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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ________________ to ________________.
Commission File Number 0-23272
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NPS PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 87-0439579
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
420 Chipeta Way, Salt Lake City, Utah 84108-1256
(Address of principal executive offices) (Zip Code)
(801) 583-4939
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001
Par Value
Preferred Stock
Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least 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. [ ]
The approximate aggregate market value of the Common Stock held by non-
affiliates of the Registrant was $508,022,829.75 as of March 1, 2000, based upon
the closing price for the shares of common stock reported on The Nasdaq Stock
Market and The Toronto Stock Exchange, on such date./1/
The number of shares of Common Stock outstanding as of March 1, 2000 was
20,136,465, which includes 2,645,163 Exchangeable Shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report on Form 10-K incorporates by reference portions of
the Registrant's definitive Proxy Statement for the Registrant's Annual Meeting
of Stockholders, to be held May 24, 2000 which will be filed with the Securities
and Exchange Commission.
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/1/ Excludes 1,771,019 shares of Common Stock held by directors and officers as
of March 1, 2000. The determination of affiliate status is not a conclusive
determination for other purposes.
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 21E of the Securities and Exchange Act of 1934. These
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those discussed in these forward-looking
statements. Factors that could cause or contribute to the differences include,
but are not limited to, those discussed in the Section entitled "Business--Risk
Factors," as well as other parts of this Annual Report. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. We undertake no obligation to publicly release
updates or revisions to these statements.
PART I
ITEM 1. Business
Overview
NPS Pharmaceuticals, Inc. is a biopharmaceutical company with headquarters
in Salt Lake City, Utah, and additional operations in Toronto (Mississauga),
Ontario, Canada. We conduct our operations in Canada under the name "NPS
Allelix Corp." We engage in drug discovery and development of small, orally
active drug products and recombinant peptides. We use a blend of partnered
initiatives and internal efforts to fund and pursue our discovery, development
and marketing efforts.
On December 23, 1999 we acquired Allelix Biopharmaceuticals Inc., a
biopharmaceutical company based in Ontario, Canada. Under the arrangement,
Allelix shareholders who were U.S. residents received NPS common shares.
Allelix shareholders who were Canadian residents could elect to receive either
NPS common shares or shares of NPS Allelix Inc., the Canadian parent of NPS
Allelix Corp. and a subsidiary of NPS, that are exchangeable one for one into
NPS common shares. The exchangeable shares are, as nearly as practicable, the
functional and economic equivalent of NPS common shares. NPS common shares
trade on Nasdaq under the symbol "NPSP", while shares of NPS Allelix Inc., which
mirror the NPS common shares, trade on The Toronto Stock Exchange under the
symbol "NX".
At the conclusion of the acquisition the name of Allelix Biopharmaceuticals
was changed to NPS Allelix Corp. The discussion contained in this section
reflects the combined company and generally does not distinguish between what
was formerly NPS's business and what was formerly Allelix's business.
References to "us," "we" or "NPS" refer to the combined company.
We are engaged in the discovery and development of human pharmaceuticals
that are intended to address a variety of important diseases. Our most advanced
programs focus on the development of human pharmaceuticals for the treatment of
hyperparathyroidism and osteoporosis. We also have ongoing development efforts
for drugs to treat gastrointestinal disorders and disorders of the central
nervous system, including neuroprotection in stroke and head trauma as well as
epilepsy and bipolar disorder. In addition, we are pursuing several discovery
programs that are extensions of our research on calcium receptors and ion
channels, and we periodically consider other product candidates in later stages
of development for potential in-license or collaboration opportunities.
We currently have three products in late-stage human trials: a second
generation calcimimetic for hyperparathyroidism, ALX1-11, a form of recombinant
human parathyroid hormone for osteoporosis, and ALX-0600 for short bowel
syndrome and intestinal atrophy due to chemotherapy treatment.
We have partnered with Amgen Inc. and Kirin Brewery Company, Ltd. in our
calcimimetic program for hyperparathyroidism. Calcimimetics are small molecules
that stimulate calcium receptors on parathyroid cells to regulate the secretion
of parathyroid hormone. Amgen is currently conducting Phase II safety and
efficacy trials under the calcimimetic program. The hyperparathyroidism program
arose from our pioneering work on a cell surface receptor, termed the "calcium
receptor." This receptor senses levels of extracellular calcium and plays a key
role in regulating the amount of calcium in the bloodstream which is involved in
numerous physiological processes.
We are approaching osteoporosis on two fronts: development of injectable
recombinant parathyroid hormone and development of small molecule therapeutics.
We are preparing to start Phase III clinical trials with ALX1-11 in which we
will evaluate safety and efficacy on a large scale. We also have a collaboration
with SmithKline Beecham centered on discovery and development of small molecules
active at the calcium receptor of parathyroid tissue for the treatment of
osteoporosis.
2
Our efforts to develop therapeutics to treat gastrointestinal disorders are
focused on the development of ALX-0600. This product is an analog of the
natural peptide hormone, glucagon-like peptide-2, which we believe has
significantly enhanced biological activity.
Our most advanced central nervous system programs focus on neuroprotection,
epilepsy and bipolar disorder and migraine. Our neuroprotection program is based
on our work on small molecules with novel activity on a cell receptor on brain
cells referred to as the N-methyl-D-aspartate subtype of glutamate receptor-
operated calcium channels. This technology forms the basis for our
neuroprotection program for ischemic stroke and head trauma. We have completed
Phase I trials and are seeking a development partner before proceeding further.
The epilepsy/bipolar disorder program is based on our work on small molecules
that belong to the same chemical class as valproic acid but are structurally
distinct and have different biological properties. We have conducted Phase I
safety trials in humans with NPS 1776, our lead product candidate. We have
licensed the rights to this program to Abbott Laboratories who will now assume
full responsibility for the development and commercialization of NPS 1776. The
migraine program focuses on our search for products that are selective for
specific cell receptors on human blood vessels and are hypothesized to reduce
serious side effects of other current migraine drugs. We have conducted a Phase
I safety study with the lead product candidate and are actively seeking a
development partner to further the migraine program.
Clinical Development Programs and Partnered Preclincal Programs
The following chart summarizes the status of our clinical development programs
and partnered clinical programs:
Development Program Compound Classification Status (1) Commercial Rights
Hyperparathyroidism
Primary Calcimimetics Parathyroid hormone Phase II Amgen, Kirin
release inhibitors
Secondary Calcimimetics Parathyroid hormone Phase II Amgen, Kirin
release inhibitors
Osteoporosis
Increased bone ALX1-11 Recombinant human Phase III NPS
mineral density and parathyroid hormone
fracture reduction (injectable)
Increased bone Calcilytics Endogenous parathyroid Preclinical SmithKline, NPS
mineral density and hormone release stimulators
fracture reduction (oral)
Gastrointestinal
Disorders
Short bowel ALX-0600 Glucagon-like peptide 2 Phase II NPS
syndrome analog
Central Nervous
System Disorders
Stroke, head NPS 1506 N-methyl-D-aspartate Phase Ib NPS
trauma receptor antagonists
Epilepsy, bipolar NPS 1776 Valproic acid Phase Ib Abbott
disorder substitute
Migraine ALX 0646 5HT B Selective agonist Phase I NPS
__________________
(1) Preclinical means that a product is undergoing efficacy and safety
evaluation in laboratory testing and animal testing in preparation for
clinical trials.
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Phase I-III clinical trials denote safety and efficacy tests in humans as
follows:
. Phase I: Evaluation of safety and dosing tolerability at several dose levels
in healthy volunteers.
. Phase Ib: Additional evaluation of safety and dosing tolerability at several
dose levels in healthy volunteers.
. Phase II: Evaluation of safety, and efficacy in patients having the
target disease or disorder.
. Phase III: Larger scale evaluation of safety and efficacy at several dose
levels in patients having the target disease or disorder.
Hyperparathyroidism Program
Overview. Hyperparathyroidism is typically characterized as being either
primary or secondary. Primary hyperparathyroidism is an age-related disorder
that results from excessive secretion of parathyroid hormone. Parathyroid
hormone acts in the kidney and on bone to elevate the levels of calcium in the
blood. Symptoms of primary hyperparathyroidism may include bone loss, muscle
weakness, depression, and cognitive dysfunction. There are currently no
pharmaceutical therapies for the treatment of primary hyperparathyroidism. In
severe cases, surgical removal of the affected parathyroid gland from the neck
region is the only effective treatment.
Secondary hyperparathyroidism results from other disease states and is most
often associated with renal failure. Symptoms of secondary hyperparathyroidism
include excessive bone loss, bone pain, and chronic, severe itching. Secondary
hyperparathyroidism affects the vast majority of dialysis patients. Studies have
shown that secondary hyperparathyroidism develops early in the course of renal
failure, before patients start dialysis. Current treatments for secondary
hyperparathyroidism address the disease indirectly and involve drug therapy with
phosphate binders and/or Vitamin D. We believe that these therapies have
certain disadvantages. For example, phosphate binders are not well tolerated by
many people and calcitriol often leads to hypercalcemia and hyperphosphatemia,
which can exacerbate the underlying disease and in many patients is ineffective.
In severe cases, surgery may be required to remove all or some of the
parathyroid glands.
Calcimimetics
The results of preclinical and human clinical trials conducted by us,
Kirin, and Amgen have indicated that calcimimetic compounds could be effective
in treating both types of hyperparathyroidism. We have entered into agreements
with Amgen and Kirin relating to the development and commercialization of these
calcimimetic compounds for treating hyperparathyroidism.
Development Status. Amgen began Phase II dosing and safety trials in
primary and in secondary hyperparathyroidism in 1998 with a second generation
compound licensed from NPS. These trials are presently ongoing. In 1998, Amgen
completed a Phase I safety trial of this second generation compound. Early in
the calcimimetic program, we conducted a series of trials with Amgen with a
first generation calcimimetic. These trials included two Phase I safety and
tolerance studies, a multisite Phase I/II study in women with mild, primary
hyperparathyroidism and a pilot Phase I/II study in kidney dialysis patients
with secondary hyperparathyroidism. Kirin has conducted clinical trials for the
first generation calcimimetic in Japan, including a Phase I/II study in dialysis
patients with secondary hyperparathyroidism. We believe the second-generation
compound has a more favorable metabolic and kinetic profile than the first
generation calcimimetic in the hyperparathyroidism patient population. Kirin is
also developing the second generation compound. Amgen's and Kirin's clinical
trials may not, however, proceed as indicated and no product for the treatment
of hyperparathyroidism may prove safe and effective, meet applicable regulatory
standards, or be successfully marketed. Amgen and Kirin are obligated to pay us
royalties and milestone payments for the use and sale of calcimimetics.
Osteoporosis Program
Overview. Osteoporosis is characterized by a loss of bone mass and bone
mineral density which increases the risk of fractures. Experts believe
osteoporosis affects more than 200 million people worldwide. In women, this
condition typically occurs after menopause and the complications from the
resulting fractures can lead to hospitalization and death. Approximately 20% of
osteoporosis patients are male.
4
Demographic studies have shown that 50% of women over the age of 50 will
suffer an osteoporosis-related fracture during their lifetime. In North
America, 1.5 million individuals sustain a fracture related to this disease each
year, including 300,000 hip fractures, resulting in a significant economic
burden on the health care system. The National Osteoporosis Foundation in the
United States estimates that a woman's risk of suffering a hip fracture is equal
to her combined risk of developing breast, uterine and ovarian cancer. The
National Institutes of Health estimate that, on a worldwide basis, more than 200
million people suffer from reduced bone mass, which contributes to more than 4
million fractures annually. Mortality in the first year following a hip
fracture is 15% to 20%. The successful treatment of osteoporosis would result
in the reduction of bone fractures, significantly improving quality of life and
reducing health care costs associated with treatment and chronic care.
Traditional treatments for osteoporosis include calcium supplements,
Vitamin D compounds, estrogen replacement therapy, calcitonin, diet and
exercise. In addition, a class of drugs known as bisphosphonates has been
developed which slows the resorption of bone and, over several years, can
increase bone mass by amounts ranging from 3% to 8%. Alendronate, marketed by
Merck and Co., Inc. under the brand name Fosamax, is the most recently approved
bisphosphonate and has demonstrated an increase in bone mineral density of 8%
over three years and a reduction in the incidence of bone fractures by 50%.
However, there is a widely recognized need among health care professionals for a
treatment that can prevent fractures by more rapidly replacing lost bone. We
believe that ALX1-11, may address this need. If approved for commercial sale,
ALX1-11 would be positioned as a therapy for postmenopausal osteoporosis in
patients who either have suffered a fracture due to osteoporosis or have been
diagnosed as having significantly decreased bone mass and, therefore, are at
increased risk for a fracture.
ALX1-11
We are developing ALX1-11, an injectable form of recombinant human
parathyroid hormone, as a treatment for postmenopausal osteoporosis. Parathyroid
hormone plays an important role in the regulation of bone mineral metabolism in
the body. Recently published studies have shown that parathyroid hormone has a
marked stimulatory effect on new bone formation in animals when administered as
a single daily injection. Furthermore, several clinical investigators have
demonstrated in independent studies that a fragment of the parathyroid hormone
molecule enhances bone formation in humans. We believe that these results,
published over the past 20 years, suggest that parathyroid hormone is able to
reverse bone loss in people who suffer from osteoporosis. We also believe that
parathyroid hormone increases the number of bone-forming cells and may also
increase the activity of such cells. We confirmed the increase in bone density
observed in earlier studies in a Phase II safety and efficacy trial. ALX1-11
may, therefore, represent a significant treatment alternative for osteoporosis
sufferers.
Development status. In 1994, we conducted a Phase I clinical trial in The
Netherlands that demonstrated the safety of ALX1-11 in humans. We initiated the
Phase II clinical trial for ALX1-11 in June 1995 in 18 centers throughout Canada
and the United States. The trial involved over 200 women suffering from
postmenopausal osteoporosis. The trial was a double blind, placebo-controlled,
dose-ranging safety and efficacy study and the course of treatment was 12
months. Patients self-administered one of three different dosages of ALX1-11 or
a placebo by injection under the skin in a manner similar to self-administered
daily insulin injections by diabetics. The goal of the clinical trial was to
compare the relative effectiveness of the three dose levels on spinal bone
mineral density. Blood samples were taken in the clinical trial to monitor the
effects of the drug on several biochemical markers of bone growth and bone
metabolism.
In June 1996, we entered into a collaboration agreement with Astra AB for
the development and commercialization of ALX1-11 for osteoporosis. We completed
the Phase II trial in February 1997. The results of the Phase II study
demonstrated an average increase in bone mineral density of nearly 7% in the
spine over the twelve month period of the study. The final report was submitted
to Astra AB in June 1997 and Astra AB conveyed to us its decision to conduct a
Phase III trial with ALX1-11 in September 1997. In September 1998, Astra
notified us that it would return all of the assets associated with the program
and all related intellectual property rights to us at no cost and paid a
cancellation penalty.
We intend to begin a Phase III safety and efficacy trial with ALX1-11 in
the U.S. and Canada in the first half of 2000. The Phase III study will be a
double blind, placebo-controlled study measuring increases in bone mineral
density and reductions in clinical fractures.
5
Since parathyroid hormone is a protein, it must be administered by
subcutaneous injection at the present time. We believe there is at least one
company testing an injectable formulation of a drug candidate similar to
ALX1-11. Alternative routes of administration such as inhalation or intranasal
may be feasible. A number of companies are investigating alternative routes of
administration for a variety of peptides. In particular, insulin has been shown
to be absorbed by the inhalation route and calcitonin is commercially available
in an intranasal form. We believe that there is at least one company working on
an inhalation form of parathyroid hormone. We do not know the feasibility of
administering parathyroid hormone by one of these other routes.
SmithKline Beecham Collaboration
In conjunction with SmithKline Beecham, we are also pursuing a treatment of
osteoporosis focusing on small molecule drugs called calcilytic compounds that,
in contrast to calcimimetic compounds, stimulate parathyroid hormone secretion.
This novel approach, which is intended to manipulate the body's own parathyroid
hormone reserves, could provide an effective anabolic therapy for osteoporosis
by stimulating new bone formation and replacing bone that has been lost to the
disease.
While chronically high levels of parathyroid hormone are known to cause
bone loss, parathyroid hormone levels fluctuate daily and we think this plays a
key role in regulating the balance between bone resorption and bone formation.
Recent studies by us in animals and in humans have shown that daily injections
of exogenous parathyroid hormone are sufficient to cause a transient increase in
circulating parathyroid hormone levels, resulting in significant stimulation of
new bone formation. Animal studies have evaluated the structural integrity of
this newly formed bone and have found that the increases in bone mass achieved
with parathyroid hormone injections are accompanied by improvements in
biomechanical strength and in certain indices of bone structure thought to be
related to biomechanical strength.
In studies on animals, our scientists, together with SmithKline Beecham,
have demonstrated that intermittent increases in circulating levels of
parathyroid hormone can be obtained through the use of small molecules which act
as calcimimetics. Increased levels of parathyroid hormone achieved by this
mechanism are equivalent to levels of parathyroid hormone achieved by an
injection of parathyroid hormone sufficient to cause bone growth. We believe
that orally administered, calcilytic drugs that act on the parathyroid cell
calcium receptor to increase parathyroid hormone release from the body's own
parathyroid hormone reserves could provide a cost-effective means of
intermittently increasing parathyroid hormone levels.
Preclinical Research Status. In January 1996, we received the first
milestone payment of $3.0 million from SmithKline Beecham for progress made in
our osteoporosis collaboration. Medicinal chemistry efforts are being applied to
various lead compounds with the goal of identifying product candidates. We have
produced a cell line that expresses the human parathyroid calcium receptor and
that serves as a tool for the high throughput screening of compounds to identify
new drug candidates. We continue to screen SmithKline Beecham and NPS compound
libraries to discover, identify, and characterize additional compounds with
calcilytic activity. We are also involved with SmithKline Beecham in medicinal
chemistry efforts to optimize compound leads obtained from such screening
activities. We are not certain that lead compounds will be identified, that
development activities will proceed, or that these candidates will prove safe or
effective, meet applicable regulatory standards, or be successfully marketed
Gastrointestinal Disorders
Short Bowel Syndrome
Approximately 20,000 to 40,000 patients in North America have undergone
surgical removal of a portion of the small intestine because of gastrointestinal
problems that cause the intestine to malfunction. Patients with this condition
often do not have enough small intestine remaining after removal to allow for
the absorption of sufficient nutrients from the diet since the epithelium of the
small intestine is the primary site of nutrient absorption. This
6
results in a condition known as short bowel syndrome. There are currently no
effective therapies available for enhancing the growth and repair of the small
intestine epithelium. In extreme cases, the remaining intestine is no longer
able to perform its normal function of transporting vital nutrients into the
blood stream. Patients with short bowel syndrome often must be fed intravenously
by a technique called total parenteral nutrition for a period of time and, in
some cases, permanently. Total parenteral nutrition costs can exceed $100,000
annually per patient.
ALX-0600
We are currently developing ALX-0600. This drug candidate is an analog of
Glucagon-Like Peptide-2, a naturally occurring hormone having 33 amino acids.
We are developing ALX-0600 for the treatment of short bowel syndrome. A
published study by one of our academic collaborators demonstrated that the use
of ALX-0600 in animals resulted in a marked stimulatory effect on the rate of
growth of epithelial cells lining the small intestine. In this study, ALX-0600
induced an approximately 50% increase in weight of small intestine epithelium
within ten days of administration. We believe that ALX-0600 may have the ability
to induce a similar effect in humans. Furthermore, the growth-promoting
properties of ALX-0600 appear to be highly tissue-specific, predominantly
affecting the small intestine, and thereby reducing the risk of adverse side
effects.
We are presently conducting a pilot Phase II safety and efficacy study with
ALX-0600 in patients with short bowel syndrome. In November 1999, we entered
into an agreement with the Canadian government through a program known as
Technology Partnerships Canada. Under the agreement, the Canadian government
will reimburse us up to (Cdn) $8.4 million for qualified costs related to
research and development of ALX-0600. As a result of the funding, we will pay a
royalty to the Canadian government on the sale or license of any product
developed from the funded research.
We are also investigating the use of ALX-0600 for the replenishment of
epithelial cells of the small intestine which are damaged by chemotherapy
treatment for cancer. ALX-0600 may be suitable as an adjunct therapy to cancer
chemotherapy if it can ameliorate the toxic gastrointestinal side effects of
cancer chemotherapy, thereby improving patient compliance with the chemotherapy
regimen and possibly allowing for dose escalation of the chemotherapy agent.
The patients that would benefit from such an adjunctive therapy are those
patients receiving 5-fluorouracil, administered to approximately 1 million
patients per year, or CPT-11, administered to approximately 500,000 patients per
year and increasing. Approximately 16% and 50% of patients receiving these
respective therapies experience extreme gastrointestinal side effects sufficient
to warrant treatment with an agent such as ALX-0600, should its safety and
efficacy be proven in clinical trials.
We licensed the rights to ALX-0600 from an academic collaborator who is
entitled to participate in the proceeds of commercialization of the product
candidates, if successfully developed and approved. We completed a Phase I
clinical trial of ALX-0600 in healthy subjects in November 1998. We are
developing a recombinant production system that may be used to produce the
product.
Central Nervous System Disorders
Neuroprotection Program: NPS 1506
Overview. Stroke is the third leading cause of death in the United States,
with over 500,000 cases reported each year. In stroke, a blood vessel becomes
blocked, which leads to inadequate blood supply to the brain, a condition
sometimes referred to as ischemia. Many stroke victims survive and approximately
100,000 to 150,000 per year are left severely and permanently disabled by nerve
damage resulting from stroke. Much of this damage occurs within the first 24 to
48 hours after the stroke and is caused in part by the excessive release of
glutamate and the resultant influx of calcium into nerve cells. Published
research in animals has shown that much of this damage can be prevented by
blocking the influx of calcium into cells, particularly, the influx that results
from activation of N-methyl-D-aspartate receptor-operated calcium channels.
Calcium influx resulting from the activation of these channels also appears to
cause the neuronal damage associated with head trauma. Approximately two million
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traumatic brain injuries occur each year in the United States, with 25% of these
injuries requiring hospitalization, and about 1% resulting in death.
Certain medical procedures are associated with an increased risk of stroke.
For example, strokes occur in 3% to 7% of coronary artery bypass, carotid
endarterectomy, and heart valve replacement surgeries. Mild to severe central
nervous system dysfunction occurs in up to 80% of these procedures. Researchers
think this results from multiple micro strokes caused by the release of numerous
tiny blood clots into the bloodstream. Our research indicates that it might be
possible to lessen the severity of neuronal damage and cognitive impairment that
occurs as a result of these procedures by using a prophylactic treatment with
neuroprotective compounds.
N-methyl-D-aspartate receptor-operated calcium channels play critical roles
in normal excitatory neurotransmission and in events that lead to much of the
neurological damage associated with stroke and head trauma. Several
pharmaceutical companies have recognized the potential of these receptor-
operated calcium channels as molecular targets. These companies have begun
development of drugs to treat neurological disorders and have identified various
lead compounds. However, no such drug has successfully completed clinical trials
or been marketed. Work in this field is all the more challenging because these
receptor-operated calcium channels are also the site of action of phencyclidine,
often referred to as PCP or angel dust, and most clinically tested compounds
that target these calcium channels exhibit undesirable phencyclidine-like side
effects inducing symptoms of psychosis. There are currently no safe or effective
neuroprotective therapeutics available that slow or stop the progression of
brain damage once a stroke or head trauma has occurred.
We have demonstrated significant neuroprotectant activity in certain animal
models of ischemic stroke and head trauma through systemic administration of our
class of lead compounds, particularly NPS 1506. In these animal studies, we
still observed significant neuroprotectant activity when administration of the
compound was delayed for two hours following the ischemic event. In addition,
our compounds have not exhibited phencyclidine-like side effects in a variety of
studies in animal models intended to identify those effects.
Development Status. In July 1997, we began a Phase I clinical trial for
NPS 1506 in healthy male volunteers. This trial was completed in early 1998.
Results of the trial indicated that the drug was safe and well tolerated. In
addition, we began a Phase Ib study in patients who have suffered a stroke
within a 48-hour period to assess safety and tolerability of the drug in stroke
patients. The clinical phase of this trial has been completed and we are
evaluating the data. We are currently searching for a corporate partner to
participate in the development of this program. Our ability to secure a
development partner for this program will affect our development plan and time
line for this program. There is risk that NPS 1506 and any other lead compounds
will not advance through clinical development, will not prove to be safe or
effective, will not meet applicable regulatory standards, or will not be
successfully marketed.
Epilepsy and Bipolar Disorder: NPS 1776
Overview-Epilepsy. Many types of epileptic seizures have been medically
defined. They range from mild cases of nearly imperceptible behavior, such as
staring into space, to dramatic "grand mal" seizures where consciousness is lost
and the body convulses uncontrollably. In most cases of recurrent seizures,
drugs are the treatment of choice, although in some extreme instances,
neurosurgery may be an option. The most frequently used drug therapies include
carbamazepine, phenytoin, valproate, barbiturates, and benzodiazepines. Roughly
half of all epilepsy patients can control their seizures with available chemical
therapies. However, other patients achieve less than adequate control. An
estimated 15% of all patients are virtually resistant to drug treatment. Even
when some level of seizure control is achieved, it often comes with the
disadvantage of serious side effects.
Overview-Bipolar Disorder. Bipolar disorder is part of a class of diseases
referred to as affective illnesses or mood disorders. Affective illnesses
include all forms of depression, dysthmia or chronic, moderate depression, manic
disease, and bipolar disorder. The most responsive disease in this class of
illnesses is bipolar disorder. Until recently, bipolar disorder was known as
manic-depressive disorder. It is characterized by the occurrence of both manic
and depressive states, usually in alternation. Bipolar disorder, like other mood
disorders, is a lifetime illness with no known cure. As a result, the number of
bipolar patients continue to increase each year. In the United States,
approximately 17.5 million people have affective disorders. Of these,
approximately 2.2 million to 2.6 million people have been diagnosed as having
bipolar disorder.
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Development Status. Our scientists have identified a lead compound for the
treatment of epilepsy. Our studies of this small, organic molecule, designated
NPS 1776, show that it is effective in a number of animal models of epilepsy and
that, importantly, there appears to be a wide margin between doses that control
seizures and doses that produce side effects. The compound also exhibited a high
margin of safety in animal models when compared to standard epilepsy treatments,
including valproate, as measured by a lack of motor impairment side effects
following drug administration. Recent research studies by others have indicated
that some drugs normally used in seizure control can offer hope for many bipolar
disorder patients. Valproic acid, for example, has received FDA approval for the
treatment of manic episodes in bipolar disorder. NPS 1776 has the same
broad spectrum of pharmocological activity in animals as valproic acid. Thus, we
believe that NPS 1776 may be useful for the treatment of affective mood
disorders such as bipolar disorder and for the treatment of epilepsy. However,
we conducted specific studies that lead us to believe that NPS 1776 will provide
a better safety profile in comparison to valproic acid, such as the lack of
birth defect potential and liver damage.
We completed a Phase I clinical trial in healthy male volunteers in
December 1998 in the United Kingdom. The purpose of the trial was to evaluate
the safety, tolerability and pharmacokinetics of NPS 1776. Our preliminary
analysis of the data indicates that the drug was safe and well tolerated. We
commenced a Phase Ib study in the United Kingdom in December 1998 to confirm
safety and tolerability in volunteers receiving multiple doses of the drug. On
March 20, 2000, we entered into an agreement with Abbott Laboratories in which
we granted to Abbott the worldwide exclusive right to make, use, and sell NPS
1776 in return for Abbott's commitment to fund the further development of NPS
1776 and pay NPS milestone payments and royalties on future sales of NPS 1776.
Future development of NPS 1776 will be dependent on the progress made by Abbott
in its development efforts. There is a risk that NPS 1776 will not advance
through clinical development, will not prove safe or effective, will not meet
applicable regulatory standards, or will not be successfully marketed.
Other Programs
We also have other early stage programs. For example, in the field of
migraine we have completed a Phase I safety trial in the United Kingdom on a
compound for which we are seeking a development partner. We are also working
with Janssen Pharmaceutica N.V. to identify prospective drug candidates for
schizophrenia and dementia. We continue to work with Eli Lilly to identify
excitatory amino acid receptors as therapeutic targets for various central
nervous system disorders. Finally, we have made advances in the elucidation of
the neurophysiological roles of metabotropic glutamate receptors. Our
scientists have cloned a novel metabotropic glutamate receptor located in the
brain and thought to be linked to several central nervous system disorders. We
have developed a screening technology for identifying molecules active at this
receptor and at other metabotropic glutamate receptor subtypes and in fact have
had success in identifying such molecules.
Discovery Programs
We are actively engaged in other discovery programs that seek to identify
molecular targets for the development of new drugs. These discovery programs are
extensions of our discoveries in calcium receptors and ion channels.
In-licensing and Product Acquisition
Periodically, we evaluate alternatives for acquisition of discovery
technologies late-stage product opportunities. This evaluation includes the
consideration of merger and acquisition candidates and the search for in-
licensing or joint venture development candidates. An example of these efforts
is the acquisition of Allelix Biopharmaceuticals Inc. in December 1999. There
can be no assurance that we will be able to negotiate acceptable licenses and/or
collaborative agreements in the future or that efforts under any license and/or
collaborative agreement will be successful.
9
Collaborative Research, Development, and License Agreements
We are pursuing research and product development on an independent basis
and in collaboration with other companies. We currently have
collaborative research, development, and/or license agreements with Amgen,
Kirin, SmithKline Beecham, The Brigham and Women's Hospital, Inc., Eli Lilly,
Janssen Pharmaceutica, and Abbott Laboratories.
Amgen Inc.
We entered into a development and license agreement with Amgen, effective
December 1995, which grants Amgen the exclusive right to develop and
commercialize drugs for the treatment of hyperparathyroidism and indications
other than osteoporosis worldwide, excluding Japan, China, Hong Kong, North and
South Korea, and Taiwan. The license includes the second-generation compound
currently in Phase II clinical trials for safety and efficacy at Amgen. Under
the terms of the Amgen agreement, we may receive up to an aggregate of $43.5
million in license fees, equity purchases, and milestone payments, plus
royalties from any future product sales. Amgen has assumed full control,
authority, and responsibility for conducting, funding, and pursuing all aspects
of the development, submissions for regulatory approvals, manufacture and
commercialization of the compounds in its territory. This includes conducting
clinical trials and making regulatory submissions. Amgen paid NPS a license fee
of $10.0 million and purchased one million shares of common stock for an
aggregate purchase price of $7.5 million. The balance of the $43.5 million
includes up to $26.0 million payable to us upon the achievement of specific
development milestones. We have the option to participate under Amgen's
direction in the clinical development of a drug for primary hyperparathyroidism.
Amgen is required to reimburse us for our participation, limited to a total cost
of $400,000 per year for a maximum period of five years. Amgen may terminate the
agreement for any reason upon 90 days written notice. Termination of the
agreement will result in the reversion of the technology, patent, and
commercialization rights to us. In the event of termination of the license
agreement with Kirin, Amgen would receive worldwide rights to develop and
commercialize a drug for the treatment of hyperparathyroidism and other
indications except osteoporosis. We are actively working with Amgen and Kirin to
discover, identify, and characterize other second generation compounds.
Kirin Brewery Company, Ltd.
In June 1995, we entered into a five-year collaborative research and
license agreement with Kirin to develop and commercialize drugs for the
treatment of hyperparathyroidism in Japan, China, Hong Kong, North and South
Korea, and Taiwan. Under the terms of the Kirin agreement, we may receive up to
an aggregate of $25.0 million in license fees, research support, and milestone
payments plus royalties from any future product sales in exchange for exclusive
rights to develop, manufacture, and sell compounds for the treatment of
hyperparathyroidism in their territory. Kirin is responsible for conducting
clinical trials and obtaining regulatory approvals in its territory. Kirin paid
an initial license fee of $5.0 million and committed $7.0 million in research
payments for research over five years. The Kirin research support payments were
$500,000 per quarter through June 1997 and are $250,000 per quarter over the
remaining three years of the agreement. The remaining $13.0 million is payable
to us upon achievement of specific development milestones in the United States
and/or Kirin's territory. In October 1996, we earned our first milestone payment
from Kirin in the amount of $2.0 million for the start of clinical trials in
Japan. In December 1997, we received the second milestone payment from Kirin in
the amount of $2.0 million for the commencement in Japan of a Phase II clinical
trial for primary hyperparathyroidism. Kirin is required to pay all costs of
developing and commercializing products within its territory and will pay
royalties on any product sales. Kirin may terminate the Kirin agreement for any
reason upon 90 days written notice. Termination of the Kirin agreement will
result in Amgen receiving worldwide rights to develop and commercialize drugs
for the treatment of hyperparathyroidism.
SmithKline Beecham Corporation
In November 1993, we entered into a three-year collaborative research and
license agreement with SmithKline Beecham to collaborate on the discovery,
development, and marketing of drugs to treat osteoporosis and other bone
metabolism disorders. Under the agreement, SmithKline Beecham has the exclusive
license to the worldwide development and marketing of any calcium receptor-
active compounds developed under this agreement that are useful for treating
osteoporosis and other bone metabolism disorders, excluding hyperparathyroidism.
Once
10
compounds have been selected for development, SmithKline Beecham has agreed to
conduct and fund all product development including all human clinical trials and
regulatory submissions. We have the right to copromote any resulting products in
the United States. In 1992, S.R. One, an affiliate of SmithKline Beecham,
purchased $2.0 million of NPS preferred stock. In 1993, at the time we entered
into the agreement, S.R. One purchased an additional $7.0 million in equity of
NPS and acquired $495,000 of NPS common stock in our initial public offering.
All NPS preferred stock was converted into common stock upon the closing of our
initial public offering.
Under the terms of the SmithKline agreement, in addition to the $7.0
million equity purchase, SmithKline Beecham paid a $6.0 million license fee and
agreed to make additional payments upon the achievement of specific milestones.
A $3.0 million milestone payment was made in January 1996. In July 1995, we
began receiving payments from them to support our research efforts and have
recognized revenue of $10.4 million through 1999. In November 1997, the research
term of the agreement was extended for an additional period of up to three
years. Concurrently with the execution of the extension agreement, SmithKline
Beecham purchased 160,000 shares of NPS common stock and an option to purchase
an additional 204,000 shares in November 1998 and 249,000 shares in November
1999. SmithKline Beecham exercised both options and purchased the additional
shares in 1998 and 1999, respectively. Research support payments are expected to
be approximately $87,500 per quarter through October 2000 unless terminated
earlier by SmithKline Beecham. We are entitled to royalties on sales of products
for osteoporosis and other bone metabolism disorders developed by SmithKline
Beecham under this agreement and a share of the profits from any copromotion of
the products. The agreement may be terminated by SmithKline Beecham upon 30 days
written notice, and we will have the right to extend this agreement for an
additional period of time, provided that drug marketing has commenced. Under
certain circumstances, we have the right to terminate the SmithKline agreement
after October 2000. Termination of the SmithKline agreement will result in the
return of our technology, commercialization, and patent rights in the licensed
field of osteoporosis and other bone and mineral disorders, as well as all
additional technology developed in the course of the collaboration.
Eli Lilly
In December 1989, we entered into a research agreement with Eli Lilly under
which our scientists collaborated with scientists from Lilly Research
Laboratories in Indianapolis to develop a number of proprietary mammalian cell
lines containing human glutamate or EAA receptors. This program is funded by
Eli Lilly and, effective November, 1994, was extended to similar types of
research activities. This program was again renewed in November 1998 for two
years. We expect to receive approximately (Cdn) $2.7 million for work under
this program through November 2000. If products are marketed and sold by Eli
Lilly, royalty payments will be paid to us.
Janssen Pharmaceutica N.V.
In October 1998, we entered into a collaborative agreement with Janssen
Pharmaceutica N.V., a wholly owned subsidiary of Johnson & Johnson, for the
research, development and marketing of new drugs for neuropsychiatric disorders.
Under the terms of the agreement, Janssen Pharmaceutica paid an initial license
fee of $2.0 million. We are entitled to annual research and development funding
of $2.3 million for a minimum of two years and may receive milestone payments of
up to $21.5 million which are dependent on successful achievement of clinical
development benchmarks. We will receive royalties from the commercial sale of
products resulting from the partnership. In addition, Janssen Pharmaceutica will
assume responsibility for development of the compounds, including expenses.
Janssen Pharmaceutica has the right to market products worldwide, subject to our
option for co-promotion in Canada.
Abbott Laboratories
On March 20, 2000, we entered into an exclusive license agreement with
Abbott Laboratories for our compound NPS 1776 and related NPS molecules. This
Agreement grants to Abbott Laboratories the exclusive worldwide right to develop
and commercialize NPS 1776 for all indications. Abbott has committed to conduct
and fund all preclinical development and, if warranted, clinical development
activities for NPS 1776 and related molecules. We will participate with Abbott
on a joint project review committee where we will observe the progress of Abbott
during the first 24 months of the agreement and where we will review progress on
Abbott's subsequent
11
clinical development work plan. We will continue to prosecute all our worldwide
patent applications for NPS 1776. We are entitled to receive up to $18 million
in milestone payments upon the occurrence of certain specified events and to
receive royalties on all sales of NPS 1776 and related NPS molecules. Abbott has
the right to terminate the agreement at any time. Upon termination, all data and
intellectual property will be returned to us. We have the right to institute
binding alternative dispute resolution for return of the program and related
technology in absence of development progress.
The Brigham and Women's Hospital, Inc.
In February 1993, we entered into two agreements with The Brigham and
Women's Hospital, an affiliate of Harvard University Medical School: a sponsored
collaborative research agreement, and a patent license agreement. The patent
license agreement grants us an exclusive license to certain calcium receptor and
inorganic ion receptor technology covered by patents jointly owned by Brigham
and Women's and NPS. The research agreement grants us a right of first
negotiation for exclusive license rights to any patentable subject matter
arising out of research at Brigham and Women's that is sponsored by NPS. Brigham
and Women's is also entitled to a royalty on sales of certain products under the
patent license agreement, and we have committed to promote sales of any licensed
products for hyperparathyroidism for which we receive regulatory approval. In
February 1996, we reached an agreement with them to extend the research
agreement for an additional year. This agreement was further amended, effective
March 1, 1997, to extend the research agreement for an additional year and to
update the amount of research support payments to be made by us for the final
year of the agreement. Effective March 1, 1998, the research agreement was
extended for an additional two years. We expect to extend the research agreement
for an additional two years in the first half of 2000.
Patents and Proprietary Technology
Our success will depend in part on our ability to obtain patents, maintain
trade secrets and operate without infringing the proprietary rights of others,
both in the United States and other countries. Periodically, we file patent
applications to protect technology, inventions, and improvements that may be
important to the development of our business. We rely on trade secrets, know-
how, continuing technological innovations, and licensing opportunities to
develop and maintain our competitive position.
We file patent applications in our own name, and when appropriate, have
filed and expect to continue to file, applications jointly with our
collaborators. These patent applications cover compositions of matter, methods
of treatment, methods of discovery, use of novel compounds and novel modes of
action, and recombinantly expressed receptors and gene sequences that are
important in our research and development activities. Some of our principal
intellectual property rights related to processes, compounds, uses, and
techniques related to calcium receptor science are now protected by issued
United States patents. We intend to file additional patent applications relating
to our technology and to specific products as appropriate.
The patent positions of pharmaceutical and biotechnology firms are
uncertain and involve complex legal and factual questions. In addition, the
scope of the claims in a patent application can be significantly modified during
prosecution before the patent is issued. Consequently, we cannot know whether
pending applications will result in the issuance of patents or, if any patents
are issued, whether they will provide significant proprietary protection or will
be circumvented or invalidated. Generally, patent applications in the United
States are maintained in secrecy until patents issue and publication of
discoveries in the scientific or patent literature often lag behind actual
discoveries. In addition, no assurance can be given that, even if published, we
will be aware of all such literature. Accordingly, we cannot be certain that the
named inventors were the first to invent or that we were the first to pursue
patent coverage for the inventions. Moreover, we may have to participate in
interference proceedings declared by the United States Patent and Trademark
Office to determine priority of invention, which could result in substantial
cost, even if the eventual outcome is favorable to us. There can be no assurance
that our pending patent applications, if issued, would be held valid. An adverse
outcome could subject us to significant liabilities to third parties, could
require disputed rights to be licensed from third parties, or require us to
cease or modify our use of the technology. Additionally, many of our foreign
patent applications have been published as part of the patent prosecution
process in such countries. Protection of the rights revealed in published patent
applications can be complex, costly, and uncertain.
12
The pursuit of patent applications is intensely competitive for therapeutic
products in our areas of research. A number of pharmaceutical companies,
biotechnology companies, universities, and research institutions have filed
patent applications or received patents in these and related fields. Some of
these applications or patents may limit or preclude our applications and could
result in a significant reduction in the coverage of the patents, if we seek
them at all.
We also rely on trade secrets and contractual arrangements to protect our
trade secrets. There can be no assurance that these agreements will be adequate,
that they will not be breached, that we would have adequate remedies for any
breach, or that our trade secrets will not otherwise become known or be
independently discovered by competitors.
Much of the know-how important to our technology and many of its processes
are dependent upon the knowledge, experience, and skills of key scientific and
technical personnel and are not the subject of pending patent applications or
issued patents. To protect our rights to know-how and technology, we require all
employees, consultants, advisors, and collaborators to enter into
confidentiality agreements that prohibit the unauthorized use of and restrict
the disclosure of confidential information, and require disclosure and
assignment to NPS of ideas, developments, discoveries, and inventions made by
them. There can be no assurance that these agreements will effectively prevent
disclosure of confidential information or will provide meaningful protection for
our confidential information if there is unauthorized use or disclosure. It must
also be recognized that competitors may develop substantially equivalent know-
how and technology.
In connection with research in the field of calcium and other ion
receptors, we have sponsored research at various university and government
laboratories. For example, we have executed license and research agreements
regarding research in the area of calcium and other ion receptors with The
Brigham and Women's Hospital. See "Collaborative Research, Development, and
Licensing Agreements--The Brigham and Women's Hospital, Inc."
We have also sponsored work at other government and academic laboratories
for various evaluations, assays, screenings, and other tests of our natural
products library and lead compounds in the central nervous system field.
Generally, under these agreements, we fund the work of investigators in exchange
for the results of the specified work and the right or option to a license to
any patentable inventions that may result in certain designated areas. If the
sponsored work produces patentable subject matter, we generally have the first
right to negotiate for license rights therein. Any resulting license would be
expected to require us to pay royalties on net sales of licensed products. There
can be no assurance that any inventions will arise, that any patent applications
on them will be filed or, if filed, that any patents will issue, that any
license can be negotiated, or that any license agreement would give us valuable
rights.
Manufacturing
We anticipate that all products from our small molecule programs will be
made by synthetic chemical manufacturing techniques. As such, we believe the
compounds can be precisely defined and characterized and should have relatively
low manufacturing costs compared to current pharmaceutical industry costs and
compared to recombinant proteins that are produced by the fermentation methods
common to currently available biotechnology products.
We have no manufacturing facilities. Under the Amgen, Kirin, and SmithKline
Beecham agreements, each licensee is responsible for the manufacture of the
applicable product. We rely on other manufacturers to produce the proprietary
compounds for research and development activities and in sufficient quantities
for preclinical and clinical purposes. The proposed pharmaceutical products
under development have never been manufactured on a commercial scale, and there
can be no assurance that the products can be manufactured at a cost or in
quantities to make them commercially viable. If we were unable to contract for a
sufficient supply of compounds on acceptable terms, or if we should encounter
delays or difficulties in relationships with manufacturers, our preclinical and
clinical testing schedule would be delayed. That delay might postpone the
submission of products for regulatory approval or the market introduction and
subsequent sales of the products, which would have a materially adverse effect
on our operations. Moreover, contract manufacturers that we may use must adhere
to quality system regulations of the FDA.
13
We currently produce some biological material at our Mississauga, Ontario
site. Such materials are used in connection with our preclinical and clinical
testing activities for our protein therapeutic programs. In addition, other
material is obtained from contract production firms. For certain tests, material
must be manufactured under good manufacturing practices of the FDA. We do not
presently meet those requirements, as a result, materials for these tests are
obtained through contracts with contract production firms. For example, in the
protein therapeutics area, we have developed and implemented a production
process for recombinant therapeutic proteins such as ALX1-11. We have also
developed a proprietary production process whereby ALX1-11 may be produced by
fermentation in accordance with good manufacturing processes. Clinical grade
ALX1-11 has been produced for us by a supplier in accordance with the production
specifications developed by us. We are currently reviewing alternatives to meet
current and planned manufacturing needs for ALX1-11 and ALX-0600.
Government Regulation
Research, preclinical development, clinical trials, manufacturing, and
marketing activities are subject to regulation for safety, efficacy, and quality
by numerous governmental authorities in the United States and other countries.
In the United States, drugs are subject to rigorous FDA regulation. The Federal
Food, Drug and Cosmetic Act and other federal and state statutes and regulations
govern, among other things, the testing, manufacture, safety, efficacy,
labeling, storage, record keeping, approval, advertising, and promotion of our
products. Product development and approval within this regulatory framework take
a number of years and involve the expenditure of substantial resources.
The steps required before a pharmaceutical agent may be marketed in the
United States include:
. preclinical laboratory tests, animal pharmacology and toxicology studies
and formulation studies;
. the submission of an Investigational new drug application to the FDA for
human clinical testing, which must become effective before human clinical
trials commence;
. adequate and well-controlled human clinical trials to establish the safety
and efficacy of the drug;
. the submission of a new drug application to the FDA; and
. FDA approval of the new drug application before any commercial sale or
shipment of the drug. In addition to obtaining FDA approval for each product,
each domestic drug manufacturing establishment must be registered with, and
approved by, the FDA.
Domestic drug manufacturing establishments are subject to regular
inspections by the FDA and must comply with FDA regulations. To supply products
for use in the United States, foreign manufacturing establishments must comply
with FDA regulations and are subject to periodic inspection by the FDA or by
corresponding regulatory agencies in their home countries, under reciprocal
agreements with the FDA.
Preclinical studies include the laboratory evaluation of in vitro
pharmacology, product chemistry and formulation, as well as animal studies to
assess the potential safety and efficacy of the product. Compounds must be
formulated according to quality system regulations, and preclinical safety tests
must be conducted by laboratories that comply with FDA regulations regarding
good laboratory practices. The results of the preclinical tests are submitted to
the FDA as part of an investigational new drug application and are reviewed by
the FDA before the commencement of human clinical trials. Unless the FDA objects
to an investigational new drug application, the investigational new drug
application will usually become effective 30 days following receipt by the FDA.
There can be no assurance that submission of an investigational new drug
application will result in FDA authorization to commence clinical trials.
Clinical trials involve the administration of the investigational new drug
to healthy volunteers and to patients under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with good
clinical practices under protocols that detail the objectives of the study, the
parameters to be used to monitor safety, and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the
investigational new drug application. Furthermore, each clinical study must be
conducted under the auspices of an Institutional Review Board at the institution
where the study will be conducted. The Institutional Review Board will
14
consider, among other things, ethical factors, the safety of the human subjects,
and the possible liability of the institution.
Clinical trials typically are conducted in three sequential phases, which
may overlap. In Phase I, the initial introduction of the drug into healthy
subjects, the drug is tested for safety (adverse effects), dosage tolerance,
metabolism, distribution, excretion, and pharmacodynamics (clinical
pharmacology). Phase II involves studies in a limited patient population to:
. determine the efficacy of the drug for specific, targeted indications;
. determine dosage tolerance and optimal dosage; and
. identify possible adverse effects and safety risks.
When a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluations, Phase III trials are undertaken to evaluate
further clinical efficacy and to test for safety within an expanded patient
population at geographically dispersed clinical study sites.
The results of the pharmaceutical development, preclinical studies, and
clinical studies are submitted to the FDA in the form of an new drug application
for approval of the marketing and commercial shipment of the drug. The testing
and approval process is likely to require substantial time and effort, and there
can be no assurance that any approval will be granted on a timely basis, if at
all. The FDA may deny an new drug application if applicable regulatory criteria
are not satisfied, may require additional testing or information, or may require
postmarketing testing and surveillance to monitor the safety of our products if
the new drug application is not viewed as containing adequate evidence of the
safety and efficacy of the drug. Notwithstanding the submission of the data, the
FDA may ultimately decide that the application does not satisfy its regulatory
criteria for approval. Moreover, if regulatory approval of a drug is granted,
approval may entail limitations on the indicated uses for which it may be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing.
Among the conditions for new drug application approval is the requirement
that the prospective manufacturer's quality control and manufacturing procedures
conform to quality system regulations, which must be followed at all times. In
complying with standards shown in these regulations, manufacturers must continue
to expend time, money, and effort in the area of production and quality control
to ensure full technical compliance.
In addition to regulations enforced by the FDA, we are also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and future federal, state, or local regulations.
Our research and development activities involve the controlled use of hazardous
materials, chemicals, and various radioactive compounds. Although we believe
that our safety procedures for handling and disposing of these materials comply
with the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of an accident, we could be liable for any damages that
result, and any liability could exceed our resources.
Outside the United States, our ability to market a product is contingent
upon receiving a marketing authorization from the appropriate regulatory
authority. This foreign regulatory approval process includes all of the risks
associated with FDA approval described above.
Competition
NPS and our licensees are pursuing areas of product development in which we
believe there is a potential for extensive technological innovation in
relatively short periods of time. We operate in a field in which new discoveries
occur at a rapid pace. Competitors may succeed in developing technologies or
products that are more effective than ours or in obtaining regulatory approvals
for their drugs more rapidly than we are able to, which could render our
products obsolete or noncompetitive. Competition in the pharmaceutical industry
is intense and is expected to continue to increase. Many competitors, including
biotechnology and pharmaceutical companies, are actively engaged in the research
and development of products in similar areas, including the fields of
hyperparathyroidism, osteoporosis, neuroprotection, and neurological disorders.
Many of our competitors have
15
substantially greater financial, technical, marketing, and personnel resources.
In addition, some of them have considerable experience in preclinical testing,
human clinical trials, and other regulatory approval procedures. Moreover,
certain academic institutions, governmental agencies, and other research
organizations are conducting research in the same areas in which we are working.
These institutions are becoming increasingly aware of the commercial value of
their findings and are more actively seeking patent protection and licensing
arrangements to collect royalties for the technology that they have developed.
These institutions may also market competitive commercial products on their own
or through joint ventures and will compete with us in recruiting highly
qualified scientific personnel. There can be no assurance that a pharmacological
method of treatment for certain diseases, such as hyperparathyroidism, will
prove to be superior to existing or newly discovered approaches to the treatment
of those diseases.
Environmental Liability
On November 29, 1995, the Environmental Protection Agency (EPA) notified us
that we may have incurred liability under section 107(a) of the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, for two
barrels of radioactive waste taken by a third-party contractor to a hazardous
and radioactive waste storage, treatment, and disposal facility in Denver,
Colorado. Upon the EPA's request, we identified the waste and verified that the
barrels containing the waste have been removed from the Denver, Colorado
facility. Removal of wastes from the facility and remediation of soil and
groundwater at this site is currently underway. The ultimate cost of removal and
remediation actions and the length of time for these actions are difficult to
estimate. Based upon its inspection of the site, the barrels containing the
waste disposed of by us were determined to be neither leaking nor damaged.
Although we were a small contributor to the site and we believe that there are a
number of other financially responsible contributors, there can be no assurance
that we will not be held liable for all or a portion of the cleanup cost or any
other costs or damages associated with this disposal site.
Employees
As of December 31, 1999, we employed 144 individuals full-time, 38 of whom
hold Ph.D. degrees, and 39 of whom hold other advanced degrees. A total of 91
full-time employees are engaged in research, development, and supporting
activities, including a variety of disciplines within the areas of molecular
biology, pharmacology, medicinal chemistry, computer sciences, and clinical
development. A total of 53 full-time employees are employed in finance, legal,
and human resources, market research, corporate development, and general
administrative activities. None of our employees are covered by collective
bargaining agreements, and management considers relations with its employees to
be good. Additionally, we augment our full-time staff through consulting
arrangements with experienced scientists and managers. Our anticipated growth
and expansion may require the hiring of additional management, research and
development, and administrative personnel.
Risk Factors
You should carefully consider the following risk factors and warnings
before making an investment decision. Additional risks that we do not yet know
of or that we currently think are immaterial may also impair our business
operations. If any of the events or circumstances described in the following
risks actually occur, our business, financial condition, or results of
operations could be materially adversely affected. In such case, the trading
price of our common stock could decline, and you may lose all or part of your
investment.
We have a history of operating losses and may never reach profitability. We
have not been profitable since our inception in 1986. As of December 31, 1999,
we had an accumulated deficit of approximately $78.9 million. We expect to
continue to incur losses for the next several years. We may never realize
significant revenues or be profitable. Factors that will influence our
profitability include:
. the success of our product candidates placed with Amgen, Kirin,
SmithKline Beecham, Janssen and Eli Lilly;
. the development and commercialization of additional products, especially
our most advanced non-partnered product candidates ALX1-11 and ALX-0600,
which relate to the treatment of osteoporosis and short bowel syndrome,
respectively;
. our ability to secure corporate partners to share the expense of
development of our non-partnered
16
programs;
. the timing and difficulty of obtaining regulatory approvals; and
. competition.
If we fail to obtain additional financing to fund our operations, we will
be unable to complete our product development efforts. Most of our funding has
come from research and development fees and the sale of stock. We have not
generated any material revenues from product sales. We have expended and will
continue to expend significant sums to complete development of our products. Our
current resources are inadequate to finance all of the work planned and needed
to complete development of our current programs through to commercialization. We
have announced our intention to devote considerable cash resources to clinical
development. If we exceed our cost estimates, or incur costs earlier than
expected, we may be required to reduce costs, delay development or seek
additional financing through collaborative relationships or public and private
financings. Additional financing may not be available on favorable terms, or at
all. If we raise additional funds by selling equity securities, the share
ownership of our existing investors could be diluted or the new equity
purchasers may obtain terms that are better than those of our existing
investors. Lack of financing may delay, reduce or eliminate some of our programs
or force us to relinquish rights to technology, product candidates or products.
If we fail to maintain our existing collaborative relationships or if our
partners do not apply adequate resources to our collaborations, our product
development and profitability will be delayed. Our corporate partners have full
control over the development and commercialization activities in their
territories for their respective programs. Because we have granted exclusive
development, commercialization, and marketing rights to these partners, the
success of the programs are dependent upon their efforts. If our partners do not
satisfactorily perform under the agreements, or if our partners terminate these
agreements before lead product candidates are identified or any related product
candidates are developed, we might not have the financial resources necessary to
continue development of those programs. If we could not continue development of
these products, we might not become profitable. In addition much of the revenue
that we may receive under these partnerships depends upon our partners'
successful development and commercialization of the products. Our partners may
develop alternative technologies or products outside of their partnerships with
us, and the alternative technologies or products may be used to develop
treatments for the diseases targeted by our partnerships. As a result, we would
have to seek other sources of revenue which may not be available.
If we do not find corporate partners for new product candidates, our rate
of product development may be reduced. Our strategy for the development,
testing, manufacturing and commercialization of our products requires that we
enter into various collaborations with partners, licensors, licensees, and
others in order to conserve financial resources. We may not be able to negotiate
further collaborative arrangements on acceptable terms, if at all. If we are not
able to establish such arrangements, we would experience increased capital
requirements to undertake the activities at our own expense. In addition, we may
encounter significant delays in introducing our products into certain markets or
find that the development, manufacture or sale of our products in certain
markets is hindered by the absence of collaborative agreements. To the extent we
enter into co-promotion or other licensing arrangements, our revenues will
depend upon the efforts of third parties over which we have no control.
If we are not successful in acquiring rights to external technologies,
programs, and product candidates, we may not be able to maintain or expand our
product portfolio. In order to reduce our dependence on the success of the few
product candidates we now have, we are actively evaluating product acquisition
opportunities to establish and maintain an appropriate portfolio of product
candidates. We seek optimum diversity of materials, timetables, development
costs, applicability to current medical needs, and other select criteria. We may
be unsuccessful in our efforts to identify, acquire and exploit third-party
technologies or product opportunities. If we choose to and are successful in
entering into future agreements, we will experience increased capital
requirements to undertake research, development, and marketing of any licensed
technologies, programs, and development candidates. In addition, we may
encounter significant in commercializing any licensed product candidates or we
may find that the sale of these product candidates is subject to intense
competition.
If we do not successfully integrate the operations of NPS and Allelix,
commercialization of products may be delayed and financial resources may be
wasted. As a result of the acquisition of Allelix in December, 1999, we must
integrate two companies that previously operated independently. Such integration
will require significant effort from each company including the coordination of
each company's efforts in research and
17
development, business development, intellectual property, finance, and
administration. We may not be able to integrate the respective operations of NPS
and Allelix without encountering difficulties or experiencing loss of personnel,
and the benefits expected from such integration may not be realized. The
diversion of management's attention combined with any difficulties encountered
in the transition process, including the interruption of, or a loss of momentum
in, Allelix's or our activities and problems associated with employee
uncertainty and the potential loss of key personnel, could delay development and
commercialization of our products and result in the inefficient use of limited
corporate resources.
The acquisition of Allelix will result in integration costs and transaction
expenses that could reduce our profitability and cause the price of our stock to
decline. If the benefits of the acquisition do not exceed the costs associated
with it, including the dilution to our stockholders resulting from the issuance
of shares of NPS common stock in connection with the acquisition of Allelix, our
financial results, including earnings per share, could decline. We expect to
incur significant costs associated with integrating the operations of NPS and
Allelix. Such costs may include:
. elimination of duplicate operations;
. consolidation of certain administration, support, and research and
development activities; and
. increased expenditures for human trials of ALX1-11 and ALX-0600
Actual costs may substantially exceed preliminary estimates. In addition,
unanticipated expenses associated with integrating the two companies may arise.
We incurred a charge of $17.8 million in the fourth quarter of 1999 to reflect
our write-off of Allelix's in-process research and development efforts. This
write-off will not be accompanied by outward cash flow, but may be seen by
investors as increasing our net loss. We may also incur additional charges in
subsequent quarters to reflect costs associated with the acquisition.
If we fail to satisfy FDA safety and efficacy requirements in our clinical
trials for any product, we will be unable to complete the development and
commercialization of that product. We must conduct extensive and costly human
clinical trials to demonstrate safety and efficacy for a pharmaceutical product
before the product can be approved by the FDA or other regulatory authorities.
If we are unable demonstrate clinical efficacy for a product, we will not
receive the necessary FDA approval for that product and we will never
commercialize that product. A product candidate that appears to be safe or
effective in early studies and testing may not ultimately prove to be safe or
effective when tested in a larger number of patients. All of our product
candidates could prove to be unsafe or ineffective. If one or more of our
product candidates fails to be safe or effective, we may never be profitable. We
may also encounter problems in a clinical trial that might significantly delay
or cause us to terminate the clinical trial program. Any side effects identified
in clinical trials could cause delays or prevent us from commercializing
additional products. This would make it more difficult for us to achieve
profitability. Additionally, those product candidates that are successful in the
clinic and obtain FDA approval may not be as effective as other products on the
market or otherwise be successful in the marketplace. For a more detailed
discussion of the development status of our products, see the "Business" section
following this section, in particularly, the discussions on hyperparathyroidism,
osteoporosis, gastrointestinal disorders and central nervous system.
We are subject to extensive government regulation which can be costly, time
consuming, and subject the introduction of our products to market to
unanticipated delays. Our research and development activities and the
investigation, manufacture, distribution, and marketing of drug products are
subject to extensive regulation by governmental authorities in the United States
and other countries. Prior to marketing in the United States, a drug must
undergo rigorous testing and an extensive regulatory approval process
implemented by the FDA under federal law, including the Federal Food, Drug, and
Cosmetic Act. In order to receive approval, we must, among other things, satisfy
the FDA that the product is both safe and effective. Typically, this process
takes several years depending upon the type, complexity and novelty of the
product and the nature of the disease or other problem to be treated and
requires an expenditure of substantial resources. Drug testing is subject to
complex FDA rules and regulations including the requirement to conduct human
testing on a large number of test subjects. We or the FDA may suspend human
trials at any time if either believes that subjects are being exposed to
unacceptable health risks.
Before receiving FDA approval to market a product, we may have to
demonstrate that the product represents an improved form of treatment when
compared to existing therapies. Data obtained from testing are susceptible to
varying interpretations that could delay, limit, or prevent regulatory approvals
of our products. In
18
addition, we may encounter delays or rejections from additional government
regulation as a result of future legislation, administrative action, or changes
in FDA policy during the period of product development, human trials, and FDA
regulatory review. If we receive regulatory approval of a product, the approval
will be limited to those disease states and conditions for which the product is
useful, as demonstrated through clinical studies. Furthermore, approval may
subject us to ongoing requirements for post-marketing studies. Even if we obtain
regulatory approval, a marketed product, its manufacturer, and its manufacturing
facilities are subject to continual review and periodic. The discovery of
previously unknown problems with a product, manufacturer, or facility may result
in restrictions on that product or manufacturer, including costly recalls or
withdrawal of the product from the market. Compounds developed by us alone or in
conjunction with others may not prove to be safe or effective in human trials
and may not meet all of the applicable regulatory requirements needed for
marketing approval.
Outside the United States, our ability to market a product is contingent
upon receiving marketing authorization from the appropriate foreign regulatory
authorities. The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary widely from country to
country. This foreign regulatory approval process includes all of the risks
associated with FDA approval discussed above.
We face intense competition and technological change which will impact the
acceptance of our products in the marketplace and our ability to compete against
other companies in our industry. The pharmaceutical industry is intensely
competitive. Existing and future products, therapies, and technological
approaches will compete directly with our products. Competing products may
provide greater therapeutic benefits for a specific problem or may offer
comparable performance at a lower cost. If doctors and patients do not use our
products, our profitability may be delayed or prevented.
We compete with fully integrated pharmaceutical companies, smaller
companies that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have drug products already approved or
in development and operate large, well-funded research and development programs
in these fields. Our competitors may develop safer or more effective drugs and
achieve faster or broader regulatory approval. In addition, many of these
competitors have wider availability of supply, more effective marketing and
sales and superior intellectual property positions. Any products that we develop
may become obsolete before we recover any expenses incurred in connection with
the development of these products.
If we fail to protect our intellectual property or infringe the
intellectual property rights of others, we may not be able to compete
effectively. Our success will depend, in part, on our ability to obtain and
protect patents, maintain trade secrets and operate without infringing the
intellectual property rights of others. Our competitors may challenge,
invalidate, or circumvent our patents or patent applications. These patents may
also fail to provide us with meaningful competitive advantages.
Intellectual property rights are uncertain and involve complex legal and
factual questions, particularly with respect to biotechnology and pharmaceutical
patents. Generally, patent applications in the United States are maintained in
secrecy until patents issue, and publication of discoveries in the scientific or
patent literature often lag behind actual discoveries. Accordingly, we cannot be
certain that the inventors named in our patent applications were the first to
invent, or that we were the first to pursue patent coverage for those
inventions. We may unknowingly infringe the intellectual property rights of
others and may be liable for that infringement, which could result in
significant liability for us. We could be forced to either seek a license to
intellectual property rights of others or alter our products or processes so
that they no longer infringe the intellectual property of others. A license
could be very expensive to obtain, or may not be available at all.
Similarly, changing our products or processes to avoid infringing the
rights of others may be costly or impractical. If we were to become involved in
a dispute regarding intellectual property, whether ours or that of another
company, we may have to participate in interference proceedings declared by the
U.S. Patent and Trademark Office to determine who had the claimed rights first.
We may also be forced to seek a judicial determination concerning the rights in
question. These types of proceedings may be costly and time consuming for us,
even if we eventually prevail. If we do not prevail, we might be forced to pay
significant damages, obtain a license or stop making a certain product.
19
We also rely on trade secrets, know-how, and confidentiality provisions in
agreements with collaborative partners, employees, and consultants to protect
our intellectual property. However, other parties may not comply with the terms
of their agreements with us and we might not be able to adequately enforce our
rights against these people, or obtain adequate compensation in respect of the
damages caused by unauthorized disclosure.
Our reliance on third party manufacturers may limit our ability to
commercialize our products. We do not have any internal manufacturing capacity,
and we rely on third-party manufacturers for the manufacture of all of our
products used in clinical trials. If we are unable to contract for a sufficient
supply of our products on acceptable terms, or if we encounter delays and
difficulties in our relationships with manufacturers, our product testing
schedule would be delayed. A delay would set back our timetable for submission
of products for regulatory approval, market introduction, and subsequent sales,
which would postpone revenues and profitability. We will need to expand our
existing relationships or establish new relationships with additional third-
party manufacturers for products that we successfully develop in the future. We
may be unable to establish or maintain relationships with third-party
manufacturers on acceptable terms, and third-party manufacturers may be unable
to manufacture products in commercial quantities on a cost effective basis. Our
dependence upon third parties may reduce our profit margins and delay our
ability to develop and commercialize products on a timely and competitive basis.
Furthermore, third-party manufacturers may encounter manufacturing or quality
control problems in connection with the manufacture of our products and they may
be unable to maintain the necessary governmental licenses and approvals to
continue manufacturing our products.
Also, our corporate collaborators, licensees, or contract manufacturers may
be unable to manufacture any compounds we develop on a commercial scale, or to
manufacture products in quantities or at prices that will be commercially viable
or beneficial to us. Our partners are responsible for manufacturing any products
developed under their respective license agreements. If we or our partners
encounter difficulty in obtaining third-party manufacturing on commercially
acceptable terms, our ability to commercialize products may be delayed or
foreclosed.
If we are unable to establish sales, marketing, and distribution
capabilities, our ability to generate revenues will be impaired. We do not have
any sales, marketing or distribution capabilities. We will have to develop a
sales force or rely on third parties to perform these functions for any products
we develop. In order to market any products directly, we would have to develop a
marketing and sales force with technical expertise and supporting distribution
capability. We might not be able to establish in-house sales and distribution
capabilities or relationships with third parties to accomplish these tasks,
which would limit our ability to generate revenues. Additionally, our licensees
currently have marketing and distribution rights with respect to products under
development for the treatment of hyperparathyroidism and osteoporosis; however,
such commercialization rights may revert to us under certain circumstances,
including termination of any agreements, in which case we would try to develop
additional marketing and distribution capacities for these products.
Because of the uncertainty of pharmaceutical pricing, reimbursement, and
healthcare reform measures, we may be unable to sell our products profitably.
The availability of reimbursement by governmental and other third-party payors
affects the market for any pharmaceutical product. These third-party payors
continually attempt to contain or reduce the costs of healthcare. There have
been a number of legislative and regulatory proposals to change the healthcare
system, and further proposals are likely. Under current guidelines, Medicare
does not reimburse patients for self-administered drugs. This policy may
decrease the market for our products designed to treat patients with age-related
disorders, such as hyperparathyroidism and osteoporosis. In addition, third-
party payors are increasingly challenging the price and cost-effectiveness of
medical products and services. Significant uncertainty exists with respect to
the reimbursement status of newly approved health care products. We might not be
able to sell our products profitably if reimbursement is unavailable or limited
in scope.
If we fail to attract and retain key employees and consultants, our
introduction of products to market may be delayed. We are highly dependent on
the principal members of our scientific and management staff. If we lose any of
these persons, our ability to develop products and become profitable could
suffer. Nonetheless, we do not have long-term employment contracts. Our future
success will depend in large part upon our continued ability to attract and
retain highly qualified scientific and management personnel. We face competition
for personnel from other companies, academic institutions, government entities,
and other organizations. Anticipated growth and expansion into areas and
activities requiring additional expertise, such as clinical trials, government
approvals,
20
production and marketing, and general pharmaceutical company management, will
place increased demands on our personnel resources. These demands may require us
to add new management; research, development, and administrative personnel and
our existing management personnel may have to develop additional expertise. If
we fail to acquire such services or if our existing management fails to develop
such expertise we may not be able to obtain required approval for products or
become profitable. We expect to meet certain of these anticipated future needs
through agreements with our partners and potential additional corporate
collaborations. Nevertheless, services provided by them may not be sufficient to
meet our personnel or management needs.
If product liability claims are brought against us, we may incur
substantial liabilities which could reduce our financial resources. The testing
and commercial use of pharmaceutical products entails significant exposure to
product liability claims. If we succeed in developing products, the use of our
products in clinical trials and the sale of our products following regulatory
approval may expose us to product liability claims. These claims might be made
directly by consumers or others. We have obtained limited product liability
insurance coverage for our clinical trials on humans. This coverage may be
insufficient to protect us against product liability damages. We might not be
able to obtain or maintain product liability insurance in the future on
acceptable terms or in sufficient amounts to protect us against product
liability damages. We are entitled to indemnification under agreements with our
partners and licensees against damage claims, but claims arising from products
sold by a collaborative partner or licensee may also include claims directly
against us and may not be indemnifiable under the agreement.
Our operations involve hazardous materials and we must comply with
environmental laws and regulations, which can be expensive and restrict how we
do business. Our research and development activities involve the controlled use
of hazardous materials, radioactive compounds, and other potentially dangerous
chemicals and biological agents. Although we believe that our safety procedures
for these materials comply with governmental standards, we cannot eliminate the
risk of accidental contamination or injury from these materials. If an accident
or environmental discharge occurs, we could be held liable for any resulting
damages, which could exceed our financial resources. We disposed radioactive
waste at a site in Denver, Colorado, which is currently in remediation.
Although we were a small contributor to the site and there are a number of other
financially responsible contributors, we may be held liable for all or a portion
of the clean-up cost or any other costs or damages associated with this disposal
site.
Our stock price has been and may continue to be volatile and your
investment could suffer a decline in value. You should consider an investment in
our stock as risky and invest only if you can withstand a significant loss and
wide fluctuations in market value of your investment. We receive little
attention by securities analysts and frequently experience an imbalance between
supply and demand for our stock. The market price of our common stock has been
highly volatile and is likely to continue to be volatile. Factors affecting our
stock price include:
. fluctuations in our operating results;
. announcements of technological innovations or new commercial
pharmaceutical products by us or our competitors;
. published reports by securities analysts;
. progress with clinical trials;
. governmental regulation;
. changes in reimbursement policies;
. developments in patent or other intellectual property rights;
. publicity, or the lack thereof, concerning the discovery and development
activities by our licensees;
. public concern as to the safety and efficacy of drugs developed by us
and our competitors; and
. general market conditions.
When we issue shares under employee stock incentive plans, current
stockholders and future earnings per share will be diluted. We maintain stock
incentive plans whereby employees, directors, and consultants can acquire shares
of our common stock through the exercise of stock options, grants, and
purchases. Shares issued under these plans may dilute the holdings of current
stockholders and reduce earnings per share in the future.
21
Antitakeover provisions in our articles, bylaws, shareholders rights plan
and under Delaware Law may discourage someone from acquiring us, and may prevent
a stockholder from receiving a favorable price for his or her shares. Certain
provisions of our certificate of incorporation and bylaws and Section 203 of the
Delaware General Corporation Law could discourage potential acquisition
proposals and could delay or prevent a change in control of our company. In
addition, the Board of Directors, without further stockholder approval, may
issue preferred stock that could delay or prevent a change in control of our
company as well as reduce the voting power of the holders of common stock, even
to the extent of losing control to others. In addition, the Board of Directors
has adopted a shareholder rights plan, commonly known as a "poison pill," that
may delay or prevent a change in control. Such provisions could diminish the
opportunities for a stockholder to participate in tender offers, including those
at a price above the then-current market value of our common stock. These
provisions may also inhibit fluctuations in the market price of our common stock
that could result from takeover attempts.
We have never paid cash dividends on our common stock. We intend to retain
any future earnings to finance the growth and development of our business, and
we do not plan to pay cash dividends in the foreseeable future. As a result,
stockholders should not expect to receive cash from holding our common stock.
Unexpected Year 2000 related problems could still arise and, if
significant, could delay development of our products and reduce our available
financial resources. During 1999, we planned, inventoried, and evaluated our
systems, and remediated, replaced, and tested such remediation and replacements
as necessary. We used internal information systems technology personnel and
other personnel. As a result, we experienced no year 2000 related issues on
January 1, 2000. However, we recognize that there may be residual effects
related to year 2000 issues. We do not have any way to assess the costs related
to remediation of such residual issues. We may in the future identify a
significant internal or external year 2000 residual issue which, if not remedied
in a timely manner, could require us to spend significant resources.
ITEM 2. Properties.
We presently have ongoing operations in both the United States and Canada.
In the U.S., we lease approximately 54,000 square feet of laboratory, support,
and administrative space in the University of Utah's Research Park, located in
Salt Lake City, Utah. We pay approximately $875,000 annually under a facilities
lease that expires in September 2004. In Canada, we own a building consisting of
approximately 90,000 square feet of laboratory, support and administrative space
in Mississauga, Ontario. We anticipate that we will not need to acquire
additional space in order to meet our needs over the next three years.
ITEM 3. Legal Proceedings.
We are not a party to any material legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders.
A special meeting of stockholders was held on December 15, 1999 at the
company's Salt Lake City, Utah offices. At the special meeting, the
stockholders of the Company approved all proposals by the vote specified below:
Proposal One: To approve the issuance of shares of NPS common stock, $.001 par
- ------------ value per share, in connection with the Arrangement Agreement,
dated as of September 27, 1999 by and among Allelix
Biopharmaceuticals Inc. and NPS Pharmaceuticals,Inc. as set
forth in the Proxy Statement.
For Against Abstain
------ ---------------- ---------------
8,777,693 (99.21%) 55,584 (.63%) 14,765 (.16%)
22
Proposal Two: To approve an amendment to the Certificate of Incorporation of
- ------------ NPS increasing the total number of shares of capital stock that
NPS is authorized to issue from 25,000,000 shares to 50,000,000
shares and the total number of shares of common stock authorized
for issuance thereunder to 45,000,000 shares from 20,000,000
shares.
For Against Abstain
------ ---------------- ---------------
8,770,094 (99.12%) 63,313 (.72%) 14,635 (.16%)
Executive Officers of the Registrant.
The executive officers of NPS and their ages as of March 1, 2000 are as
follows:
Name Age Position
- ------------------------------ --------- ----------------------------------------------------
Hunter Jackson, Ph.D. 50 Chief Executive Officer, President and Chairman of
the Board
David L. Clark 46 Vice President, Operations, Business Development
and Corporate Communications
N. Patricia Freston, Ph.D. 60 Vice President, Human Resources
James U. Jensen, J.D 55 Vice President, Corporate Development and Legal
Affairs, Secretary and Director
Thomas B. Marriott, Ph.D. 52 Vice President, Development Research
Robert K. Merrell 44 Vice President, Finance, Chief Financial Officer
and Treasurer
Edward F. Nemeth, Ph.D. 47 Vice President and Chief Scientific Officer
Paul J. Van Damme 50 Vice President, Finance - Canada
________________________
Hunter Jackson, Ph.D., has been Chief Executive Officer and Chairman of the
Board since founding NPS in 1986. He was appointed to the additional position of
President in January 1994. Before founding NPS, he was an Associate Professor in
the Department of Anatomy at the University of Utah School of Medicine. Dr.
Jackson received a B.A. in English from the University of Illinois and a Ph.D.
in Psychobiology from Yale University. He received postdoctoral training in the
Department of Neurosurgery, University of Virginia Medical School.
David L. Clark, has been Vice President, Business Development and Corporate
Communications since January 2000 and Vice President, Operations since March
2000. Prior to being appointed to these positions, he served as Director of
Business Development and Corporate Communications for NPS from September 1988 to
December 1999. He served as Director of Corporate Communications for NPS from
March 1996 to December 1999. Prior to this time, from 1998 to 1996 he served as
Vice President, Business Development for Agridyne Technologies Inc., a publicly
held biotechnology company. Mr. Clark received a B.S. in Botany from Brigham
Young University, and an MS in Plant Genetics from the University of Illinois.
He received an MBA from the University of Utah.
N. Patricia Freston, Ph.D., has been Vice President, Human Resources since
March 1997. From 1980 to February 1997, she served as Manager of Personnel
Services, Questar Corporation a public integrated energy company. From 1977 to
1980, Dr. Freston was Assistant Director of Training for Mountain Fuel Supply, a
subsidiary of Questar. From 1971 to 1977, she was Director of Academic
Programming for the Division of Continuing Education, University of Utah. Dr.
Freston received a B.A. in English from Weber State University, an M.A. in
English from Utah State University, an M.S. in Education from the University of
Texas and a Ph.D. in Industrial Psychology from the University of Utah.
James U. Jensen, J.D., has been Vice President, Corporate Development and
Legal Affairs and Secretary since August 1991. He has been Secretary and a
director of NPS since 1987. From 1986 to July 1991, he was a
23
partner in the law firm of Woodbury, Jensen, Kesler & Swinton, P.C., or its
predecessor firm, concentrating on technology transfer and licensing and
corporate finance. From July 1985 until October 1986, he served as Chief
Financial Officer of Cericor, a software company, and from 1983 to July 1985, as
its outside general counsel. From 1980 to 1983, he served as General Counsel and
Secretary of Dictaphone Corporation, a subsidiary of Pitney Bowes Inc. He serves
as a director of Wasatch Funds, Inc., a registered investment company, and of
Interwest Home Medical, Inc., a public home use medical equipment distributor.
Mr. Jensen received a B.A. in English/Linguistics from the University of Utah
and a J.D. and an M.B.A. from Columbia University.
Thomas B. Marriott, Ph.D., has been Vice President, Development Research
since August 1993. From February 1990 to July 1993, he served as Director,
Clinical Investigations for McNeil Pharmaceutical, a subsidiary of Johnson &
Johnson with responsibility for developing and implementing clinical trial
strategies for a number of products. From 1986 until 1990, Dr. Marriott was
Director, Drug Metabolism for McNeil Pharmaceutical with the responsibility for
planning, initiating, and completing bioanalytical drug disposition and clinical
biopharmaceutics and pharmacokinetics research required for investigational new
drug applications and new drug applications. In this position, he participated
in the preparation of several investigational new drug applications and new drug
applications with responsibility for preparing or supervising the preparation of
the investigational new drug application preclinical drug metabolism section and
the new drug application preclinical and clinical metabolism and
biopharmaceutics sections, and was responsible for integrating the pharmacology,
toxicology and clinical sections of investigational new drug applications and
new drug applications. He received a B.A. in Chemistry from Carleton College and
a Ph.D. in Chemistry from the Institute of Molecular Biology at the University
of Oregon.
Robert K. Merrell has been Vice President, Finance, Chief Financial
Officer, and Treasurer since January 1995 and served as Director of Finance and
Administration and Treasurer from December 1993 to December 1994. He joined NPS
as Controller/Treasurer in September 1988. Prior to that time, he was a Senior
Manager at KPMG LLP. Mr. Merrell has been a licensed C.P.A. since 1980. He
received a B.A. in Accounting from the University of Utah and an M.M. from
Kellogg Graduate School of Management at Northwestern University.
Edward F. Nemeth, Ph.D., has been a Vice President of NPS since January
1994 and was appointed Chief Scientific Officer in July 1997. He joined NPS as
Director of Pharmacology in March 1990. From 1986 until joining NPS, Dr. Nemeth
was an Assistant Professor in the Department of Physiology and Biophysics at
Case Western Reserve University School of Medicine. He holds a B.A. in Chemistry
and Psychology from Lawrence University and a Ph.D. in Pharmacology from Yale
University.
Paul J. Van Damme has been Vice President, Finance - Canada since December
1999. He was Senior Vice President, Finance and Chief Financial Officer of
Allelix Biopharmaceuticals Inc. since September 1997. From December 1996 to
September 1997, he was Vice President and Chief Financial Officer of GlycoDesign
Inc., a Toronto biopharmaceutical company focusing on glycobiology therapeutics.
From 1994 to 1996, he served as Senior Vice President and Chief Financial
Officer of TeleZone Corporation, a wireless telecommunications start-up company.
From 1991 to 1994, he was Vice President, Controller of Laidlaw Inc., an
environmental services and transportation company listed on the NYSE. Mr. Van
Damme is a Chartered Accountant and has several years experience with major
accounting firm, PricewaterhouseCoopers in Toronto, Canada and London, England.
Mr. Van Damme received a Bachelor of Commerce in Economics and an MBA from the
University of Toronto.
24
PART II
ITEM 5. Market for Registrant's Common Stock and Related Stockholder Matters.
Our common stock is quoted on The Nasdaq Stock Market under "NPSP." The
following table sets forth the quarterly high and low closing sales prices for
NPS common stock for each quarter in the two most recent fiscal years as
reported by The Nasdaq Stock Market:
High Low
------------ ------------
1998
First Quarter $ 8.500 $7.375
Second Quarter $ 8.250 $6.750
Third Quarter $ 9.313 $6.375
Fourth Quarter $ 7.938 $5.500
1999
First Quarter $ 7.500 $6.563
Second Quarter $ 7.500 $5.875
Third Quarter $ 8.000 $5.500
Fourth Quarter $12.250 $3.813
On March 1, 2000, there were approximately 4,085 beneficial holders of NPS
common stock and exchangeable shares.
We have never declared or paid cash dividends on capital stock. We intend
to retain any future earnings to finance growth and development and therefore do
not anticipate paying cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
On November 1, 1999, we sold 249,000 shares of NPS common stock, par value
$.001, to SmithKline Beecham for an aggregate purchase price of $1,946,433 in
reliance on Section 4(2) of the Securities Act of 1933. The sale of these shares
was made in conjunction with a collaborative research and license agreement and
$622,500 of the aggregate purchase price was recorded as deferred income.
On December 23, 1999, we issued 6,516,923 shares of NPS common stock
through NPS Allelix Inc., a wholly owned Canadian subsidiary, to common
stockholders of Allelix Biopharmaceuticals Inc. ("Allelix") in connection with
the merger of NPS and Allelix. In return for the issuance of such shares, NPS,
through NPS Allelix Inc., acquired all of the outstanding shares of common stock
of Allelix. The issuance of the shares was exempt from registration pursuant to
Section 3(a)(10) of the Securities Act of 1933.
25
ITEM 6. Selected Financial Data.
The selected consolidated financial data presented below are for each
fiscal year in the five-year period ended December 31, 1999, and for the period
from October 22, 1986 (inception) through December 31, 1999. This is derived
from, and qualified by reference to, NPS's audited consolidated financial
statements and notes thereto. NPS is considered a development stage company as
described in note 1 of notes to financial statements.
---------------------------------------------------------------------------- October 22, 1986
Year Ended December 3 (inception)
---------------------------------------------------------------------------- through
1999 1998 1997 1996 1995 December 31, 1999
------------ ------------ ------------ ------------ ------------ -----------------
(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues from research and
license agreements $ 3,445 $ 3,568 $ 5,842 $20,342 $ 9,562 $ 55,514
Operating expenses:
Research and development 16,935 17,856 15,090 11,326 8,727 91,568
General and administrative 5,983 5,546 5,587 5,111 3,975 35,016
In process research and
development acquired 17, 760 --- --- --- --- 17,760
-------- -------- -------- -------- -------- --------
Total operating expenses 40,678 23,402 20,677 16,437 12,702 144,344
-------- -------- -------- -------- -------- --------
Operating income (loss) (37,233) (19,834) (14,835) 3,905 (3,140) (88,830)
Other income, net 1,579 2,672 3,308 2,550 322 10,925
-------- -------- -------- -------- -------- --------
Income (loss) before income
tax expense (35,654) (17,162) (11,527) 6,455 (2,818) (77,905)
Income tax expense --- --- 167 350 500 1,018
-------- -------- -------- -------- -------- --------
Net income (loss) $(35,654) $(17,162) $(11,694) $ 6,105 $(3,318) $(78,923)
======== ======== ======== ======== ======== ========
Diluted net income (loss)
per share (1) $(2.77) $(1.39) $(0.98) $0.55 $(0.48)
======== ======== ======== ======== ========
Diluted weighted average
shares outstanding (1) 12,863 12,337 11,956 11,086 6,924
----------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(in thousands)
Consolidated Balance Sheets Data:
Cash, cash equivalents, and
marketable investment
securities $ 35,679 $ 43,444 $ 57,942 $ 68,962 $ 8,340
Working capital 32,352 40,767 56,365 67,413 5,832
Total assets 64,966 48,111 62,634 72,160 10,600
Long-term portion of capital
leases and long-term debt 1,940 32 65 327 747
Deficit accumulated during
development stage (78,923) (43,269) (26,107) (14,413) (20,517)
Stockholders' equity 56,079 45,146 69,319 69,870 7,322
- ---------------
(1) See note 1 of notes to financial statements for information concerning the
computation of net income (loss) per share.
26
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion of the results of operations and financial
condition should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this report.
Overview
Substantially all of our resources are devoted to our research and
development programs. To date, we have not completed development of any
pharmaceutica