GLIADEL was shown to increase the six-month survival rate by more than 50%
in these patients. The availability of GLIADEL gives physicians a new treatment
option for this rapidly fatal disease.
In September , 1996 the FDA cleared the Company's New Drug Application
("NDA") for GLIADEL for use as an adjunct to surgery to prolong survival in
patients with recurrent glioblastoma multiforme for whom surgery is indicated.
RPR began commercial sale of GLIADEL in the United States on February 25, 1997
through its existing oncology sales force. Prior to launch, GLIADEL was
available to neurosurgeons in the United States through a Treatment
Investigation New Drug application ("Treatment IND") cleared by the FDA. The
Treatment IND protocol was approved in over 170 hospitals in the U.S. and more
than 450 treatments were distributed.
GLIADEL has been studied in trials involving over 650 patients, including
two Phase III multi-center, randomized, double-blind, placebo-controlled
clinical trials. The results of a trial conducted in the United States and
Canada involving 222 patients undergoing surgery for recurrent malignant glioma
were published in the April 22, 1995 issue of The Lancet. Patients received
either GLIADEL or a placebo wafer. This trial examined GLIADEL's additive effect
to survival, adjunctive to the best treatments currently available for brain
cancer, i.e., surgery, radiation therapy and in some cases systemic
chemotherapy. The survival rate at six months, the primary endpoint, was 47% in
the placebo group and 60% in the GLIADEL group, with an improvement in median
survival of 8 weeks (a 35% increase). In the Phase III multi-center, randomized,
double-blind, placebo-controlled trial forming the basis for FDA marketing
clearance of the NDA for GLIADEL, the survival rate for 145 patients with
recurrent glioblastoma multiforme at six months was 36% in the placebo group and
56% in the GLIADEL group (a 56% increase). These results were statistically
significant after adjustment for prognostic factors, and no clinically important
adverse effects attributable to the drug were reported in either trial.
In June 1996, the Company entered into a strategic agreement with RPR
granting RPR the worldwide (excluding Scandinavia) rights to market, sell and
distribute GLIADEL. During 1996, RPR paid Guilford $27.5 million in milestone
payments, $7.5 million equity investment in Company Common Stock and extended to
the Company a $7.5 million line of credit, which the Company intends to use to
expand its annual manufacturing capacity from 8,000 to 30,000 treatments (each
consisting of 8 GLIADEL wafers). Under the agreements with RPR, Guilford
receives a combined transfer price and royalty of 35% to 40% of the net sales of
GLIADEL. GLIADEL could earn additional payments totaling up to $40 million,
subject to achievement of certain milestone events, including expanded labeling
in the United States to include use of GLIADEL at the time of initial surgery
and international marketing approvals. The Company will be required to pay a
royalty to MIT on sales of GLIADEL pursuant to the license agreement under which
the Company acquired the underlying technology for this product.
Guilford and RPR have initiated a series of new clinical trials for the
purpose of seeking to expand the market for GLIADEL. A Phase III randomized,
double-blind, placebo-controlled trial in patients undergoing initial surgery
for malignant glioma is planned to commence in mid-1997. In addition, Guilford
has initiated a Phase I clinical trial to test the safety of escalating the
concentration of BCNU in GLIADEL from 3.85% to 20%, following preclinical
studies suggesting that higher concentrations of BCNU in GLIADEL may be even
more effective and appear to be safe.
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In October 1995, the Company entered into an agreement with Orion Farmos, a
major Scandinavian health care company, for the sales, marketing and
distribution of GLIADEL in Scandinavia. The agreement provides for payments to
Guilford based on GLIADEL sales made by Orion Farmos in Scandinavia. Orion
Farmos has commenced sales of GLIADEL in Scandinavia on a named patient basis.
Other Polymer-Based Drug Delivery Products. The Company intends to broaden
its line of polymer-based products to include drug delivery products for the
treatment of tumors outside the central nervous system. Other cancers that may
be suitable for this type of targeted therapeutic approach include tumors of the
prostate, ovaries, head and neck, breast, esophagus, liver, pancreas, lung and
colon. In addition, the Company is investigating other polymer systems and
additional configurations such as gels, beads and rods for stereotactic
implantation. As part of this effort, the Company has entered into two research
collaborations with a biomedical engineering laboratory at Johns Hopkins to
discover new polymers and to advise the Company on new product development. In
June 1996, the Company entered into a license agreement with MIT and Johns
Hopkins relating to a patent application claiming certain biodegradable polymers
for use in connection with the controlled local delivery of certain
chemotherapeutic agents (including paclitaxel (Taxol(R)) and camptothecin) for
treating solid tumors. In July 1996, the Company entered into a license
agreement with Johns Hopkins relating to two issued United States patents
relating to polyphosphoesters. In addition, the Company has established a
strategic partnership with RPR to commercialize GLIADEL and evaluate the
opportunity to incorporate RPR's proprietary chemotherapeutics in Guilford's
proprietary polymer systems.
NEUROLOGICAL PRODUCTS PROGRAM
DOPASCAN. The Company's lead neurological product candidate is DOPASCAN, a
radiolabeled tropane derivative that is being developed for the diagnosis and
monitoring of Parkinson's disease. DOPASCAN is administered intravenously in
very small quantities and allows physicians to obtain images of dopamine neurons
in the brain. Dopamine neurons are highly concentrated in a specialized area of
the brain that degenerates in Parkinson's disease. Parkinson's disease is a
common neurodegenerative disorder affecting more than 600,000 patients in the
United States. In its early stages, Parkinson's disease can be very difficult to
clinically distinguish from other diseases with similar symptoms but which do
not respond well or at all to specific therapy for Parkinson's disease. In order
to properly treat these patients, it is important to establish an early accurate
diagnosis. Unfortunately there are no diagnostic tests currently available that
can detect the neuronal degeneration and the typical delay between the onset of
symptoms and clinical diagnosis is more than two years. The only way to
establish the diagnosis at present is through repeated physician visits and the
use of therapeutic trials of drugs such as L-Dopa which carry with them the risk
of unnecessary, sometimes severe, side effects.
DOPASCAN is administered by a single intravenous injection. The next day,
the patient returns to the hospital and lies under a SPECT camera for about 30
minutes to have images taken. The images obtained with the SPECT camera identify
loss of dopamine neurons in the brain. To date, over 1,000 patients have been
imaged in the United States and Europe using DOPASCAN. In initial United States
Phase II trials DOPASCAN accurately differentiated patients clinically diagnosed
with Parkinson's disease from those without the disease. The Company has
completed enrollment in a multi-center Phase II clinical trial of DOPASCAN in
the United States and expects the study report to be available in the second
quarter of 1997. The Company intends to commence Phase III clinical trials in
North America prior to the end of 1997. The Company expects to undertake further
clinical trials in Europe to support European regulatory filings.
The Company has entered into an agreement with Daiichi Radioisotope
Laboratories, Ltd. ("DRL"), a leading Japanese radiopharmaceutical company, to
develop and commercialize DOPASCAN in Japan, Korea and Taiwan. DRL has informed
the Company that it has completed Phase I clinical trials, and intends to
commence Phase II clinical trials in Japan later this year. The Company intends
to seek partners for distribution of this product in other territories,
including the United States and Europe.
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Neurotrophic Drugs
Guilford is developing small molecule, orally bioavailable compounds to
promote nerve growth and repair (neurotrophic agents) for the treatment of
neurological disorders. The degeneration or damage of nerve cells in the brain
and peripheral neurons resulting from certain diseases and conditions causes a
loss of either central nervous system function (e.g., Alzheimer's disease,
Parkinson's disease, multiple sclerosis, spinal cord injury and stroke) or
peripheral nerve function (e.g., diabetic neuropathy and other peripheral
neuropathies). Under normal circumstances, damaged nerves have a very limited
ability to regrow, which poses a major obstacle for the treatment of these
conditions.
In 1990, scientists at Johns Hopkins led by Dr. Solomon H. Snyder
discovered that a binding protein for commonly used immunosuppressive agents
such as tacrolimus (FK-506), was enriched 10 to 50 fold higher in the brain than
in the immune system. The Johns Hopkins scientists went on to discover that
commonly used immunosuppressive drugs can promote nerve growth, and Guilford has
exclusively licensed from Johns Hopkins a United States patent application
claiming these discoveries. Guilford and Johns Hopkins scientists further
discovered that the mechanism of nerve growth promotion is independent of the
mechanism responsible for immunosuppression, and is mediated by binding to the
major neuroimmunophilin in the brain. This binding was discovered to initiate a
previously unknown neurotrophic cascade.
Based on these discoveries, the Company has synthesized hundreds of
proprietary small molecule neuroimmunophilin ligands in several distinct
chemical series that promote nerve growth without being immunosuppressive. The
Company has filed numerous patent applications in the United States and
internationally relating to both novel compositions and methods of treating
neurological disorders utilizing these compounds. These compounds induce nerve
growth directly, as well as potentiate nerve growth in the presence of nerve
growth factors. Several of Guilford's lead compounds have exhibited neurotrophic
effects at picomolar and even sub-picomolar concentrations in in vitro nerve
cell cultures.
Experimental results of one of the Company's lead products, GPI-1046, were
reported in 1996 and published in the March 4, 1997 issue of the Proceedings of
the National Academy of Sciences. In two animal models of Parkinson's disease,
GPI-1046 demonstrated neuroprotective and neuroregenerative effects and recovery
of behavioral function. In one experiment where a neurotoxin and GPI-1046 were
administered simultaneously, the compound produced a 90% protection and/or
regeneration of the nigral-striatal dopamine neurons, the dopamine neurons which
are selectively lost in Parkinson's disease. In another experiment where
GPI-1046 was administered up to one month following the administration of the
neurotoxin, a 45% regeneration of functional striatal dopamine neurons and near
complete normalization of behavior in the affected animals was observed. In
addition to animal models of Parkinson's disease, GPI-1046 has been shown to
promote nerve regeneration in a rat model of peripheral nerve injury. In this
model, GPI-1046 increased the size and number of axons and also increased the
degree of myelination of nerve cells in a damaged sciatic nerve, leading to
partial functional improvement in the paralyzed leg. Further, GPI-1046 and other
compounds exhibited systemic activity, oral bioavailability, and the ability to
cross the blood-brain barrier, unlike many naturally occurring nerve growth
factors.
GPI-1046 is currently undergoing the necessary preclinical toxicology,
pharmacokinetic and additional testing, including primate studies, to support
clinical trials. The Company intends to commence preliminary clinical trials
with one of its lead compounds in late 1997 or early 1998. In addition, Company
scientists have designed and synthesized additional compounds from several
distinct chemical series with improved potency and efficacy compared to
GPI-1046, which are in preclinical development. One such example, GPI-1216,
potently promotes neurite outgrowth in chick sensory neurons in cell culture in
sub-picomolar concentrations, and is 50% more efficacious than GPI-1046 in an in
vivo model of Parkinson's disease. Additional lead compounds from other patent
series, such as GPI-1152 and GPI-1234, are also more than 50% more efficacious
than GP-1046 in vivo.
The Company's neuroimmunophilin ligands have produced nerve regeneration
following multiple routes of administration, including oral administration.
Further, neuroimmunophilin ligands are able to cross the blood-brain barrier,
while many naturally-occurring nerve growth factors, proteins and peptides are
not orally bioavailable and do not cross the blood-brain barrier. Guilford
intends to investigate the utility of its
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compounds in a range of neurological disorders (Parkinson's disease and
Alzheimer's disease), multiple sclerosis, spinal cord injury, and various
peripheral neuropathies.
The Company is currently in discussions with several multinational
pharmaceutical companies regarding a collaboration for this program.
Neuroprotective Drugs
Guilford is developing novel compounds to protect brain cells against
damage from ischemia (the lack of oxygen delivery from reduced blood flow) and
other insults and disorders which cause damage due to massive release of
excitatory amino acid neurotransmitters such as glutamate. The Company's
approach is to identify and clinically test compounds that have the ability to
intervene at three distinct, important steps in a biochemical pathway leading to
neuronal damage: (i) pre-synaptic inhibition of glutamate; (ii) inhibition of
NOS; and (iii) inhibition of PARS.
In normal brain function, the pre-synaptic release of the neurotransmitter
glutamate, resulting in stimulation of post-synaptic glutamate receptors
(including NMDA) plays a critical role in many central neuronal functions.
However, in conditions such as ischemia, epilepsy and Huntington's disease,
there is a massive increase in pre-synaptic glutamate release, which results in
excessive activation of post-synaptic glutamate receptors. This in turn causes
excess production of the neurotransmitter nitric oxide, mediated by the enzyme
NOS, which results in damage to cellular DNA. This in turn causes the nerve cell
to attempt to repair such damage, mediated by the enzyme PARS, which leads to
depletion of cell energy and cell death.
Pre-Synaptic Glutamate Inhibitors
To date, the biopharmaceutical industry has expended significant effort
trying to find compounds which might block the effects of excess glutamate on
post-synaptic glutamate receptors. However, a number of post-synaptic glutamate
antagonists have been associated with toxicities.
Guilford scientists have succeeded in inhibiting the pre-synaptic release
of glutamate, that is, preventing excessive levels of glutamate from being
produced and released in the first place. The Company has identified compounds
which exhibit nanomolar potency in vitro. The Company has filed both composition
of matter patent applications, relating to several series of novel compounds,
and method of use patent applications, relating to this novel mechanism to
inhibit excess glutamate during conditions of neurodegeneration. GPI-5000, the
Company's prototype pre-synaptic glutamate inhibitor, has demonstrated
significant neuroprotectant activity in several cell culture and animal models
of neurodegeneration. In both in vitro and in vivo models of focal ischemia,
GPI-5000 exhibited approximately 90% neuroprotection of cortical neurons. To the
Company's knowledge, such a magnitude of neuroprotection is significantly
greater than that reported by post-synaptic glutamate receptor antagonists,
calcium channel antagonists or pH modulators tested under similar conditions. In
addition, because GPI-5000, as well as Guilford's other series of proprietary
compounds, do not interact with post-synaptic glutamate receptors, they may not
be associated with the toxicities associated with post-synaptic glutamate
antagonists.
The Company is currently testing compounds in animal models of stroke and
other disorders believed to be associated with glutamate toxicity, such as ALS,
epilepsy, severe head trauma, and Parkinson's disease. Certain of these
compounds have shown significant neuroprotective activity in preclinical models.
NOS Inhibitors
The Company is also developing drugs to inhibit the formation of nitric
oxide, a neurotransmitter that mediates certain important actions of glutamate.
When excess glutamate is released (e.g., due to stroke or severe head trauma), a
variety of biochemical effects occur, including activation of NOS, an enzyme
that synthesizes nitric oxide from the amino acid arginine. In animal models of
vascular stroke, treatment with nitroarginine, a NOS inhibitor, blocked out 70%
of neuronal damage. Further, there are three distinct known forms of NOS:
neuronal NOS (nNOS), inducible NOS (iNOS) and endothelial NOS (eNOS). In animal
models of stroke, there is a 50% reduction of neuronal damage in a "knock-out"
mouse lacking nNOS. In
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contrast, inhibition of eNOS will reduce blood flow to the brain during stroke,
thus aggravating nerve cell damage. Consequently, there is considerable interest
in identifying compounds which selectively inhibit nNOS. The Company is
currently investigating novel mechanisms to selectively inhibit nNOS activity.
The Company has an exclusive license to an issued United States patent which
relates to the use of NOS inhibitors to prevent or treat disease conditions
caused by glutamate neurotoxicity.
PARS Inhibitors
The Company is developing compounds which inhibit PARS, an intracellular
enzyme that is involved in the repair of damaged DNA. Nitric oxide has been
shown to damage DNA in nerve cells and to trigger the activation of PARS, which
in turn leads to depletion of energy in the cell, resulting in cell death.
Guilford and Johns Hopkins scientists have shown that inhibitors of PARS can
prevent neurotoxicity in cultures of cerebral cortical neurons, suggesting that
they may be effective in treating stroke and neurodegenerative diseases. Using a
prototype small molecule PARS inhibitor, GPI-6000, Guilford scientists have
demonstrated that administration of that compound significantly decreases nerve
cell loss in a rat model of focal ischemia. Guilford scientists are currently
designing and synthesizing novel proprietary small molecule PARS inhibitors for
the treatment of neurodegenerative disorders. The Company has an exclusive
license to an issued United States patent which relates to the use of PARS
inhibitors to treat disease conditions caused by NMDA neurotoxicity.
Addiction Therapeutics
In February 1995, Guilford formed Gell, a corporate joint venture with
Abell focusing on the development of therapeutics for cocaine addiction and
other addictive behaviors. On March 5, 1997, Abell exercised its right to put
its interest in Gell to Guilford for 750,000 shares of Guilford Common Stock.
Thereafter, Gell became a wholly-owned subsidiary of Guilford. See
"-- Technology and Licensing Agreements." Gell seeks to identify and develop
selective cocaine antagonists and mixed agonist/antagonists which will have
clinical utility in the treatment of cocaine addiction and overdose and other
addictive behaviors. It is estimated that 2.1 million people (nearly 1% of the
United States population) use cocaine on a weekly basis and that several hundred
thousand use it daily. At present, cocaine treatment options are generally
limited to counseling, psychotherapy and participation in self-help groups.
The Company's cocaine addiction therapeutics program focuses on the
development of drugs which prevent cocaine from binding to dopamine transporters
while minimally affecting normal dopamine transport function. Within the past
decade, the mechanism by which cocaine exerts its addictive behaviors has been
elucidated. Scientists have found that cocaine facilitates the action of
dopamine in the brain by inhibiting the function of the dopamine transporter.
Dopamine uptake and cocaine binding occur at distinct sites on the transporter.
Therefore it may be possible to design drugs that specifically inhibit cocaine
binding while permitting the transporter to maintain its normal function.
Guilford scientists have identified and synthesized novel compounds with
specificity for the cocaine recognition site in the brain and the Company has
filed patent applications covering several classes of compounds. A prototype
compound, GPI-2138, is 38 times more potent in binding to the cocaine binding
site than in inhibiting dopamine uptake, compared to cocaine. In animal
experiments, GPI-2138 blocked certain behavioral effects produced by cocaine,
including hyperlocomotion and cocaine self-administration. The Company has also
entered into a CRADA with the NIDA to identify and develop cocaine antagonists.
In addition to cocaine addiction, other forms of addiction, including alcohol
and heroin addiction, may result from facilitation of dopaminergic
neurotransmission in certain areas of the brain. As a result, Guilford
scientists are currently investigating whether GPI-2138, and related compounds,
may block the addictive properties of alcohol and heroin in laboratory animals.
The Company is currently investigating whether this approach can be applied to
other forms of addictive behavior, such as nicotine addiction.
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MANUFACTURING AND RAW MATERIALS
The Company manufactures GLIADEL using a proprietary process at its 12,500
square foot manufacturing facility in Baltimore, Maryland. Approximately 5,500
square feet of packaging, quality control, laboratory, and warehouse space were
added in 1996 to support the commercial launch of GLIADEL. The facility has been
in operation since April 1995 and was inspected by the FDA in October 1995. The
Company's current facilities are designed to enable the Company to produce up to
8,000 GLIADEL treatments annually. During 1997 and 1998, the Company expects to
make additional capital expenditures of approximately $3.7 million to expand the
Company's GLIADEL manufacturing plant capacity from 8,000 to 30,000 treatments
annually. The Company expects to use the capital available under its loan
agreement with RPR to fund the expansion. See "Risk Factors -- Limited
Manufacturing Capabilities."
The Company believes that the various materials used in GLIADEL are readily
available and will continue to be available at reasonable prices. Nevertheless,
the active chemotherapeutic ingredient in GLIADEL, the generic drug BCNU, is
currently being supplied by a single vendor. While the Company has entered into
an agreement for process development of BCNU with a potential second source of
BCNU, any interruption in the ability of the current supplier to deliver this
ingredient could prevent the Company from delivering the product on a timely
basis. The Company depends upon the availability of certain single-source raw
materials in its formulations, but is seeking alternate suppliers for most of
these raw materials as well. There can be no assurance that such sources can be
secured successfully on terms acceptable to the Company, or at all. Failure of
any supplier to provide sufficient quantities of raw material in accordance with
GMP could cause delays in clinical trials and commercialization of products. See
"Risk Factors -- Dependence on Suppliers."
In October 1995 and July 1996, the Company entered into development and
contract manufacturing agreements with Nordion International Inc., a leading
supplier of radiolabeled products based in Canada, and its European subsidiary,
Nordion Europe S.A. (collectively, "Nordion"). Pursuant to these agreements, the
Company synthesizes the precursor of DOPASCAN and supplies it to Nordion, which
then radiolabels DOPASCAN with Iodine-123 for distribution to hospitals involved
in the clinical trials in North America and Europe, respectively. During the
term of these agreements, Nordion has agreed not to perform development,
manufacture or supply services for any competing Iodine-123 radiolabeled imaging
diagnostic for Parkinson's disease based on dopamine transporter binding.
Nordion's obligations under the October 1995 agreement terminated as of November
30, 1996 and the obligations under the July 1996 agreement will terminate upon
the earliest of delivery of all anticipated products, an uncured material breach
of the agreement or July 31, 1997. The Company has agreed to terms regarding a
new agreement respecting the manufacture and supply of DOPASCAN to support the
Company's planned Phase III clinical trials.
GOVERNMENT REGULATION AND PRODUCT TESTING
All domestic prescription pharmaceutical manufacturers are subject to
extensive regulation by the federal government, principally the FDA and, to a
lesser extent, by state and local and perhaps foreign governments if products
are marketed abroad. Biologics and controlled drug products, such as vaccines
and narcotics, and radiolabeled drugs, are regulated more stringently than are
other drugs. The Federal Food, Drug, and Cosmetic Act and other federal statutes
and regulations govern or influence the development, testing, manufacture,
labeling, storage, approval, advertising, promotion, sale and distribution of
prescription pharmaceutical products. Pharmaceutical manufacturers are also
subject to certain recordkeeping and reporting requirements. Noncompliance with
applicable requirements can result in warning letters, fines, recall or seizure
of products, total or partial suspension of production and/or distribution,
refusal of the government to enter into supply contracts or to approve marketing
applications and criminal prosecution.
Upon FDA approval, a drug may only be marketed for the approved indications
in the approved dosage forms and at the approved dosages. The FDA also may
require post-marketing testing and surveillance to monitor the record of the
approved product. Manufacturers of approved drug products are subject to ongoing
compliance with FDA regulations. For example, the FDA mandates that drugs be
manufactured in conformity with GMP regulations. In complying with the GMP
regulations, manufacturers must continue to expend time,
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money and effort in production, recordkeeping and quality control to ensure that
the product meets applicable specifications and other requirements. The FDA
periodically inspects drug manufacturing facilities to ensure compliance with
applicable GMP requirements. Failure to comply subjects the manufacturer to
possible FDA action, such as suspension of manufacturing, seizure of the product
or voluntary recall of a product. Adverse experiences with the product must be
reported to the FDA. The FDA also may require the submission of any lot of the
product for inspection and may restrict the release of any lot that does not
comply with FDA regulations, or may otherwise order the suspension of
manufacture, recall or seizure. Product approvals may be withdrawn if compliance
with regulatory requirements is not maintained or if problems concerning safety
or efficacy of the product occur following approval.
FULL CLINICAL TESTING REQUIREMENTS
The steps required before a newly marketed drug may be commercially
distributed in the United States include: (a) conducting appropriate preclinical
laboratory and animal tests; (b) submitting to the FDA an application for an
IND, which must become effective before clinical trials may commence; (c)
conducting well-controlled human clinical trials that establish the safety and
efficacy of the drug product; (d) filing with the FDA a NDA for non-biological
drugs; and (e) obtaining FDA approval of the NDA prior to any commercial sale or
shipment of the non-biological drug. In addition to obtaining FDA approval for
each indication to be treated with each product, each domestic drug
manufacturing establishment must register with the FDA, list its drug products
with the FDA, comply with GMP requirements and be subject to inspection by the
FDA. Foreign manufacturing establishments distributing drugs in the United
States also must comply with GMP requirements, list their products, and are
subject to periodic inspection by FDA or by local authorities under agreement
with FDA.
With respect to a drug product with an active ingredient not previously
approved by the FDA, the manufacturer must usually submit a full NDA, including
complete reports of preclinical, clinical and laboratory studies, to prove that
the product is safe and effective. A full NDA may also need to be submitted for
a drug product with a previously approved active ingredient if studies are
required to demonstrate safety and efficacy, such as when the drug will be used
to treat an indication for which the drug was not previously approved, or where
the method of drug delivery is changed. In addition, the manufacturer of an
approved drug may be required to submit for FDA's review and approval a
supplemental NDA, including reports of appropriate clinical testing, prior to
marketing the drug with additional indications or making other significant
changes to the product or its manufacture. A manufacturer intending to conduct
clinical trials ordinarily will be required first to submit an IND to the FDA
containing information relating to previously conducted preclinical studies.
Preclinical testing includes formulation development, laboratory evaluation
of product chemistry and animal studies to assess the potential safety and
efficacy of the product formulation. Preclinical tests usually must be conducted
in accordance with the FDA regulations concerning Good Laboratory Practices
("GLPs"). The results of the preclinical tests are submitted to the FDA as part
of the IND and are reviewed by the FDA prior to authorizing the sponsor to
conduct clinical trials in human subjects. Unless the FDA objects to an IND, the
IND will become effective 30 days following its receipt by the FDA. There is no
certainty that submission of an IND will result in FDA authorization to commence
clinical trials or that authorization of one phase of a clinical trial will
result in authorization of other phases or that the performance of any clinical
trials will result in FDA approval.
Clinical trials for new drugs typically are conducted in three phases and
are subject to detailed protocols. Clinical trials involve the administration of
the investigational drug product to human subjects. Each protocol indicating how
the clinical trial will be conducted must be submitted for review to the FDA as
part of the IND. The FDA's review of a study protocol does not necessarily mean
that, if the study is successful, it will constitute proof of efficacy or
safety. Further, each clinical study must be conducted under the auspices of an
independent institutional review board ("IRB") established pursuant to FDA
regulations. The IRB considers, among other factors, ethical concerns and
informed consent requirements. The FDA or the IRB may require changes in a
protocol both prior to and after the commencement of a trial. There is no
assurance that the IRB or the FDA will permit a study to go forward or, once
started, to be completed. Clinical trials may be placed
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on hold at any time for a variety of reasons, particularly if safety concerns
arise, or regulatory requirements are not met.
The three phases of clinical trials are generally conducted sequentially,
but they may overlap. In Phase I, the initial introduction of the drug into
humans, the drug is tested for safety, side effects, dosage tolerance,
metabolism and clinical pharmacology. Phase II involves controlled tests in a
larger but still limited patient population to determine the efficacy of the
drug for specific indications, to determine optimal dosage and to identify
possible side effects and safety risks. Phase II testing for an indication
typically takes at least from one and one-half to two and one-half years to
complete. If preliminary evidence suggesting effectiveness has been obtained
during Phase II evaluations, expanded Phase III trials are undertaken to gather
additional information about effectiveness and safety that is needed to evaluate
the overall benefit-risk relationship of the drug and to provide an adequate
basis for physician labeling. Phase III studies for a specific indication
generally take at least from two and one-half to five years to complete. There
can be no assurance that Phase I, Phase II or Phase III testing will be
completed successfully within any specified time period, if at all, with respect
to any of the Company's product candidates.
Reports of results of the preclinical studies and clinical trials for
non-biological drugs are submitted to the FDA in the form of an NDA for approval
of marketing and commercial shipment. User fee legislation enacted in 1992 now
requires the submission of $240,000 to cover the costs of FDA review of an NDA.
The NDA typically includes information pertaining to the preparation of drug
substances, analytical methods, drug product formulation, details on the
manufacture of finished product as well as proposed product packaging and
labeling. Submission of an NDA does not assure FDA approval for marketing. The
application review process generally takes two to three years to complete,
although reviews of treatments for cancer and other serious or life-threatening
diseases may be accelerated. The approval process may take substantially longer
if, among other things, the FDA has questions or concerns about the safety
and/or efficacy of a product. In general, the FDA requires at least two properly
conducted, adequate and well-controlled clinical studies demonstrating efficacy
with sufficient levels of statistical assurance. The FDA also may request
long-term toxicity studies or other studies relating to product safety or
efficacy. For example, the FDA may require additional clinical tests following
NDA approval to confirm product safety and efficacy (Phase IV clinical tests).
Notwithstanding the submission of such data, the FDA ultimately may decide that
the application does not satisfy its regulatory criteria for approval.
Phase III or other clinical studies may be conducted after, rather than
before, FDA approval under certain circumstances. For example, the FDA may
determine under its expedited or accelerated approval regulations that earlier
studies may establish an adequate basis for drug product approval, provided that
the sponsor agrees to conduct additional studies after approval to verify safety
and effectiveness. Treatment with an experimental drug of patients not in
clinical trials may also be allowed under a Treatment IND before general
marketing begins and pending FDA approval. Charging for an investigational drug
also may be allowed under a Treatment IND to recover certain costs of
development if various requirements are met. These cost-recovery, treatment and
expedited or accelerated approval regulations are limited, for example, to drug
products intended to treat AIDS or other serious or life-threatening diseases
and that provide meaningful therapeutic benefit to patients over existing
treatments or that are for diseases for which no satisfactory alternative
therapy exists. No assurances exist that the Company's product candidates will
qualify for cost-recovery, expedited or accelerated approvals or for treatment
use.
The full NDA process for newly marketed non-biological drugs takes a number
of years and involves the expenditure of substantial resources. There can be no
assurance that any approval will be granted on a timely basis, or at all or that
the Company will have sufficient resources to carry such potential products
through the regulatory approval process.
ABBREVIATED TESTING REQUIREMENTS
The Drug Price Competition and Patent Term Restoration Act of 1984
("DPC-PTR Act") established abbreviated procedures for obtaining FDA approval
for many non-biological drugs which are off-patent and whose marketing
exclusivity has expired. Applicability of the DPC-PTR Act means that a full NDA
is not
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required for approval of a competitive product. Abbreviated requirements are
applicable to drugs which are, for example, either bioequivalent to brand name
drugs, or otherwise similar to brand name drugs, such that all the safety and
efficacy studies previously done on the innovator product need not be repeated
for approval. Changes in approved drug products, such as in the delivery system,
dosage form, or strength, can be the subject of abbreviated application
requirements. There can be no assurance that abbreviated applications will be
available or suitable for the Company's non-biological drug products or that FDA
approval of such applications can be obtained.
A five year period of market exclusivity is provided for newly marketed
active ingredients of drug products not previously approved and a three-year
period for certain changes in approved drug products that require for approval
the submission of safety and efficacy information (other than bioequivalence
studies). A period of five years is available for new chemical entities not
previously approved by FDA. A period of three years is available for changes in
approved products, such as in delivery systems of previously approved products.
Both periods of marketing exclusivity mean that abbreviated applications, which
generally rely to some degree on approvals or on some data submitted by previous
applicants for comparable innovator drug products, cannot be approved during the
period of exclusivity. The market exclusivity provisions of the DPC-PTR Act bar
only the marketing of competitive products that are the subject of abbreviated
applications, not products that are the subject of full NDAs. The DPC-PTR Act
also may provide a maximum time of five years to be restored to the life of any
one patent for the period it takes to obtain FDA approval of a drug product,
including biological drugs. No assurances exist that the exclusivity or patent
restoration benefits of the DPC-PTR Act will apply to any product candidates of
the Company.
OTHER REGULATION
Products marketed outside the United States which are manufactured in the
United States are subject to certain FDA regulations, as well as regulation by
the country in which the products are to be sold. The Company also would be
subject to foreign regulatory requirements governing clinical trials and
pharmaceutical sales, if products are marketed abroad. Whether or not FDA
approval has been obtained, approval of a product by the comparable regulatory
authorities of foreign countries must usually be obtained prior to the
commencement of marketing of the product in those countries. The approval
process varies from country to country and the time required may be longer or
shorter than that required for FDA approval.
The Company also is governed by other federal, state and local laws of
general applicability. These laws include, but are not limited to, those
regulating working conditions enforced by the Occupational Safety and Health
Administration and regulating environmental hazards under such statutes as the
Toxic Substances Control Act, the Resource Conservation and Recovery Act and
other environmental laws enforced by the United States Environmental Protection
Agency ("USEPA"). The DEA regulates controlled substances, such as narcotics.
Establishments handling controlled substances must, for example, be licensed and
inspected by the DEA, and may be subject to export, import, security and
production quota requirements. Radiolabeled products, including drugs, are also
subject to regulation by the Department of Transportation and to state and
federal licensing requirements. Various states often have comparable health and
environmental laws, such as those governing the use and disposal of controlled
and radiolabeled products.
While the Company is not actively involved in product areas involving
biotechnology and has no current plans to develop products utilizing modern
biotechnology, if the Company were to move in that direction, it would
potentially be subject to extensive regulation. The USEPA, the FDA and other
federal and state regulatory bodies have developed or are in the process of
developing specific requirements concerning products of biotechnology that may
affect research and development programs and product lines. The Company is
unable to predict whether any governmental agency will adopt requirements,
including regulations, which would have a material and adverse effect on any
future product applications involving biotechnology.
PATENTS AND PROPRIETARY TECHNOLOGY
Guilford believes that patent and trade secret protection is crucial to its
business and that its future will depend in part on its ability to obtain
patents, maintain trade secret protection and operate without infringing
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the proprietary rights of others. As of December 31, 1996, the Company owned or
had licensed rights to 49 United States and 106 foreign patents and 32 United
States and 100 foreign patent applications with claims relating to its
biodegradable polymer, imaging, neurotrophic, neuroprotective and cocaine
addiction therapeutics programs.
The role, validity and value of patents, licenses and proprietary
technology in the business of the Company are subject to various uncertainties
and contingencies. The Company's success will depend in part on its ability to
obtain, maintain and enforce patent protection for its products and processes or
license rights to patents, maintain trade secret protection and operate without
infringing upon the proprietary rights of others. The degree of patent
protection afforded to pharmaceutical and biotechnological inventions is
uncertain, and a number of Guilford's product candidates are subject to this
uncertainty. The Company is aware of a company which has asserted in a public
filing that it has patent applications claiming the use of certain of its
immunosuppressive compounds and multidrug resistance compounds for nerve growth
applications, as well as a patent and patent applications relating to compounds
which it claims are useful in nerve growth application. No assurance can be
given as to the ability of the Company's patents and patent applications to
adequately protect the Company's neurotrophic product candidates, including
GPI-1046, or that the Company's neurotrophic product candidates will not
infringe or be dominated by this company's patent or patent applications, if
issued. There can be no assurance that any patent applications filed by, or
assigned or licensed to, the Company will be granted, that the Company will
develop additional products or processes that are patentable, or that any
patents issued to, or licensed by, the Company will provide the Company with any
competitive advantages or adequate protection for its products. In addition,
there can be no assurance that any existing or future patents or intellectual
property issued to, or licensed by, the Company will not subsequently be
challenged, invalidated or circumvented by others.
It is Guilford's policy to control the disclosure and use of Guilford's
know-how and trade secrets under confidentiality agreements with employees,
consultants and other parties. There can be no assurance, however, that its
confidentiality agreements will be honored, that others will not independently
develop equivalent or competing technology, that disputes will not arise
concerning the ownership of intellectual property or the applicability of
confidentiality obligations, or that disclosure of Guilford's trade secrets will
not occur. To the extent that consultants or other research collaborators use
intellectual property owned by others in their work with the Company, disputes
may also arise as to the rights to related or resulting intellectual property.
Guilford supports and collaborates in research conducted in universities
and in governmental research organizations. There can be no assurance that the
Company will have or be able to acquire exclusive rights to the inventions or
technical information derived from such collaborations or that disputes will not
arise as to rights in derivative or related research programs conducted by the
Company. In addition, in the event of a contractual breach by the Company,
certain of the Company's collaborative research contracts provide for transfer
of technology (including any patents or patent applications) to the contract
sponsors.
If the Company is required to defend against charges of infringement of
patent or proprietary rights of third parties or to protect its own patent or
proprietary rights against third parties, the Company may incur substantial
costs and could lose rights to develop or market certain products or be required
to pay monetary damages or royalties to license proprietary rights from third
parties. In response to actual or threatened litigation, the Company may seek
licenses from third parties or attempt to redesign its products or processes to
avoid infringement; however, there can be no assurance that the Company will be
able to obtain licenses on acceptable terms or at all or redesign its products
or processes. In addition to being a party to patent infringement litigation,
the Company could be required to participate in patent interference proceedings
declared by the United States Patent and Trademark Office, which would be
expensive and time-consuming, even if the Company were to prevail in such a
proceeding. The Company may also be forced to initiate legal proceedings to
protect its patent position or other proprietary rights. These proceedings
typically are costly, protracted, and offer no assurance of success.
TECHNOLOGY LICENSING AGREEMENTS
In March 1994, the Company entered into an agreement with Scios Inc.
("Scios") (the "GLIADEL Agreement") pursuant to which the Company licensed from
Scios exclusive worldwide rights to 35 United
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States patents and patent applications as well as 208 corresponding
international patents and patent applications for polyanhydride biodegradable
polymer technology for use in the field of tumors of the central nervous system
and cerebral edema. GLIADEL is covered by a United States patent which expires
in 2010 and certain related international patents and patent applications. In
April 1994, Scios assigned all of its rights and obligations under the GLIADEL
Agreement to MIT. Under the terms of the GLIADEL Agreement, Guilford is
obligated to pay a royalty on all net sales of products incorporating such
technology as well as a percentage of all royalties received by Guilford from
sublicensees and certain advance and minimum annual royalty payments. In 1996,
Guilford paid $1.1 million in royalty payments to MIT related to payments made
to the Company from RPR and Orion Farmos related to GLIADEL. Guilford has
exclusive worldwide rights to the technology for brain cancer therapeutics,
subject to certain conditions, including a requirement to perform appropriate
preclinical tests and file an IND with the FDA within 24 months of the
identification of a drug-polymer product having greater efficacy than GLIADEL.
In addition, Guilford is obligated to spend a minimum dollar amount in
developing products resulting from the technology through 1997 and to meet
certain development milestones. Although the Company believes that it can comply
with such obligations, failure of the Company to perform these obligations could
result in the Company losing its right to the new polymer-based product.
In June 1996, the Company entered into a license agreement with MIT and
Johns Hopkins respecting a patent application covering certain biodegradable
polymers for use in connection with the controlled local delivery of
chemotherapeutic agents for treating solid tumors. Under this agreement, the
Company is obligated to make certain annual and milestone payments to MIT and to
pay royalties based on any sales of products incorporating the technology
licensed to Guilford. Furthermore, under the terms of the agreement, the Company
has committed to spend minimum amounts to develop the technology and to meet
certain development milestones. Although the Company believes that it can comply
with such obligations, failure of the Company to perform these obligations could
result in the Company losing its rights to such technology.
In July 1996, the Company entered into a license agreement with Johns
Hopkins for two United States patents respecting certain polyphosphoesters
("PPE") polymers developed at Johns Hopkins. This agreement, among other things,
requires Guilford to pay certain processing, maintenance and/or up-front fees,
milestone payments and royalties, a portion of proceeds from sublicenses, and
fees and costs related to patent prosecution and maintenance and to spend
minimum amounts for and meet deadlines regarding development of this technology.
In the event of termination of these licenses, the Company could lose its rights
to use of the licensed technology. The Company has also entered into a sponsored
research agreement with Johns Hopkins with respect to this PPE technology and
has a right of first negotiation regarding inventions that result from this
work.
The Company obtained exclusive worldwide rights to DOPASCAN pursuant to a
March 1994 license agreement (the "RTI Agreement") with Research Triangle
Institute ("RTI"), which grants Guilford rights to various United States and
international patents and patent applications relating to binding ligands for
certain receptors in the brain which are or may be useful as dopamine neuron
imaging agents. DOPASCAN and certain related precursors and analogues are
covered by United States patents which start expiring in 2009, as well as
certain related international patents and patent applications. Under the RTI
Agreement, the Company reimbursed RTI for certain past patent-related expenses
and agreed to make annual payments to RTI to support mutually agreed upon
research to be conducted at RTI through March 1999. In addition, the Company is
obligated to pay RTI a royalty on gross revenues to Guilford from products
derived from the licensed technology and from sublicensee proceeds and to make
certain minimum royalty payments following the first commercial sale of such
products. In January 1997, the Company paid RTI $32,000 as a result of a payment
received from DRL, the Company's DOPASCAN partner in Japan. Guilford must use
commercially reasonable efforts to develop products related to the licensed
technology and to meet certain performance milestones. Failure of the Company to
perform its obligations under the RTI Agreement in the future could result in
termination of the license.
Guilford and Johns Hopkins are parties to two exclusive license agreements
covering the following technologies: (i) neurotrophic use of neuroimmunophilin
ligands, which was jointly discovered by scientists at, and is jointly owned by,
Johns Hopkins and Guilford; and (ii) inhibition of NOS and PARS for
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neuroprotective uses. These agreements, among other things, require Guilford to
pay certain processing, maintenance, and/or up-front fees, milestone payments
and royalties, a portion of proceeds from sublicenses, and fees and costs
related to patent prosecution and maintenance and to spend minimum amounts for
and meet deadlines regarding development of the technologies. In the event of
termination of these licenses, the Company could lose its rights to use of the
licensed technology (or in the case of joint inventions, exclusive use of such
technology).
Gell, through which the Company conducts its cocaine addiction therapeutics
program, was initially formed in February 1995 as a joint venture owned 80% by
Abell and 20% by Guilford. The $2,500,000 in capital invested by Abell in Gell
has funded the cocaine addiction therapeutics program since inception. On March
5, 1997, Abell exercised its right to put its interest in Gell to Guilford for
750,000 shares of Guilford Common Stock. Thereafter Gell became a wholly-owned
subsidiary of the Company.
United States Government Rights
Aspects of the technology licensed under the Company's license agreements
may be subject to certain rights held by the United States Government (the
"Government Rights"). These rights include a non-exclusive, royalty-free
worldwide license to practice or have practiced such inventions for any
governmental purpose. In addition, the United States government has the right to
grant licenses which may be exclusive under any of such inventions to a
third-party if it determines that: (i) adequate steps have not been taken to
commercialize such inventions; (ii) such action is necessary to meet public
health or safety needs; or (iii) such action is necessary to meet requirements
for public use under federal regulations. The government also has the right to
take title to a subject invention if there is failure to disclose the invention
and elect title within specified time limits. In addition, the government may
acquire title in any country in which a patent application is not filed within
specified time limits. Federal law requires any licensor of an invention that
was partially funded by the federal government to obtain a covenant from any
exclusive licensee to manufacture products using the invention substantially in
the United States. Further, the Government Rights include the right to use and
disclose without limitation technical data relating to licensed technology that
was developed in whole or in part at government expense. Provisions recognizing
these Government Rights are contained in the Company's principal technology
license agreements.
SALES, MARKETING AND DISTRIBUTION
In general, the Company's strategy is to seek to establish strategic
alliances with larger pharmaceutical companies to develop and promote products
that require extensive development, sales and marketing resources. Within the
United States, the Company may seek to retain co-promotion rights with respect
to some or all compounds or indications in any such strategic alliances, or the
Company may elect to market and distribute its products directly where the
commercial prospects so warrant.
In June 1996, the Company entered into a marketing, sales and distribution
rights agreement and other related agreements with RPR granting RPR worldwide
(excluding Scandinavia) marketing, sales, promotion and distribution rights for
GLIADEL. Upon execution of these agreements, the Company received $7.5 million
for 281,531 shares of Common Stock. Furthermore, in addition to an aggregate of
$27.5 million in rights payments made by RPR upon execution of the agreements in
June 1996 and FDA clearance of the GLIADEL NDA in September 1996, the agreements
with RPR provide for up to an additional $40 million in payments in the event
that certain regulatory and other milestones are achieved, although there can be
no assurance that any or all of such milestones will be attained and certain of
these payments are contingent on international regulatory filings and
clearances, the timing and extent of which are largely within the control of
RPR. Moreover, RPR may, under certain circumstances, fund up to $17 million for
the development of a higher dose forms of GLIADEL being developed by the Company
and for certain additional clinical studies related to GLIADEL. Finally, under
these agreements, the Company has the right under certain circumstances to
borrow up to an aggregate of $7.5 million to expand the Company's GLIADEL
manufacturing and related facilities. In addition to the payments outlined
above, the Company will act as the exclusive manufacturer of GLIADEL and will
receive transfer price payments and royalties based on any "net sales" (as
defined in the agreements with RPR) of GLIADEL. RPR's exclusive rights terminate
in a particular country upon the later of the expiration of the last to expire
of certain patents applicable in that country or the
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last commercial sale of GLIADEL in that country. Under the Company's agreements
with RPR, RPR has an exclusive six-month period following development of new
polymer technology by the Company to make an offer to license such technology
for oncology applications.
In October 1995, the Company entered into an agreement appointing Orion
Farmos distributor for GLIADEL in Scandinavia, and in December 1995 the Company
entered into an agreement with DRL for the marketing, sale and distribution of
DOPASCAN in Japan, Korea and Taiwan.
COMPETITION
The Company is involved in evolving technological fields in which
developments are expected to continue at a rapid pace. Guilford's success
depends upon maintaining its competitive position in the research, development
and commercialization of products and technologies in its areas of focus.
Competition from pharmaceutical, chemical and biotechnology companies,
universities and research institutes is intense and expected to increase. Many
of these competitors have substantially greater research and development
capabilities, experience and manufacturing, marketing, financial and managerial
resources and represent significant competition for the Company. Acquisitions of
competing companies by large pharmaceutical or other companies could enhance the
financial, marketing and other resources available to these competitors. These
competitors may develop products which are superior to those under development
by the Company.
The Company is aware of several competing approaches under development for
the treatment of malignant glioma including using radioactive seeds for
interstitial radiotherapy, increasing the permeability of the blood-brain
barrier to chemotherapeutic agents, sensitizing cancer cells to chemotherapeutic
agents using gene therapy and developing chemotherapeutics directed to specific
receptors in brain tumors. To the Company's knowledge, none of these approaches
has resulted in compounds studied in randomized, controlled trials which have
shown them to be superior to conventional therapy.
The Company believes that two other companies are clinically evaluating
imaging agents for dopamine neurons. In addition, a variety of radiolabeled
compounds for use with Positron Emission Tomography ("PET") scanners have been
used to image dopamine neurons successfully in patients with Parkinson's
disease. PET scanning is currently only available in a limited number of
hospitals in the United States and Europe.
A number of companies have shown interest in trying to develop neurotrophic
agents to promote nerve growth and repair in neurodegenerative disorders and
traumatic central nervous system injuries. However much of this activity has
focused on naturally occurring growth factors. Such large molecules generally
cannot cross the blood-brain barrier and thus present problems in administration
and delivery. One company has announced that certain of its neuroimmunophilin
ligands showed positive results in stimulating nerve growth in an animal model
of nerve crush, and has disclosed that it has made patent filings covering
compounds and uses in connection with nerve growth promotion. In addition,
another company announced that IGF-1 showed positive results in clinical trials
of a peripheral neurodegenerative disorder.
There is intense competition to develop an effective and safe
neuroprotective drug or biological agent. Calcium channel antagonists, calpain
inhibitors, adenosine receptor antagonists, free radical scavengers, superoxide
dismutase inducers, proteoloytic enzyme inhibitors, phospholipase inhibitors and
a variety of other agents are under active development by others. Glutamate or
NMDA receptor antagonists are under development by several other companies.
In the field of cocaine addiction, most of the investigated compounds to
date have been studied by academic and government groups. Further, much of this
work has been with known agents, such as carbamazepine, that are commercially
available for other indications. Guilford is aware of another company that is
investigating the use of butylcholinesterase as a treatment for acute cocaine
overdose. The Company is aware of one company that is investigating an
immunological approach in an attempt to develop a cocaine vaccine. The Company
is not aware of other commercial research programs targeting specific cocaine
antagonists, which do not interfere with normal dopamine neuron function.
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PRODUCT LIABILITY AND INSURANCE
Product liability risk is inherent in the testing, manufacture, marketing
and sale of the Company's product candidates, and there can be no assurance that
the Company will be able to avoid significant product liability exposure. While
the Company currently maintains $10,000,000 of product liability insurance
covering clinical trials and produced sales, there can be no assurance that such
or any future insurance coverage obtained by the Company will be adequate or
that claims will be covered by the Company's insurance. The Company's insurance
policies provide coverage on a claims-made basis and are subject to annual
renewal. Product liability insurance varies in cost, can be difficult to obtain
and may not be available to the Company in the future on acceptable terms or at
all.
EMPLOYEES
At December 31, 1996, the Company employed 140 individuals. By February 28,
1997 that number was 155. Of these, 130 were employed in the area of research
and product development including manufacturing and quality control of GLIADEL.
The remaining 25 employees performed general and administrative functions,
including executive, finance and administration, legal and business development.
To date, the Company has experienced no work stoppages related to labor issues
and believes its relations with its employees are good.
All employees are required to enter into a confidentiality agreement with
the Company. Hiring and retaining qualified personnel are important factors for
the Company's future success. The Company is likely to continue to add personnel
particularly in the areas of research, clinical research and operations,
including manufacturing. Intense competition exists for these qualified
personnel from other biotechnology and biopharmaceutical companies, academic,
research and governmental organizations. There can be no assurance that the
Company will be able to continue to hire qualified personnel and, if hired, that
the Company will be able to retain these individuals.
SCIENTIFIC ADVISORY BOARD
Guilford's Scientific Advisory Board consists of individuals with
recognized expertise in fields related to Guilford's research and development
programs. The Scientific Advisory Board meets with the Company at least twice a
year to discuss research priorities and new developments in neuroscience and to
consult with and meet informally with the Company on an as-needed basis.
The following persons are members of Guilford's Scientific Advisory Board:
SOLOMON H. SNYDER, M.D. has been a Director of the Company and Chairman of
the Scientific Advisory Board since the Company's inception in July 1993. Dr.
Snyder received his M.D. in 1962 from Georgetown Medical School, trained as a
Research Associate with Julius Axelrod at the National Institute of Mental
Health and completed his Psychiatry Residency at Johns Hopkins Hospital. He is
presently Director of the Department of Neuroscience at Johns Hopkins Medical
School and Distinguished Service Professor of Neuroscience, Pharmacology and
Molecular Sciences, and Psychiatry. Dr. Snyder has received a number of awards
including the Albert Lasker Award in Basic Biomedical Research, the Wolf Prize
and the Bower Award. He is a member of the United States National Academy of
Sciences, the Institute of Medicine and the American Academy of Arts and
Sciences. Dr. Snyder is a director of Scios.
Dr. Snyder has provided consulting services to the Company under consulting
agreements since August 1993. In September 1995, the Company and Dr. Snyder
entered into a new consulting agreement pursuant to which Dr. Snyder will
provide consulting services to the Company through August 1998, unless the
agreement is further extended or earlier terminated. Under the agreement, Dr.
Snyder performs consulting and advisory services as requested by the Company for
a minimum of 24 days and a maximum of 38 days per year, subject to adjustment
under certain circumstances. With certain limited exceptions, Dr. Snyder has
agreed not to engage in any business activity with or provide any consulting or
related services to any organization which directly competes with the Company
during the term of the agreement and for a period of one year thereafter.
JOSEPH COYLE, M.D. is Chairman of the consolidated Department of Psychiatry
and Ebens Draper Professor of Psychiatry and Neuroscience at the Harvard Medical
School. He obtained his M.D. from Johns
I-16
18
Hopkins in 1969 and completed his Psychiatry Residency at Johns Hopkins. His
research involves clinical as well as basic studies of neurotransmitter systems
and drug actions in the brain. He has received numerous honors, including the
McAlpin Award of the National Mental Health Association, the Gold Medal Award of
the Society for Biological Psychiatry and election to the Institute of Medicine
of the National Academy of Sciences.
SAMUEL H. BARONDES, M.D. is the Jeanne and Sanford Robertson Professor of
Neurobiology and Psychiatry and Director of the Center for Neurobiology and
Psychiatry at the University of California, San Francisco. He received his M.D.
from Columbia University in 1958, trained in internal medicine at the Peter Bent
Brigham Hospital, in molecular biology at the National Institutes of Health and
in psychiatry at the McLean and Massachusetts General Hospitals. Dr. Barondes
has received a number of awards including the Royer Award and the Stillmark
Medal, is a member of the Institute of Medicine, and also serves as President of
the McKnight Endowment Fund for Neuroscience.
ROBERT LANGER, Ph.D. is presently Germeshausen Professor in the Department
of Chemical Engineering at MIT. Dr. Langer obtained his Ph.D. from MIT in 1974
and since then has been a member of the MIT faculty. Dr. Langer is a leading
authority on polymer drug delivery systems. He has received numerous awards
including election to the United States National Academy of Sciences, the
National Academy of Engineering and the Institute of Medicine.
IRA SHOULSON, M.D. obtained his M.D. from the University of Rochester in
1971 where he completed internal medicine and neurology residencies. He is
presently Louis C. Lasagna Professor of Experimental Therapeutics and Professor
of Neurology, Pharmacology and Medicine at the University of Rochester. He is
the recipient of numerous honors including the Modern Medicine Award for
Distinguished Achievement. Dr. Shoulson is a national leader in the design and
execution of major clinical trials evaluating drug actions in Parkinson's
disease, Huntington's disease and other movement disorders. Dr. Shoulson is also
a member of the Peripheral and Central Nervous System Advisory Committee of the
FDA.
ANNE YOUNG, M.D., Ph.D. obtained her M.D. and Ph.D. degrees from Johns
Hopkins Medical School in 1973 and 1974, respectively, and completed her
Neurology Residency at the University of California in San Francisco. She served
on the faculty of the Neurology Department at the University of Michigan and
since 1991 has been Julieanne Dorn Professor of Neurology at the Harvard Medical
School and Chief of the Neurology Service at the Massachusetts General Hospital.
She has received numerous honors including election to the American Academy of
Arts and Sciences. Her laboratory research focuses on the actions of excitatory
amino acids in the brain, while her clinical research deals with movement
disorders.
ITEM 2. PROPERTIES.
FACILITIES
In August 1994, the Company entered into a master lease for an
approximately 83,000 square foot building in Baltimore, Maryland. The Company
currently occupies 23,000 square feet for office space, 12,500 square feet for
manufacturing space, and 35,000 square feet of research and development
laboratories. The remaining 12,500 square feet is available for additional
laboratories or manufacturing facilities. The master lease expires in July 2005.
Two five-year renewal options are available to the Company or the Company may
exercise a purchase option any time after the ninth year for the then current
fair market value.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
I-17
19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is listed on the Nasdaq National Market under
the symbol "GLFD." The following table sets forth the range of high and low bid
prices for the Common Stock as reported on the Nasdaq National Market for the
periods indicated below.
HIGH LOW
------ -----
1995
- ----
Fourth Quarter............................................................... $10.67 $7.33
Third Quarter................................................................ 9.17 4.08
Second Quarter............................................................... 4.08 3.17
First Quarter................................................................ 4.17 2.83
1996
- ----
Fourth Quarter............................................................... 22.25 16.00
Third Quarter................................................................ 19.67 11.33
Second Quarter............................................................... 23.33 13.33
First Quarter................................................................ 16.17 10.17
1997
- ----
First Quarter (through March 6, 1997)........................................ 29.00 21.25
As of February 28, 1997, there were approximately 144 holders of record of
the Common Stock.
The Company has never declared or paid any cash dividends and does not
intend to do so for the foreseeable future. The Company currently intends to
retain all earnings, if any, to finance the development of its business. Under
the Company's loan agreements with Signet Bank, during the term of the loans,
the Company may not declare any cash dividends on its Common Stock without the
prior written consent of Signet Bank and the Maryland Industrial Development
Financing Authority.
II-1
20
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following selected consolidated financial data with respect to the
Company for the period from inception on July 14, 1993 through December 31,
1993 and for each of the years in the three year period ended December 31, 1996
have been derived from the Company's consolidated financial statements which
have been audited by KPMG Peat Marwick LLP, the Company's independent auditors.
The Company's consolidated financial statements as of December 31, 1995 and
1996, and for the years ended December 31, 1994, December 31, 1995, and
December 31, 1996, including the Notes thereto, are included elsewhere in this
Prospectus. The information set forth below should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
JULY 14, 1993
(DATE OF INCEPTION) YEARS ENDED DECEMBER 31,
TO DECEMBER 31, ---------------------------------------------------------------
1993 1994 1995 1996
------------------- ------------------- ------------------- -------------------
STATEMENT OF OPERATIONS DATA:
Total revenues............... $ -- $ -- $ 586 $28,020
Expenses:
Research and
development........... 1,061 2,869 9,688 18,761
General and
administrative........ 367 2,369 4,367 6,736
Compensation --
warrants.............. -- 991 -- --
---------- ---------- --------------- ----------
Total operating
expenses......... 1,428 6,229 14,055 25,497
---------- ---------- --------------- ----------
Income (loss) from
operations............ (1,428) (6,229) (13,469) 2,523
Other income (expenses),
net................... 15 332 832 2,550
---------- ---------- --------------- ----------
Net income
(loss)........... $(1,413) $(5,897) $ (12,637) $ 5,073
=========== =========== ============== ==============
Primary earnings (loss) per
common share (1)........... $ (0.50) $ (1.36) $ (1.70) $ 0.35
=========== =========== ============== ==============
Weighted average common and
common equivalent shares
used to compute earnings
(loss) per share (1)....... 2,834 4,332 7,436 14,634
Fully diluted earnings (loss)
per share (1).............. $ (0.50) $ (1.36) $ (1.70) $ 0.34
=========== =========== ============== ==============
Weighted average common and
common equivalent shares
used to compute fully
diluted earnings (loss) per
share (1).................. 2,834 4,332 7,436 15,140
DECEMBER 31,
-------------------------------------------------------------------------------------
1993 1994 1995 1996
------------------- ------------------- ------------------- -------------------
BALANCE SHEET DATA:
Cash, cash equivalents and
investments (2)............ $ 2,562 $11,834 $ 19,454 $77,439
Total assets (2)............. 3,258 14,562 26,048 93,659
Long-term debt............... -- 1,431 4,696 10,905
Total stockholders' equity... 2,887 11,421 17,774 75,877
- ---------------
(1) For information concerning the calculation of earnings (loss) per share, see
Note 2 of Notes to Consolidated Financial Statements.
(2) Includes restricted investments of $10.1 million at December 31, 1996. See
Note 6 of Notes to Consolidated Financial Statements.
II-2
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed
elsewhere in this annual report.
GENERAL
Guilford, founded in 1993, is a biopharmaceutical company engaged in the
development and commercialization of novel products in two principal areas: (i)
targeted and controlled drug delivery systems using proprietary biodegradable
polymers for the treatment of cancer and other diseases; and (ii) therapeutic
and diagnostic products for neurological diseases and conditions.
In 1996, the Company reported net earnings of $5.1 million. However, prior
to the second quarter of 1996, the Company had incurred net operating losses
from its inception through the first quarter of 1996 and again in the fourth
quarter of 1996. Through December 31, 1996, the Company had an accumulated
deficit of $14.9 million. To date, substantially all of the Company's revenues
have been recognized as research and development or milestone payments under the
Company's collaborations. Except for GLIADEL, the Company's product candidates
are not expected to generate revenues for at least the next several years, if at
all, and the recognition of material revenues for GLIADEL sales is subject to
significant uncertainty. While the Company reported net income for the second
and third quarters of 1996, this was the result of significant and non-recurring
milestone payments from RPR with respect to GLIADEL. The Company does not
anticipate that 1997 will be profitable, and there can be no assurance that the
Company will ever achieve or sustain profitability in the future. Furthermore,
the Company expects to experience quarter-to-quarter and year-to-year
fluctuations in its operating results based upon the timing and amount of sales
of GLIADEL, the timing and realization of milestone and other payments under the
Company's agreements with RPR and other existing and potential collaborations as
well as expenses relating to the Company's research and development, clinical
and manufacturing activities. See "Risk Factors -- History of Losses;
Uncertainty of Future Profitability" and "-- Dependence on GLIADEL and RPR."
RESULTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
In 1996, the Company recognized $28.0 million in revenues, primarily
consisting of a total of $27.5 million in non-recurring milestone payments made
by RPR in June and September 1996. In 1995, the Company recognized $0.6 million
in revenues, primarily consisting of a non-refundable license fee payment
pursuant to the Company's agreement with DRL related to DOPASCAN. The Company
recognized no revenues in 1994. The Company will be required to pay a royalty to
MIT on sales of GLIADEL pursuant to the license agreement under which the
Company acquired the underlying technology for this product. The Company
anticipates reporting these amounts upon commencement of GLIADEL sales as cost
of goods sold in future periods.
Research and development expenses increased to $18.8 million in 1996 as
compared to $9.7 million in 1995 and $2.9 million in 1994. The increase in these
costs from 1995 to 1996 of $9.1 million was primarily attributable to expenses
related to increased personnel costs and contracted research, consulting and
laboratory supplies. During 1996, the Company accelerated its neuroimmunophilin,
neurotrophic and addictive therapeutics research and development programs,
initiated and completed enrollment of a multi-center Phase II clinical trial in
the United States for DOPASCAN, finalized preparation of its new drug
application for GLIADEL (submitted in February 1996) and prepared for the
commercial launch of GLIADEL. In 1996, research and development expenses also
included a non-cash charge of $1.2 million as compensation expense relating to
certain consulting agreements intended to enhance the Company's ability to
develop new polymer technologies and products for the delivery of
chemotherapeutics in indications where local tumor recurrence is likely and
controlled release is expected to be more effective than current therapies. The
Company expects it will be required to record varying amounts quarterly of up to
an additional
II-3
22
$2.2 million in the aggregate of non-cash compensation charges in research and
development expenses through 2001 relating to such agreements. The increase in
research and development costs from 1994 to 1995 of $6.8 million was primarily
attributable to the filing of a Treatment IND for GLIADEL, preparation for the
filing of an NDA for GLIADEL, undertaking and completing certain Phase II
clinical trials for DOPASCAN and research costs primarily related to the
Company's neurotrophic, neuroprotective and cocaine addiction therapeutics
programs as well as continued scale-up of the Company's research and development
programs. The Company anticipates that its research and development expenses
will continue to increase significantly in future periods.
General and administrative expenses increased to $6.7 million in 1996 as
compared to $4.4 million in 1995 and $2.4 million in 1994. The increase in
general and administrative expenses in 1996 and 1995 was attributable to higher
personnel costs related to an increase in the number of employees necessary to
support the Company's research and development and commercialization activities.
Additionally, indirect personnel costs, including recruiting and relocation
costs, have increased as the total number of employees has increased. Increases
in costs related to patenting and other activities related to establishment and
preservation of the Company's intellectual property and costs related to
operations as a public company also contributed to increased general and
administrative expenditures over the periods covered. The Company anticipates
that its general and administrative expenses will continue to increase in future
periods.
Other income and expense relates primarily to interest income and interest
expense. Interest income increased to $3.1 million in 1996 compared to $0.8
million in 1995 and $0.3 million in 1994. The increases were primarily
attributable to an increase in the average invested capital resulting from the
Company's equity offerings and in 1996 from revenues from RPR. In 1996 and 1995,
the Company incurred interest expense of $0.5 million and $0.2 million,
respectively, relating to borrowings under its loan agreements with Signet Bank
providing for the construction of manufacturing, administrative and research and
development facilities and the purchase of related equipment. In 1994, interest
expense was negligible.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and investments were $77.4 million at December 31, 1996.
Included in this amount is $10.1 million of restricted cash held as collateral
with respect to certain of the Company's indebtedness. The Company had incurred
an accumulated deficit at December 31, 1996 of $14.9 million and expects to
continue to incur additional operating losses from time to time in the future.
The Company incurred capital expenditures of $9.1 million in 1996 compared
to $3.7 million in 1995 and $2.3 million in 1994. These capital expenditures
were related to the construction of the Company's GLIADEL manufacturing facility
and related tenant improvements for research and development laboratories and
administrative offices. Additionally, other purchases included capital
equipment, including laboratory and manufacturing equipment, and computer
hardware and software to support the Company's activities.
The Company had available approximately $1.8 million at December 31, 1996
under its existing loan agreements with Signet Bank to finance the remaining in
process tenant improvements related to the construction of research and
development laboratories and related areas. To finance capital equipment, the
Company in September 1996, finalized a $5.0 million operating lease arrangement
with GE Capital Corporation for the financing of certain equipment. Such
financing, along with other sources, is expected to provide for the Company's
equipment needs at least through the second quarter of 1997. At December 31,
1996, $3.0 million was available under this arrangement to lease additional
equipment.
During 1997 and 1998, the Company expects to make additional capital
expenditures of approximately $3.7 million to expand the Company's GLIADEL
manufacturing plant capacity from 8,000 to 30,000 treatments annually. The
Company expects to use the capital available under its loan agreement with RPR
to fund the expansion. Under this loan agreement, the Company has the right to
borrow up to an aggregate of $7.5 million under certain conditions for such
purposes. As of January 2, 1997, $4.0 million was available under the agreement;
the remainder is available no earlier than 12 nor later than 18 months following
funding of the initial tranche. Any principal amounts borrowed under this loan
agreement are due five years from the date borrowed and will carry an interest
rate equal to the lowest rate paid by RPR from time to time on its most senior
indebtedness. Both principal and interest due under this arrangement may, at the
Company's
II-4
23
election, be repaid by off-setting certain amounts due to the Company under the
agreements with RPR. No amounts were outstanding under this loan at December 31,
1996.
The Company will require substantial funds in order to continue its
research and development programs and preclinical and clinical testing and to
manufacture and, where applicable, market its products. The Company's capital
requirements depend on numerous factors, including the progress of its research
and development programs, the progress of preclinical and clinical testing, the
time and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing any patent claims and other intellectual
property rights, competing technological and market developments, changes in the
Company's existing research relationships, the ability of the Company to
establish collaborative arrangements, the development of collaborative and
licensing agreements and other arrangements and the progress of manufacturing
scale-up efforts.
The Company believes that its existing resources will be sufficient to fund
the Company's activities for at least the next twelve months. There can be no
assurance, however, that changes in the Company's research and development and
commercialization plans or other factors affecting the Company's operating
expenses including potential acquisitions will not result in the expenditure of
these proceeds and the Company's other resources before that time.
The Company anticipates that it will fund future capital requirements
through a combination of its existing working capital coupled with the net
proceeds from this offering, revenues generated under its agreements with RPR
relating to GLIADEL, public or private financings (as necessary), additional
collaborative or other research and development agreements, commercialization
and marketing arrangements with corporate partners or other potential sources.
The Company's ability to raise future capital on acceptable terms is dependent
on conditions in the public and private equity markets and the performance of
the Company, as well as the overall performance of other companies in the
biopharmaceutical and biotechnology sectors. There can be no assurance that
required future financing arrangements will be available on acceptable terms, or
at all.
II-5
24
ITEM 8. FINANCIAL STATEMENTS.
GUILFORD PHARMACEUTICALS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
F-1
25
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of
Guilford Pharmaceuticals Inc.:
We have audited the accompanying consolidated balance sheets of Guilford
Pharmaceuticals Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Guilford
Pharmaceuticals Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Baltimore, Maryland
February 28, 1997
F-2
26
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
----------------------
1995 1996
-------- --------
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 4,260 $ 16,560
Short-term investments............................................. 11,552 20,097
Short-term investments -- restricted............................... 250 1,608
Collaborative research receivable.................................. 556 376
Inventory.......................................................... -- 1,533
Other current assets............................................... 291 435
--------- ---------
Total current assets....................................... 16,909 40,609
Investments.......................................................... -- 30,653
Investments -- restricted............................................ 3,392 8,521
Property and equipment, net.......................................... 5,456 13,455
Other assets......................................................... 291 421
--------- ---------
Total assets............................................... $ 26,048 $ 93,659
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 1,640 $ 2,038
Bond payable -- current portion.................................... 293 941
Term loan payable -- current portion............................... -- 540
Accrued expenses and other current liabilities..................... 1,646 3,358
--------- ---------
Total current liabilities.................................. 3,579 6,877
Long-term liabilities:
Bond payable, less current portion................................. 4,696 6,588
Term loan payable, less current portion............................ -- 4,317
--------- ---------
Total liabilities.......................................... 8,275 17,782
Stockholders' equity:
Preferred stock, par value $.01 per share. Authorized 4,700,000
shares, none issued............................................. -- --
Series A junior participating preferred stock, par value $.01 per
share. Authorized 300,000 shares, none issued................... -- --
Common stock, par value $.01 per share. Authorized 20,000,000
shares; 10,189,598 (6,793,065 pre-split) and 13,979,490 issued
and outstanding at December 31, 1995 and 1996................... 68 140
Additional paid-in capital......................................... 38,121 90,880
Notes receivable on common stock................................... (139) (129)
Accumulated deficit................................................ (19,947) (14,874)
Unrealized gain on available for sale securities................... -- 62
Deferred compensation.............................................. (330) (202)
--------- ---------
Total stockholders' equity................................. 17,773 75,877
--------- ---------
Total liabilities and stockholders' equity................. $ 26,048 $ 93,659
========= =========
See accompanying notes to consolidated financial statements.
F-3
27
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
---------- ---------- -----------
Revenues:
Contract and license revenue.......................... $ -- $ 556 $ 27,600
Revenues under collaborative agreements............... -- 30 420
------------ ------------ ------------
Total revenues................................ -- 586 28,020
Operating expenses:
Research and development.............................. 2,869 9,155 17,850
Research and development -- Gell Pharmaceuticals
Inc................................................ -- 533 911
General and administrative............................ 2,369 4,367 6,736
Compensation expense -- warrants...................... 991 -- --
------------ ------------ ------------
Total operating expenses...................... 6,229 14,055 25,497
------------ ------------ ------------
Income (loss) from operations........................... (6,229) (13,469) 2,523
Other income (expense):
Interest income....................................... 336 823 3,070
Other income.......................................... -- 199 8
Interest expense...................................... (4) (190) (528)
------------ ------------ ------------
Net income (loss)............................. $ (5,897) $ (12,637) $ 5,073
============ ============ ============
Primary earnings (loss) per common share:............... $ (1.36) $ (1.70) $ 0.35
============ ============ ============
Weighted average common and common equivalent shares
outstanding -- primary................................ 4,332 7,436 14,634
============ ============ ============
Fully diluted earnings (loss) per common share:......... $ (1.36) $ (1.70) $ 0.34
============ ============ ============
Weighted average common and common equivalent shares
outstanding -- fully diluted.......................... 4,332 7,436 15,140
============ ============ ============
See accompanying notes to consolidated financial statements.
F-4
28
GUILFORD PHARMACEUTICALS INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
PREFERRED STOCK COMMON STOCK NOTES UNREALIZED
------------------- ------------------ ADDITIONAL RECEIVABLE GAIN ON
NUMBER NUMBER PAID-IN ON COMMON ACCUMULATED AVAILABLE FOR
OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STOCK DEFICIT SALE SECURITIES
---------- ------- ---------- ------ ---------- --------- ----------- ---------------
Balance, December 31, 1993............ 2,423,333 $ 24 582,608 $ 6 $ 4,378 $(108) $ (1,413) $ --
Issuance of common stock in initial
public offering at $8.00* per share,
net of offering costs............... 1,875,000 19 12,848
Issuance of warrants.................. 10
Issuance of common stock.............. 39,129 1 89 (90)
Issuance of Series A Convertible
Preferred Stock..................... 50,000 1 249
Compensation related to issuance of
common stock and grant of common
stock options....................... 273
Amortization of deferred
compensation........................
Conversion of Series A Preferred
Stock............................... (2,473,333) (25) 1,075,361 10 15
Exercise of warrants.................. 85,217 1 195
Reduction in notes receivable on
common stock........................ 49
Compensation expense -- warrants...... 991
Net loss for the year................. (5,897)
------------ ----- ----------- ----- -------- ------ --------- ----
Balance, December 31, 1994............ -- $ -- 3,657,315 $ 37 $ 19,048 $(149) $ (7,310) $ --
Issuance of common stock in secondary
public offering at $6.50* per share,
net of offering costs............... 3,000,000 30 17,901
Other issuances of common stock....... 63,286 1 280
Exercise of warrants by Scios Nova.... 72,464 166
Equity proceeds from Gell
Pharmaceuticals relating to the put
option.............................. 726
Amortization of deferred
compensation........................
Reduction in notes receivable on
common stock........................ 10
Net loss for the year................. (12,637)
------------ ----- ----------- ----- -------- ------ --------- ----
Balance, December 31, 1995............ -- $ -- 6,793,065 $ 68 $ 38,121 $(139) $ (19,947) $ --
Issuance of common stock in secondary
public offering at $20.00* per
share, net of offering costs........ 2,300,000 23 42,880
Other issuances of common stock....... 226,595 2 7,679
Three-for-two stock split............. 4,659,830 47 (47)
Equity proceeds from Gell
Pharmaceuticals relating to the put
option.............................. 1,076
Amortization of stock option
compensation........................ 1,171
Amortization of deferred
compensation........................
Reduction in notes receivable on
common stock........................ 10
Unrealized gain on available for sale
securities.......................... 62
Net income for the year............... 5,073
------------ ----- ----------- ----- -------- ------ --------- ----
Balance, December 31, 1996............ -- $ -- 13,979,490 $140 $ 90,880 $(129) $ (14,874) $ 62
============ ===== =========== ===== ======== ====== ========= ====
TOTAL
DEFERRED STOCKHOLDERS'
COMPENSATION EQUITY
------------ -------------
Balance, December 31, 1993............ $ -- $ 2,887
Issuance of common stock in initial
public offering at $8.00* per share,
net of offering costs............... 12,867
Issuance of warrants.................. 10
Issuance of common stock.............. --
Issuance of Series A Convertible
Preferred Stock..................... 250
Compensation related to issuance of
common stock and grant of common
stock options....................... (273) --
Amortization of deferred
compensation........................ 68 68
Conversion of Series A Preferred
Stock............................... --
Exercise of warrants.................. 196
Reduction in notes receivable on
common stock........................ 49
Compensation expense -- warrants...... 991
Net loss for the year................. (5,897)
------ --------
Balance, December 31, 1994............ $ (205) $ 11,421
Issuance of common stock in secondary
public offering at $6.50* per share,
net of offering costs............... 17,931
Other issuances of common stock....... (237) 44
Exercise of warrants by Scios Nova.... 166
Equity proceeds from Gell
Pharmaceuticals relating to the put
option.............................. 726
Amortization of deferred
compensation........................ 112 112
Reduction in notes receivable on
common stock........................ 10
Net loss for the year................. (12,637)
------ --------
Balance, December 31, 1995............ $ (330) $ 17,773
Issuance of common stock in secondary
public offering at $20.00* per
share, net of offering costs........ 42,903
Other issuances of common stock....... 7,681
Three-for-two stock split............. --
Equity proceeds from Gell
Pharmaceuticals relating to the put
option.............................. 1,076
Amortization of stock option
compensation........................ 1,171
Amortization of deferred
compensation........................ 128 128
Reduction in notes receivable on
common stock........................ 10
Unrealized gain on available for sale
securities.......................... 62
Net income for the year............... 5,073