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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ý |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended: December 31, 2002
or
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period to
Commission file number: 0-28494
MILLENNIUM PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 04-3177038 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
75 Sidney Street, Cambridge, Massachusetts 02139
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (617) 679-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
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. ý
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o
The aggregate market value of voting Common Stock held by non-affiliates of the registrant was $1,940,525,377 based on the last reported sale price of the Common Stock on the Nasdaq Stock Market on March 4, 2003.
Number of shares outstanding of the registrant's class of Common Stock as of March 4, 2003: 292,328,603.
Documents incorporated by reference:
| Portions of the registrant's definitive Proxy Statement for the 2003 Annual Meeting of Stockholders | Part III |
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| Item 11. | EXECUTIVE COMPENSATION | 79 | |||
| Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS | ||||
| AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 79 | ||||
| Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | 79 | |||
| Item 14. | CONTROLS AND PROCEDURES | 79 | |||
| Part IV | |||||
| Item 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K | 82 | |||
| SIGNATURES | 83 | ||||
| CERTIFICATIONS | 85 | ||||
| EXHIBIT INDEX | |||||
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Item 1. BUSINESS
Overview
We are a leading biopharmaceutical company focused on developing and commercializing products in several disease areas. We currently have a cardiovascular disease product on the market and a cancer product under review for marketing approval. We also have potential products in earlier stages of development in each of those areas and in our inflammatory disease and metabolic disease areas.
Our market-leading cardiovascular product, INTEGRILIN® (eptifibatide) Injection, has been marketed in the United States since 1998 and outside the United States since 1999. In the United States, we copromote INTEGRILIN with Schering-Plough Ltd. and Schering-Plough Corporation, together referred to as SGP, and share profits and losses. Outside the United States, SGP sells INTEGRILIN pursuant to a royalty-bearing license. In 2002, worldwide sales of INTEGRILIN were approximately $303.7 million. Approximately 93% of those sales were made in the United States. Our share of revenues from INTEGRILIN in the United States was approximately $160.0 million, which represented approximately 45% of our revenue for 2002.
Our next product candidate, VELCADE™ (bortezomib) for Injection, is the most advanced of our drug candidates in clinical development. In January 2003, we completed our filing of a new drug application, or NDA, with the United States Food and Drug Administration, or FDA, seeking approval to market VELCADE as a treatment for patients with relapsed and refractory multiple myeloma, a form of bone marrow cancer. In February 2003, we submitted a Marketing Authorization Application, or MAA, to the European Agency for the Evaluation of Medicinal Products, or EMEA, to market VELCADE for this indication.
Our strategy is to advance multiple products in several focus areas through clinical trials and regulatory approvals and to be involved in the marketing and sale of many of these products. We plan to develop and commercialize many of our products on our own, but will seek development and commercial partners when we believe that to do so will maximize product value. For example, we plan to enter into sales and marketing alliances with major pharmaceutical companies for products in disease areas that require large sales forces or to address markets outside the United States. In particular, we are seeking a strategic arrangement relating to the sales and marketing of VELCADE.
As we continue to market INTEGRILIN, develop our product pipeline, commercialize additional products and enter into new commercial alliances, we expect to continue our shift from a discovery-focused company towards a product-based company.
We were incorporated in Delaware in 1993, and our principal executive offices are located at 75 Sidney Street, Cambridge, Massachusetts 02139.
Our Strategy
Our goal is to become a sustainable, biopharmaceutical company. We focus on developing and commercializing important new medicines in several therapeutic areas. A key element of the strategy in our disease areas is to build a sustainable pipeline of innovative new treatments based on our understanding of particular molecular pathways that affect the instigation and progression of specific diseases. These molecular pathways include related effects of proteins on cellular performance, replication and death.
In the near term, we expect to focus our commercial activities in the cardiovascular and cancer therapeutic areas. In the cardiovascular area, our acquisition of COR Therapeutics, Inc., or COR, in 2002 brought us a hospital based cardiovascular sales and marketing organization, INTEGRILIN and a discovery pipeline of potential future cardiovascular products. We expect sales growth of INTEGRILIN
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to drive our cardiovascular business over the next several years. In cancer, subject to satisfactory review and approval of our NDA for VELCADE™ (bortezomib) for Injection, our intention is to launch VELCADE in the United States during 2003.
Our nearterm strategy in the inflammatory and metabolic disease areas is to work with our major pharmaceutical partners, Aventis Pharmaceuticals, Inc., or Aventis, and Abbott Laboratories, or Abbott, to build significant pipelines of discovery and clinical development candidates for important diseases. We believe that working with these partners allows us to share risks and rewards going forward and provides us financially reasonable access to the substantial capabilities required for clinical development and commercialization in these therapeutic areas.
We believe we will make substantial progress in bringing new products to market from our current pipeline of compounds in clinical development. We also hope to gain approval to market VELCADE for the treatment of cancer types in addition to multiple myeloma and that these additional uses of VELCADE will lead to a significant expansion of our cancer business. In inflammatory and metabolic disease we hope to advance novel product candidates in clinical development as potential treatments for serious and widely prevalent conditions.
We expect to bring new products to market derived from our pipeline of discovery and development-stage programs on a regular basis. If we are successful, we would use the revenues from this expanding portfolio of marketed products to broaden the scope of our operations and become a sustainable biopharmaceutical company with global capabilities.
Our Disease Areas
Cardiovascular Diseases
The Therapeutic Need
Cardiovascular disease is a general term for a group of disorders that affects the heart and blood vessels of the heart and includes coronary heart disease, stroke, peripheral vascular disease and high blood pressure. Arterial thrombosis, venous thrombosis and restenosis are all types of coronary heart disease.
In arterial thrombosis, an aggregation of platelets, or blood cells that help prevent bleeding, forms on the lining of an injured artery. This condition is called a thrombus, which essentially is a plug. The thrombus blocks the artery impairing its ability to supply blood and oxygen to the heart, brain and other organs. In the heart, disorders from arterial thrombosis range from prolonged episodes of severe chest pain, including unstable angina, an accelerating pattern of chest pain, to heart attack and sudden death. In the brain, disorders from arterial thrombosis range from a temporary reduction in oxygen supply to stroke.
In venous thrombosis, a thrombus breaks off from the lining of an injured artery or vein. The thrombus may travel to the lungs and cause a pulmonary embolism, a serious disorder in which blood supply is blocked and lung tissue is killed.
Thrombus formations generally can block coronary arteries and lead to heart attack or death in patients undergoing percutaneous coronary interventions, procedures commonly known as balloon angioplasties, or patients who experience sudden stoppages of blood flow to the heart known as acute coronary syndromes.
In restenosis, an artery significantly re-narrows following an angioplasty procedure, usually within six months. New treatments or devices, such as stents, help reduce restenosis in angioplasty. However, stenting itself can be complicated by restenosis, particularly in smaller blood vessels.
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Despite decades of extensive research and development and significant advances in its treatment, cardiovascular disease is extremely prevalent, affecting an estimated 61 million people in the United States. By the year 2020, cardiovascular disease is anticipated to represent the leading cause of death in the world.
Our cardiovascular disease program focuses on developing treatments in areas such as thrombosis, restenosis and congestive heart failure, which occurs when the heart's weak pumping action causes a buildup of fluid in the lungs and other body tissues, through the identification and understanding of the key mechanisms and pathways involved in these conditions. Our cardiovascular pipeline includes multiple novel targets and clinical development compounds, as well as INTEGRILIN.
INTEGRILIN® (eptifibatide) Injection
In collaboration with SGP, INTEGRILIN is being marketed in the United States, in all 15 member states of the European Union and in other countries, including Argentina, Australia, Brazil, Canada, India, Japan, Mexico, Singapore, South Africa, Switzerland and Thailand.
INTEGRILIN is a small synthetic peptide that works by preventing the aggregation of platelets, by blocking the receptor on the platelets responsible for the aggregation, the platelet receptor GP IIb-IIIa. The effects of INTEGRILIN are specific to platelets, avoiding interference with other normal cardiovascular processes, and the effects can be reversed upon INTEGRILIN discontinuation when no longer needed. We believe that annually more than one million people in the United States are candidates for INTEGRILIN therapy.
INTEGRILIN is approved for marketing in the United States for the treatment of patients with acute coronary syndromes which include unstable angina and heart attack and for use at the time of a percutaneous coronary intervention. This is a broader set of indications than the other two GP IIb-IIIa inhibitors approved for marketing in the United States. We believe that INTEGRILIN sales for its current indications will continue to increase if early usage in patients with acute coronary syndromes becomes more common and if the number of hospitals using INTEGRILIN increases.
Bleeding is the most common complication encountered during administration of INTEGRILIN therapy. The majority of excess major bleeding events associated with INTEGRILIN are localized at the site of catheter insertion. We have a specialized United States cardiovascular sales force that focuses on expanding hospital use of INTEGRILIN. We market INTEGRILIN to clinical cardiologists, interventional cardiologists and emergency medicine physicians. We also focus on hospital pharmacy directors, formulary committee members, hospital administrators and nurses, all of whom can affect purchasing decisions. SGP is responsible for the sale of the final product to wholesalers.
We are pursuing opportunities to expand the market potential for INTEGRILIN by increasing the approved therapeutic uses for the product. The following two clinical trials are underway to evaluate possible additional uses of INTEGRILIN:
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determine the safety of prior administration of INTEGRILIN® (eptifibatide) Injection for the purpose of preventing thrombosis that may occur with the use of cardiac bypass machines during CABG surgery.
In addition, we are currently funding other investigator-initiated clinical trials to evaluate INTEGRILIN in other possible indications.
Our SGP Collaboration
In April 1995, COR entered into a collaboration agreement with SGP to jointly develop and commercialize INTEGRILIN on a worldwide basis. Under this agreement, decisions regarding the ongoing development and marketing of INTEGRILIN are generally subject to the oversight of a joint steering committee with equal membership from SGP and us. However, certain development decisions are allocated specifically to us. In addition, in those markets where SGP has exclusive marketing rights, currently, everywhere except the United States, SGP has decisionmaking authority with respect to marketing issues.
Under our collaboration agreement with SGP, we share any profits or losses from the United States with SGP based on the amount of promotional efforts that each party contributes. Since the United States launch of INTEGRILIN in June 1998, we have agreed to share promotional efforts in the United States equally with SGP. We have granted SGP an exclusive license to market INTEGRILIN outside the United States, and SGP pays royalties to us based on sales in this territory. We have the right, in the future, to copromote INTEGRILIN in Europe and Canada. If we exercise this right, we would share any profits or losses from this additional copromotion territory with SGP.
Our agreement with SGP continues on a country by country basis until the later of fifteen years from first commercial sale of an INTEGRILIN product in such country, or until expiration of the last to expire patent covering the manufacture, use or sale of such product in such country.
Our Cardiovascular Pipeline
In addition to the ongoing CABG and ADVANCE-MI trials with INTEGRILIN discussed above, we have conducted or have ongoing, directly or through collaborators or third party investigators, the following clinical trials for our cardiovascular product candidates:
Our Cardiovascular Product Alliance
In November 2001, we entered into a collaboration agreement with XOMA Ltd., or XOMA, providing for the development by XOMA of two biotherapeutic agents of ours in the cardiovascular disease area. The agreement provides for payment of associated costs by XOMA through completion of Phase II trials of these agents, commercialization of the products by us after successful Phase II trials and the choice by XOMA to further participate in the development program and share in profits or to receive future milestone and royalty payments from us. MLN01 is one of the agents covered under the agreement. Under this agreement, XOMA made an initial payment to us and may be required to make additional milestone payments. We agreed to purchase up to $50.0 million of XOMA common shares, $37.5 million of which may be made in three remaining installments through 2004. To date as part of
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this obligation, we have purchased $7.5 million in XOMA common shares and a convertible promissory note for $5.0 million that XOMA may require us to convert into its common shares.
In 2002, our copromotion agreement with Genentech, Inc., or Genentech, to copromote INTEGRILIN® (eptifibatide) Injection with Genentech's fibrinolytic, or clot-dissolving drugs, TNKase™ (tenecteplase) and Activase®(alteplase) in the United States expired at the end of its original term.
Our Cardiovascular Discovery Alliance
Our alliance with Bayer AG, or Bayer, which is discussed under "Our Cancer Discovery Alliance" covers several disease areas, including cardiovascular disease.
Cancer
The Therapeutic Need
Cancer is not a single disease but a group of diseases that vary widely in their severity and the way in which they affect the parts of the body they attack. Yet all forms of cancer have one feature in common: the uncontrolled growth and spread of abnormal cells. Left untreated, cancer may invade local organs or spread to distant organs through the bloodstream or the body's lymphatic system. Researchers and clinicians have made tremendous strides toward understanding the biological and molecular origins of many forms of cancer. Notwithstanding these advances, the death toll from cancer has remained high. Cancer is the second leading cause of death in the United States, behind only cardiovascular disease. During 2003, it is estimated that over 1.3 million people in the United States will be diagnosed with cancer and over 500,000 will die from it.
We seek to improve cancer therapy by developing a series of treatments that target key pathways on which cancer cells depend. The therapeutics that we are developing include proteasome inhibitors, kinase-mediated signaling inhibitors, therapeutic antibodies and DNA targeting agents. To achieve this, we apply our research and development capabilities to identify and characterize key pathways and to develop novel drugs that induce beneficial changes in their activity. As we develop these drugs, we plan to explore innovative designs for clinical trials and use our understanding of relevant pathways and targets, or intervention points within those pathways to optimize multiple drug therapies.
VELCADE™ (bortezomib) for Injection
VELCADE is a novel drug candidate that may have broad applications in the treatment of cancer. In our most advanced studies, we are investigating VELCADE as a single agent and in combination with other chemotherapeutic agents in Phase III and other investigator-sponsored clinical trials for multiple myeloma. In 2002, the FDA granted VELCADE fast-track status, as it has the potential to treat a serious, life-threatening condition and addresses an unmet medical need. "Fast track" status signifies that we could submit portions of our NDA filing on a rolling basis. In January 2003, we completed our filing of an NDA with the FDA to market VELCADE in the United States as a treatment for patients with relapsed and refractory multiple myeloma. In February 2003 we submitted an MAA to the EMEA to market VELCADE in the European Union for this indication.
Multiple myeloma is a cancer of the bone marrow in which some types of white blood cells are overproduced. As a result, there is decreased production of normal red and normal white blood cells, thereby damaging the body's immune system. The overproduced white blood cells also cause the growth of tumors that spread to multiple sites, causing bone destruction and resulting in pain and bone fractures. Approximately 11,200 people in the United States died of multiple myeloma in 2002. Multiple myeloma is one of the top ten causes of cancer death among African-Americans.
VELCADE is designed specifically to inhibit proteasomes, which are enzyme complexes in cells responsible for breaking down a variety of proteins, including many proteins that regulate the
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reproduction of cells. Laboratory studies have suggested that by inhibiting proteasomes VELCADE™ (bortezomib) for Injection slows the destruction of proteins that regulate reproduction in cancer cells and ultimately induces a programmed cell death known as apoptosis. This effect suggests that VELCADE may stop the growth of cancer cells.
We have recently completed a Phase II clinical trial of VELCADE in patients whose multiple myeloma was relapsed and refractory after two or more prior therapies. Our NDA for VELCADE is based primarily on the results of this Phase II clinical trial.
In June 2002 we initiated a Phase III clinical trial of VELCADE in patients whose multiple myeloma was relapsed or refractory after one or more prior therapies. The trial design calls for enrollment of approximately 600 patients at over 70 centers in the United States, Canada and Europe. We currently have enrolled over 200 patients and we expect to complete enrollment in the study by the end of 2003. We are also studying VELCADE in Phase I and Phase II clinical trials for other blood cancers and for solid tumors.
Although we have established an internal infrastructure to prepare for the development, marketing and sale of VELCADE, we are actively seeking to establish an alliance to further develop VELCADE and commercialize it world-wide.
CAMPATH® (alemtuzumab) humanized monoclonal antibody.
Through a partnership, we formerly owned a 50% interest in a cancer therapy named CAMPATH. In December 2001, we sold our interest in CAMPATH to ILEX Oncology, Inc., or ILEX, the owner of the other 50% interest in this drug. CAMPATH is marketed in the United States and Europe as a treatment for a form of cancer of the white blood cells known as refractory B-cell chronic lymphocytic leukemia. To date, we have received payments of $60.0 million from ILEX related to CAMPATH. We are entitled to receive additional payments of $40.0 million in each of 2003 and 2004 if sales of CAMPATH in the United States meet specified thresholds. In addition, we are entitled to payments from ILEX if United States sales of CAMPATH after 2004 exceed specified annual thresholds.
Our Cancer Pipeline
In addition to our ongoing clinical trials of VELCADE in patients with multiple myeloma discussed above, we have conducted or have ongoing, directly or through collaborators or third party investigators, the following clinical trials for our cancer product candidates:
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Our Cancer Product Alliances
In December 2001, we entered into a license agreement with Xenova Group, plc, or Xenova, for the development and exclusive North American commercialization rights to Xenova's DNA targeting program, including MLN576 and MLN944, for the treatment of solid cancerous tumors. Under this agreement, Xenova, in collaboration with and funded by us, agreed to continue its efforts to move compounds to pivotal clinical trial stages. Under the agreement, we made an initial payment to Xenova of $11.5 million and are required to pay Xenova milestone payments and royalties based on product sales.
In April 2001, we entered into an agreement with BZL Biologics, L.L.C., or BZL, for the joint development and commercialization of antibody-based therapeutics targeting PSMA, including both chemotherapeutic agent conjugated and radio-labeled products. These products include MLN2704 and MLN591RL. We currently have exclusive development and worldwide marketing rights to these products. Under this agreement we agreed to pay development costs of the products and milestone and royalty payments to BZL based on product sales.
Our Cancer Discovery Alliance
We formed a comprehensive, multi-disease alliance with Bayer in October 1998 relating to the identification of targets for small molecule therapies and Bayer's development and commercialization of small molecule therapies. The research portion of this alliance is for a five-year term with a possible extension of our obligations for an additional year at Bayer's option. Following the conclusion of the research portion of the alliance, we expect Bayer will continue to develop small molecule drugs based on drug targets identified during the research portion of the alliance and the alliance will continue until all royalty obligations have ended. The alliance covers several disease areas, including cardiovascular disease, cancer, pain, blood diseases, viral infections and urology.
Under this arrangement we have granted Bayer broad licenses to intellectual property covering the qualified drug targets in the program. In general, decisions in the research portion of the alliance are made by consensus between the parties and a joint steering committee oversees the research and development efforts.
We are eligible to receive up to an aggregate of $465 million from Bayer over term of the alliance. As of December 31, 2002, Bayer had provided us approximately $387.4 million of this amount as follows:
For the year ended December 31, 2002, revenues from this alliance accounted for approximately 22% of our total revenues.
By the end of 2002, we had delivered to Bayer more than 250 disease-relevant qualified drug targets for assay configuration, of which at least 88 qualified drug targets had moved into high-throughput screening or lead identification. By the end of 2002, six projects had entered lead optimization with structurally attractive compounds that showed efficacy in animal models of disease. In the event that any of these compounds are commercialized, Bayer would pay us royalties.
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The Therapeutic Need
Inflammation can be the body's normal, protective response to an injury. However, in many circumstances the inflammatory response, if left unchecked, can do more harm than good, presenting both a risk to those who suffer from inflammatory diseases and a challenge for drug research and development.
Although inflammation is the unifying factor for common diseases such as asthma and chronic obstructive pulmonary disease (COPD), the treatment approach required for each type of inflammatory disease may be unique. Moreover, many of the current therapies available treat only the symptoms of the disease, not the underlying cause of inflammation. Also, many existing therapies may cause serious adverse effects when used as long-term treatment.
Among the most prevalent types of chronic inflammatory diseases are the following:
We are developing novel treatments for these inflammatory diseases based on our understanding of the molecular pathways that underlie these diseases, and of the most appropriate points for therapeutic intervention within these pathways.
Our Inflammatory Disease Pipeline
We have conducted or have ongoing, directly or through collaborators or third party investigators, the following clinical trials for our inflammatory disease product candidates:
Our Inflammatory Disease Product Alliance
In December 1997, we began collaboration with Genentech to develop, seek regulatory approval for, and commercialize MLN02 for the treatment of inflammatory bowel disease. Under the terms of the agreement, we have licensed to Genentech exclusive worldwide rights to market MLN02. We are responsible for developing MLN02 through successful phase II clinical trials, after which Genentech is responsible for completing the development of the product. We have the option to share in the Phase
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III development costs in return for a share of profits on sales of MLN02 in the United States while continuing to receive royalties on sales made outside of the United States. We also are entitled to payments upon achievement of development milestones by Genentech.
Our Inflammatory Disease Discovery Alliance
In June 2000, we entered into a broad agreement in the field of inflammatory disease with Aventis that includes joint discovery, development and commercialization of drugs for the treatment of specified inflammatory diseases. This agreement covers a substantial portion of our research and development program in the inflammatory disease area and provides us with potential access to Aventis' large promotional infrastructure in connection with the commercialization of jointly developed products. The research phase of the agreement has a five-year term.
In North America, we have agreed to share the responsibility for and cost of developing, manufacturing and marketing products arising from the alliance. Outside of North America, Aventis is responsible for and will bear the cost of developing, manufacturing and marketing products arising from the alliance. Aventis is required to pay us a royalty on product sales in this territory. Our arrangement with Aventis also includes an equity investment by Aventis of up to $250.0 million, all of which we have received.
To date, we and Aventis have identified a significant number of novel drug targets relevant in inflammatory diseases. During the remaining portion of the research phase of the alliance, we and Aventis will focus our joint resources on the identification and evaluation of compounds for pre-clinical and clinical development. As of the end of 2002, the alliance had identified three early development candidates, one of which the parties are jointly developing.
We also entered into a technology transfer agreement with Aventis in July 2000 by which we agreed to provide Aventis with rights to our drug discovery technologies in exchange for payments of between $160.0 million and $200.0 million over a three to five-year term, $97.8 million of which the Company has received. For the year ended December 31, 2002, revenues from this agreement accounted for approximately 12% of our total revenues.
Metabolic Diseases
The Therapeutic Need
Metabolic disease is a non-specific term for the serious and growing problems of obesity, diabetes and the complications they cause, including heart and kidney disease and cancer. Obesity and diabetes occur because of a complex interplay of genetic, metabolic and environmental factors.
Type 2 diabetes is the most common form of diabetes. In type 2 diabetes, either the body does not produce enough insulin or the cells ignore the insulin. Insulin is necessary for the body to be able to use sugar. Sugar is the basic fuel for the cells in the body, and insulin promotes absorption of the sugar from the blood into the cells. When glucose builds up in the blood instead of going into cells, it can cause two problems:
Approximately 16 million people in the United States have type 2 diabetes.
Obesity is a more complex disease than diabetes, involving an imbalance between the physical mechanisms that regulate energy intake and energy expenditure. Obesity significantly increases the risk of disease and disability from high blood pressure, elevated blood levels of cholesterol and other harmful blood fats, type 2 diabetes, coronary heart disease, and stroke.
Approximately 250 million adults worldwide are obese, including approximately 58 million in the United States. Obesity is the second leading cause of preventable death in the United States.
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Approximately 300,000 people in the United States will die from direct causes of obesity in 2003. The prevalence of obesity is growing at about 3% yearly. Obesity is estimated to account for 2%-5% of national health care expenditure in the United States and Europe. One of the leading causes of type 2 diabetes is obesity. Approximately 80% of patients with type 2 diabetes are obese.
Our metabolic disease program focuses on both type 2 diabetes and obesity.
Our Metabolic Disease Discovery Alliance
In March 2001, we entered into a strategic alliance with Abbott covering joint discovery, development and commercialization of a full spectrum of both drugs and molecular diagnostics for the treatment and management of obesity and type 2 diabetes. Under this five-year alliance, we agreed with Abbott to share equally the cost of developing, manufacturing and marketing products on a worldwide basis. Our arrangement with Abbott also included an equity investment of $250.0 million by Abbott in us, the final $28.6 million of which Abbott invested in March 2003, and a technology exchange and development agreement.
Our Clinical Pipeline
In 2002, we met our goal of commencing human clinical trials for four new compounds. As discussed above, in addition to our ongoing clinical trials of INTEGRILIN® (eptifibatide) Injection and VELCADE™ (bortezomib) for Injection, we now have nine drug candidates in clinical development. The following chart summarizes the status of the clinical trials that we have conducted or have ongoing, directly or through collaborators or third party investigators, for INTEGRILIN, VELCADE and the other nine drug candidates in our pipeline:
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Drug Discovery and Development
A key element of our overall strategy is to build a sustainable pipeline of innovative new treatments in several disease areas. In these disease areas, we hope to generate a sufficiently large and diverse portfolio of discovery and development programs at various stages of maturity so that we can move new drugs through clinical development and onto the market on a regular basis.
To achieve this goal, we have focused on developing a comprehensive understanding of the mechanisms and pathways that underlie important diseases and on building an organization capable of converting this understanding into innovative treatments for patients. We deploy our full range of genomics capabilities to decipher the workings of the human genome and we identify genes whose regulation play important roles in disease. From among these genes, we select those whose products appear most suitable as targets for new drugs. Then we find and optimize small molecule compounds or antibodies that interact with targets in an appropriate manner. We test these drug candidates extensively in animal models to assess their likely suitability as therapeutic products. We then move into clinical testing in humans, to establish the safety and efficacy of these experimental products and to understand therapeutically important differences among people. At any stage of this entire process we may need to go back to repeat several steps with slight variations, to ensure that we bring the most suitable new drug candidate through clinical testing. If we believe we have established safety and efficacy for a new drug candidate, we submit applications for marketing approval to the appropriate regulatory authorities.
In all of this, we are informed by the expertise of our scientists and clinicians in disease biology, chemistry and preclinical and clinical development, and our efforts are enabled by the comprehensive range of capabilities we have assembled into our technology platform. To augment our internal discovery and development capabilities, we may also license or acquire rights to drugs or drug candidates that have been developed outside of our company and which address pathways we have identified as important for their respective diseases.
We have developed a substantial drug candidate pipeline based on our research and development skills in understanding the mechanisms of disease, or disease pathways. We believe that this pipeline provides us with a sustainable source of potential new commercial products.
As we shift our focus to clinical development and product commercialization, and as we conclude our discovery-based alliances, such those discussed above and our research alliance and technology transfer alliance with Monsanto Company, or Monsanto, which came to its end during 2002, we expect to devote fewer personnel and resources to research and discovery activities. As a result of this shift, we recorded a restructuring charge in the fourth quarter of 2002 of approximately $3.0 million and expect to record additional restructuring charges during 2003 of between approximately $60.0 million and $80.0 million. For the year ended December 31, 2002, revenues from our alliance with Monsanto accounted for approximately 12% of our total revenues.
Research and Development
Company-sponsored research and development expenses totaled $337.5 million in 2002, $99.7 million in 2001 and $77.0 million in 2000. Our strategic collaborator-sponsored research and development expenditures totaled $173.7 million in 2002, $300.9 million in 2001 and $191.7 million in 2000. In calculating strategic-collaborator sponsored research and development expenditures, we have included expenditures in programs for which we receive current funding as well as programs for which we may receive future compensation as milestone payments, royalties or otherwise even though we provide the current funding. Our research and development expenditures in 2002 increased significantly over 2001 as we made large investments related to the clinical advancement of VELCADE™ (bortezomib) for Injection and clinical trials of INTEGRILIN® (eptifibatide) Injection designed to expand the INTEGRILIN product label.
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Patents and Proprietary Rights; Licenses
Patents
We generally seek United States and foreign patent protection for the genes, proteins, antibodies and small-molecule drug leads that we discover as well as possible therapeutic, diagnostic and pharmacogenomic products and processes, drug screening methodologies and other inventions based on such genes, proteins, antibodies and small-molecules. We also seek patent protection or rely upon trade secret rights to protect certain other technologies which may be used to discover and characterize genes, proteins, antibodies and small-molecules and which may be used to develop novel therapeutic, diagnostic and pharmacogenomic products and processes.
We own issued United States patents, granted foreign patents and pending United States and foreign applications for INTEGRILIN® (eptifibatide) Injection. The issued United States and foreign patents that cover INTEGRILIN expire in 2014 and 2015.
We own issued United States patents, granted foreign patents and pending United States and foreign applications for VELCADE™ (bortezomib) for Injection. The issued patents related to VELCADE expire in 2014.
We also own pending United States and foreign patent applications related to MLN02, MLN1021 and MLN1202. The issued United States patents for MLN1021 expires in 2020 and the issued United States patents for MLN1202 expire in 2018.
Licenses
We have obtained licenses from various parties for rights to use proprietary technologies and compounds. We are the exclusive licensee of issued United States and foreign patents and/or pending United States and foreign applications relating to our products in clinical development as follows:
Trademarks
We currently own a number of trademarks and servicemarks including: Millennium®, the Millennium "M" logo and design (registered), Millennium Pharmaceuticals™, "Transcending the Limits of Medicine"™, VELCADE™ (bortezomib) for Injection, INTEGRILIN® (eptifibatide) Injection and "Breakthrough Science. Breakthrough MedicineSM. All are covered by registrations or pending applications for registration in the U.S. Patent and Trademark Office and many other countries.
Government Regulation
Regulatory Compliance
Regulation by governmental authorities in the United States and other countries is a significant factor in the manufacture and marketing of our products and in ongoing research and product
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development activities. All of our products require regulatory approval by governmental agencies prior to commercialization. In particular, our products are subject to rigorous preclinical and clinical testing and other premarket approval requirements by the FDA and regulatory authorities in other countries. Various statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of our products. The lengthy process of seeking these approvals, and the subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals could materially adversely affect our business.
The activities required before a pharmaceutical product may be marketed in the United States begin with preclinical testing. Preclinical tests include laboratory evaluation of product chemistry and animal studies to assess the potential safety and efficacy of the product and its formulations. The results of these studies must be submitted to the FDA as part of an Investigational New Drug application, or IND, which must be reviewed by the FDA before proposed clinical testing can begin.
Typically, clinical testing involves a three-phase process.
The results of the preclinical and clinical testing of a chemical pharmaceutical product are then submitted to the FDA in the form of an NDA or for a biological pharmaceutical product in the form of a biologic license application, or BLA, for approval to commence commercial sales. In responding to an NDA or a BLA, the FDA may grant marketing approval, request additional information or deny the application if it determines that the application does not provide an adequate basis for approval. We can not assure you that any approval required by the FDA will be obtained on a timely basis, if at all.
Among the conditions for an NDA or a BLA approval is the requirement that the applicable manufacturing, clinical, pharmacovigilance, quality control and manufacturing procedures conform on an ongoing basis with current Good Clinical Practices, or GCP, current Good Manufacturing Practices, or GMP and computer information system validation standards. Before approval of a BLA, the FDA will perform a prelicensing inspection of clinical sites, manufacturing facilities and the related quality control records to determine its compliance with these requirements. To assure compliance, applicants must continue to expend time, money and effort in the area of training, production and quality control. After the applicant is licensed for the manufacture of any product, manufacturers are subject to periodic inspections by the FDA. We will also face similar inspections coordinated by the EMEA by inspectors from particular European Union member states that conduct inspections on behalf of the EU.
In European Union countries, Canada, and Australia, regulatory requirements and approval processes are similar in principle to those in the United States and can be as rigorous, costly and uncertain. Additionally, depending on the type of drug for which an applicant is requesting approval, there are currently two potential tracks for marketing approval in European Union countries: mutual recognition and the centralized procedure. These review mechanisms may ultimately lead to approval in all European Union countries, but each method grants all participating countries some decision making authority in product approval.
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We are also subject to various federal and state laws pertaining to health care "fraud and abuse," including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescription of a particular drug. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented for payment to third party payors (including Medicare and Medicaid) claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services.
If we are successful in gaining approval of and launching VELCADE™ (bortezomib) for Injection, the first product we plan to sell directly, we will become a participant in the Medicaid rebate program established by the Omnibus Budget Reconciliation Act of 1990, and under amendments of that law that became effective in 1993. Participation in this program includes requirements such as extending comparable discounts under the Public Health Service, or PHS, pharmaceutical pricing program. Under the Medicaid rebate program, we would pay a rebate for each unit of our product reimbursed by Medicaid. The amount of the rebate for each product is set by law as a minimum 15.1% of the average manufacturer price, or AMP, of that product, or if it is greater, the difference between AMP and the best price available from us to any customer. The rebate amount also includes an inflation adjustment if AMP increases faster than inflation. The PHS pricing program extends discounts comparable to the Medicaid rebate to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of poor Medicare and Medicaid beneficiaries. The rebate amount is recomputed each quarter based on our reports of our current average manufacturer price and best price for each of our products to the Health Care Financing Administration.
If we are successful in gaining approval of and launching VELCADE, we also plan to make our products available to authorized users of the Federal Supply Schedule of the General Services Administration. Since 1993, as a result of the Veterans Health Care Act of 1992, or VHC Act, federal law has required that product prices for purchases by the Veterans Administration, the Department of Defense, Coast Guard, and the PHS (including the Indian Health Service) be discounted by a minimum of 24% off the AMP to non-federal customers, the non-federal average manufacturer price, or non-FAMP. Our computation and report of non-FAMP is used in establishing the price, and the accuracy of the reported non-FAMP may be audited by the government under applicable federal procurement laws.
Under the laws of the United States, the countries of the European Union and other nations, we and the institutions where we sponsor research are subject to certain obligations to ensure the protection of personal information of human subjects participating in our clinical trials. We have instituted procedures that we believe will enable us to comply with these requirements and the contractual requirements of our data sources. The laws and regulations in this area are evolving and further regulation, if adopted, could effect the timing and the cost of future clinical development activities.
We are also subject to regulation under the Occupational Safety and Health Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, and other current and potential future federal, state, or local regulations. Our research and development activities involve the controlled use of hazardous materials, chemicals, biological materials, and various radioactive compounds. We believe that our procedures comply with the standards prescribed by state and federal regulations; however, the risk of injury or accidental contamination cannot be completely eliminated. Our research and manufacturing activities also are conducted in voluntary compliance with the National Institutes of Health Guidelines for Recombinant DNA Research.
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We are subject to the U.S. Foreign Corrupt Practices Act which prohibits corporations and individuals from engaging in certain activities to obtain or retain business or to influence a person working in an official capacity. Under this act, it is illegal to pay, offer to pay, or authorize the payment of anything of value to any foreign government official, government staff member, political party, or political candidate in an attempt to obtain or retain business or to otherwise influence a person working in an official capacity. Our present and future business has been and will continue to be subject to various other laws and regulations.
Pricing Controls
The levels of revenues and profitability of biopharmaceutical companies may be affected by the continuing efforts of government and third party payers to contain or reduce the costs of health care through various means. For example, in certain foreign markets, pricing reimbursement or profitability of therapeutic and other pharmaceutical products is subject to governmental control. In the United States there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental pricing control. While we cannot predict whether any such legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our business, financial condition and profitability.
Third Party Reimbursement
In addition, in the United States and elsewhere, sales of therapeutic and other pharmaceutical products are dependent in part on the availability of reimbursement to the consumer from third party payers, such as government and private insurance plans. Third party payers are increasingly challenging the prices charged for medical products and services. We cannot assure you that any of our products will be considered cost effective and that reimbursement to the consumer will be available or will be sufficient to allow us to sell our products on a competitive and profitable basis.
Manufacturing
General
We have limited manufacturing capabilities and produce only a small amount of a few of our compounds for research and development and preclinical testing. We rely on third parties to manufacture most of our compounds for research, development, preclinical and clinical trials and commercial supply. Under most of our collaboration agreements, our collaborators have the exclusive right to manufacture products that result from their programs.
We have established a quality assurance/control program to ensure that our products and product candidates are manufactured in accordance with applicable regulations. We require that our contract manufacturers adhere to current GMP, except for products and product candidates for toxicology studies and animal studies, which we require to be manufactured in accordance with current Good Laboratory Practices. The facilities of our contract manufacturer must pass regular post-approval FDA inspections. The FDA or other regulatory agencies must approve the processes or the facilities that may be used for the manufacture of any of our potential products. If the facilities fail inspections and we were unable to obtain the necessary approvals, manufacturing and distribution may be disrupted, recalls of distributed products may be necessary and other sanctions could be applied.
The manufacture of our products and product candidates is based in part on technology that we believe to be proprietary to our contract manufacturers. Such manufacturers may not abide by the limitations or confidentiality restrictions in licenses with us. In addition, any such manufacturer may develop process technology related to the manufacture of our compounds that such supplier owns either independently or jointly with us. This would increase our reliance on such manufacturer or require us to obtain a license from such manufacturer in order to have our products manufactured.
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INTEGRILIN® (eptifibatide) Injection
We have no manufacturing facilities for INTEGRILIN and, accordingly, rely on third-party contract manufacturers and SGP for the clinical and commercial production of INTEGRILIN. In January 2003, we entered into a new supply agreement with Solvay, Societe Anonyme to provide us with eptifibatide, the raw material necessary to make INTEGRILIN. This agreement is initially for a four year term with one year renewal periods thereafter.
We believe our contracted supply of INTEGRILIN is sufficient to meet current market demand although our manufacturing plans call for the addition of extra capacity for the manufacture of INTEGRILIN. We have two manufacturers that produce bulk product, and two manufacturers that perform fill/finish services, one of which is SGP. INTEGRILIN that we use for ongoing clinical trials is manufactured by the same suppliers as those that produce commercial supply.
VELCADE™ (bortezomib) for Injection
A third-party contract manufacturer completes manufacturing, fill/finish and packaging of VELCADE. We expect that we will use the same VELCADE suppliers for commercial purposes as we do for ongoing clinical trials. We are currently seeking to establish long-term supply relationships for the production of commercial supplies of VELCADE. We believe we have a sufficient quantity of commercial grade VELCADE on hand to meet the anticipated demand for the initial launch of the product and to fulfill the needs for our ongoing Phase III clinical trial and other ongoing trials.
Sales and Marketing
Through our acquisition of COR, we currently have a specialized cardiovascular sales force of more than 100 people geographically dispersed across the United States. This sales force markets INTEGRILIN to clinical cardiologists, interventional cardiologists and emergency medicine physicians. One of the primary goals of this sales force is to expand hospital use of INTEGRILIN. We and SGP market INTEGRILIN to healthcare providers and SGP sells INTEGRILIN to drug wholesalers. These wholesalers subsequently sell INTEGRILIN to the hospitals where health care providers administer the drug to patients. Wholesaler management decisions to increase or decrease their inventory of INTEGRILIN may result in sales of INTEGRILIN to wholesalers that do not track directly with demand for the product at hospitals. See "Our SGP Collaboration."
We do not currently have a sales force for VELCADE. So that we are in a position to market VELCADE if we receive FDA approval, we have begun building our cancer expertise in our commercial operations by recruiting regional sales managers. We are seeking a strategic arrangement relating to the development and marketing of VELCADE in worldwide markets.
We have not developed commercialization plans for our product candidates beyond INTEGRILIN and VELCADE. The manner in which we commercialize these product candidates will depend in large part on their market potential and our financial resources. We may establish copromotion, corporate partnering, licensing or other arrangements for the marketing and sale of some products in some or all geographic markets.
Sales of INTEGRILIN, and product candidates that may be approved in the future, will depend heavily upon the availability of reimbursement from third-party payors, such as government and private insurance plans. We meet with administrators of these plans to discuss the potential medical benefits and cost-effectiveness of our product. We believe this approach may assist in obtaining reimbursement authorization for our product from these third-party payors. See "Government Regulation—Third Party Reimbursement."
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Competition
General
We face competition, and believe significant long-term competition can be expected, from pharmaceutical companies as well as other biotechnology companies. This competition may become more intense as we develop additional products and commercial applications for biotechnology products increase. Some competitors, primarily large pharmaceutical companies, have greater clinical, regulatory and marketing resources and experience than we have. Many of these companies have commercial arrangements with other companies in the biotechnology industry to supplement their own research capabilities.
The introduction of new products or the development of new processes by competitors or new information about existing products may result in price reductions or product replacements, even for products protected by patents. However, we believe our competitive position is enhanced by our commitment to research leading to the discovery and development of new products. Other factors that may help us meet competition include the quality and breadth of our technology platform, the skill of our employees and our ability to recruit and retain skilled employees, our aggressive program of seeking patent protection for gene discoveries, our capabilities for early stage research and drug discovery and our capital resources. However, many large pharmaceutical and biotechnology companies have significantly larger intellectual property estates than we do, more substantial capital resources than we have and greater capabilities and experience than we do in preclinical and clinical development, sales, marketing, manufacturing and regulatory affairs.
Over the longer term, our and our collaborators' abilities to successfully market products, expand their usage and bring new products to the marketplace will depend on many factors, including:
INTEGRILIN® (eptifibatide) Injection
Due to the incidence and severity of cardiovascular diseases, the market for therapeutic products that address such diseases is large, and we expect the already intense competition in this field to increase. Two GP IIb-IIIa inhibitors which compete with INTEGRILIN have received regulatory approval in the United States and Europe:
Other competitive factors that could negatively impact the future growth and development of the GP IIb-IIIa market segment include:
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VELCADE™ (bortezomib) for Injection
Although the mechanism of action utilized by VELCADE is unique, we expect traditional chemotherapy treatments and other therapies in development to compete with VELCADE. In particular, Thalomid® (thalidomide) is marketed by Celgene Corporation as a treatment for patients with leprosy, but has an increasing use in multiple myeloma based on data published in peer-reviewed publications. There are also other potentially competitive therapies that are in late-stage clinical development for multiple myeloma.
Employees
As of February 28, 2003, we had approximately 2079 full-time employees. We believe that relations with our employees are good.
Available Information
Our Internet website is http://www.millennium.com. We make available through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. We have made these reports available through our website during the period covered by this report and, since November 15, 2002, we have made these reports available on our website at the same time that they become available on the Securities and Exchange Commission's website.
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RISK FACTORS THAT MAY AFFECT RESULTS
This Annual Report on Form 10-K contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements that relate to prospective events or developments are forward-looking statements. Also, words such as "believe," "anticipate," "plan," "expect," "will" and similar expressions identify forward-looking statements.
We cannot assure investors that our assumptions and expectations will prove to have been correct. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements. Factors that could cause or contribute to such differences include those factors discussed below. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Our business may be harmed if we do not obtain approval to market INTEGRILIN® (eptifibatide) Injection for additional therapeutic uses.
INTEGRILIN has been approved for a specific set of therapeutic uses. Part of our strategy to grow our business is to market INTEGRILIN for additional indications. To do so, we will need to obtain the appropriate regulatory approvals. If we are unsuccessful in obtaining authorizations for the expanded use of INTEGRILIN, our revenues may not grow as expected and our business and operating results will be harmed.
We may not be able to obtain marketing approval for products or services resulting from our development efforts.
The products that we are developing require research and development, extensive preclinical studies and clinical trials and regulatory approval prior to any commercial sales. This process is expensive and lengthy, often taking a number of years. In some cases, the length of time that it takes for us to achieve various regulatory approval milestones affects the payments that we are eligible to receive under our strategic alliance agreements.
We may need to successfully address a number of technological challenges in order to complete development of our products. Moreover, these products may not be effective in treating any disease or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining regulatory approval or prevent or limit commerical use.
In particular, in early 2003, we completed our filing of an NDA with the FDA and a MAA with the EMEA to market VELCADE™ (bortezomib) for Injection for the treatment of patients with relapsed and refractory multiple myeloma. These regulatory agencies may not grant marketing approval for VELCADE within the time frames that we anticipate or at all. For example, it is possible that these regulatory agencies will not approve VELCADE for marketing based on the Phase II data we submitted prior to our successful completion of the ongoing Phase III clinical trials of VELCADE and the filing of the results of such trials with these agencies.
If we fail to comply with regulatory requirements, or if we experience unanticipated problems with our approved products, our products could be subject to restrictions or withdrawal from the market.
Any product for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data and promotional activities for such product, will be subject to continual review and periodic inspections by the FDA and other regulatory bodies. Later discovery of previously unknown problems with our products or manufacturing processes, or failure to comply with regulatory
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requirements, may result in restrictions on such products or manufacturing processes, withdrawal of the products from the market or the imposition of civil or criminal penalties.
If we fail to comply with the rules applicable to the Medicare and Medicaid programs, we could be subject to the imposition of civil or criminal penalties and/or the exclusion from these programs.
We have only limited experience in regulatory affairs, and some of our products may be based on new technologies; these factors may affect our ability or the time we require to obtain necessary regulatory approvals.
We have only limited experience in filing and prosecuting the applications necessary to gain regulatory approvals. Moreover, certain of the products that are likely to result from our research and development programs may be based on new technologies and new therapeutic approaches that have not been extensively tested in humans. The regulatory requirements governing these types of products may be more rigorous than for conventional products. As a result, we may experience a longer regulatory process in connection with any products that we develop based on these new technologies or new therapeutic approaches.
Risks Relating to Our Business, Strategy and Industry
Our revenues over the next several years will be materially dependent on the commercial success of INTEGRILIN® (eptifibatide) Injection and our ability to commence and increase sales of VELCADE™ (bortezomib) for Injection.
Our revenues over the next several years will be materially dependent on the commercial success of INTEGRILIN, which has been on the market in the United States since June 1998. Marketing outside the United States commenced in mid-1999. In addition, our business plan contemplates our receiving marketing authorization to sell VELCADE for the treatment of patients with multiple myeloma and other indications, including solid tumors. We will not achieve our business plan, and we may be forced to scale back our operations and research and development programs, if:
Sales of INTEGRILIN in particular reporting periods may be affected by fluctuations in buying patterns.
A significant portion of INTEGRILIN domestic pharmaceutical sales is made to major drug wholesalers. These sales are affected by fluctuations in the buying patterns of these wholesalers and the corresponding changes in inventory levels maintained by them. These changes may not reflect underlying prescriber demand. Additionally, we expect that sales from INTEGRILIN will generally be lower in the summer months because fewer medical procedures are typically performed during these months. These fluctuations in sales of INTEGRILIN may have a material adverse effect on our results of operations for particular reporting periods.
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Because discovering drugs based upon genomics is new, it is possible that our discovery process will not result in commercial products or services.
The process of discovering drugs based upon genomics is new and evolving rapidly. We focus a portion of our research on diseases that may be linked to several or many genes working in combination. Both we and the general scientific and medical communities have only a limited understanding of the role genes play in these diseases. To date, we have not commercialized any products discovered through our genomics research, and we may not be successful in doing so in the future. In addition, relatively few products based on gene discoveries have been developed and commercialized by others. Rapid technological development by us or others may result in compounds, products or processes becoming obsolete before we recover our development expenses.
We face growing and new competition, which may result in others discovering, developing or commercializing products and services before or more successfully than us.
The fields of biotechnology and pharmaceuticals are highly competitive. Many of our competitors are substantially larger than we are, and these competitors have substantially greater capital resources, research and development staffs and facilities than we have. Furthermore, many of our competitors are more experienced than we are in drug discovery, development and commercialization, obtaining regulatory approvals and product manufacturing and marketing. As a result, our competitors may discover, develop and commercialize pharmaceutical products or services before us. In addition, our competitors may discover, develop and commercialize products or services that render non-competitive or obsolete the products or services that we or our collaborators are seeking to develop and commercialize. Finally, changing marketing practices regulations or guidelines may adversely affect our ability to utilize our preferred set of marketing tools, thereby reducing our competitiveness.
Due to the incidence and severity of cardiovascular diseases, the market for therapeutic products that address these diseases is large, and we expect the already intense competition in this field to increase. Our most significant competitors are major pharmaceutical companies and other biotechnology companies. The two products that compete directly with INTEGRILIN® (eptifibatide) Injection in the GP IIb-IIIa market segment are ReoPro® (abciximab), which is produced by Johnson & Johnson and sold by Johnson & Johnson and Eli Lilly and Company, and Aggrastat® (tirofiban HCl), which is produced and sold by Merck & Co., Inc. Other competitive factors that could negatively affect the GP IIb-IIIa market segment include the market and economic positioning of drug-coated stents; expanded use of heparin replacement therapies in patients undergoing balloon angioplasty; and expanded use of ADP inhibitors in patients presenting with non-ST-segment elevation in acute coronary syndrome.
Competitive factors that could affect VELCADE™ (bortezomib) for Injection product sales include the timing of regulatory approval, if any, of competitive products; our pricing decisions and the pricing decisions of our competitors; and the increasing rate of development of new multiple myeloma treatments. Multiple myeloma therapies in development may reduce the number of patients available for VELCADE treatment through enrollment of these patients in clinical trials of the competing product. We also will face competition from Celgene Corporation which markets Thalomid® (thalidomide), a treatment in leprosy, which has an increasing use in multiple myeloma based on data published in peer-reviewed publications. There are also other potentially competitive therapies that are in late stage clinical development for multiple myeloma.
If our clinical trials are unsuccessful, or if they experience significant delays, our ability to commercialize products will be impaired.
We must provide the FDA and foreign regulatory authorities with preclinical and clinical data demonstrating that our products are safe and effective before they can be approved for commercial
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sale. Clinical development, including preclinical testing, is a long, expensive and uncertain process. It may take us several years to complete our testing, and failure can occur at any stage of testing. Interim results of preclinical or clinical studies do not necessarily predict their final results, and acceptable results in early studies might not be seen in later studies. Any preclinical or clinical test may fail to produce results satisfactory to the FDA. Preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval. Negative or inconclusive results from a preclinical study or clinical trial, adverse medical events during a clinical trial or safety issues resulting from products of the same class of drug could cause a preclinical study or clinical trial to be repeated or a program to be terminated, even if other studies or trials relating to the program are successful. For example, in 2002, we discontinued the development of MLN977, an oral drug for the treatment of chronic asthma, because three patients in a Phase II clinical study experienced elevations in their liver enzymes that were likely related to the use of the product.
We may not complete our planned preclinical or clinical trials on schedule or at all. We may not be able to confirm the safety and efficacy of the results of long-term clinical trials which may result in a delay or failure to commercialize our products. In addition, due to the substantial demand for clinical trial sites in the cardiovascular area, we may have difficulty obtaining a sufficient number of appropriate patients or clinician support to conduct our clinical trials as planned. As a result, we may have to expend substantial additional funds to obtain access to resources or delay or modify our plans significantly. Our product development costs will increase if we experience delays in testing or approvals. Significant clinical trial delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our products or potential products.
We may not be able to obtain biological material, including human and animal DNA and RNA samples, required for our genetic studies, which could delay or impede our drug discovery efforts.
Our drug discovery strategy uses genetic studies of families and populations prone to particular diseases. These studies require the collection of large numbers of DNA and RNA samples from affected individuals, their families and other suitable populations as well as animal models. The availability of DNA and RNA samples and other biological material is important to our ability to discover the genes responsible for human diseases through human genetic approaches and other studies. Competition for these resources is intense. Access to suitable populations, materials and samples could be limited by forces beyond our control, including governmental actions. Some of our competitors may have obtained access to significantly more family and population resources and biological materials than we have obtained. As a result, we may not be able to obtain access to DNA and RNA samples necessary to support our human discovery programs.
Because many of the products and services that we develop will be based on new technologies and therapeutic approaches, the market may not be receptive to these products and services upon their introduction.
The commercial success of any of our products and services for which we may obtain marketing approval from the FDA or other regulatory authorities will depend upon their acceptance by the medical community and third party payors as clinically useful, cost-effective and safe. Many of the products and services that we are developing are based upon new technologies or therapeutic approaches. As a result, it may be more difficult for us to achieve market acceptance of our products and services, particularly the first products and services that we introduce to the market based on new technologies and therapeutic approaches. Our efforts to educate the medical community on these potentially unique approaches may require greater resources than would be typically required for products and services based on conventional technologies or therapeutic approaches. The safety, efficacy, convenience and cost-effectiveness of our products as compared to competitive products will also affect market acceptance.
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Ethical, legal and social issues related to the use of genetic information and genetic testing may cause less demand for our products.
Genetic testing has raised issues regarding confidentiality and the appropriate uses of the resulting information. This could lead to governmental authorities calling for limits on or regulation of the use of genetic testing or prohibiting testing for genetic predisposition to certain diseases. Any of these scenarios could hinder our ability to enroll patients in clinical trials which are necessary for us to gain regulatory approval of our products.
Risks Relating to Our Financial Results and Need for Financing
We have incurred substantial losses and expect to continue to incur losses. We will not be successful unless we reverse this trend.
We have incurred losses in all but two of the years since our inception. We expect to continue to incur substantial operating losses in future periods. Prior to our acquisition of COR, substantially all of our revenues resulted from payments from collaborators, and not from the sale of products. In 2002, we recognized significant investment income from our investment portfolio. We expect that investment income will be lower in 2003 as a result of lower cash balances and lower returns on investments.
We expect to increase our spending as we continue to expand our research and development programs and commercialization activities. As a result, we will need to generate significant revenues to pay these costs and achieve profitability. We cannot be certain whether or when we will become profitable because of the significant uncertainties with respect to our ability to generate revenues from the sale of products and services and from existing and potential future strategic alliances.
We may need additional financing, which may be difficult to obtain. Our failure to obtain necessary financing or doing so on unattractive terms could adversely affect our discovery and development programs and other operations.
We will require substantial funds to conduct research and development, including preclinical testing and clinical trials of our potential products. We will also require substantial funds to meet our obligations to our collaborators and maximize the prospective benefits to us from our alliances, manufacture and market products and services that are approved for commercial sale, including INTEGRILIN® (eptifibatide) Injection, and meet our debt service obligations. Additional financing may not be available when we need it or may not be available on favorable terms.
If we are unable to obtain adequate funding on a timely basis, we may have to delay or curtail our research and development programs or our product commercialization activities. We could be required to seek funds through arrangements with collaborators or others that may require us to relinquish rights to certain of our technologies, product candidates or products which we would otherwise pursue on our own.
Our indebtedness and debt service obligations may adversely affect our