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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2002
CUBIST PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Delaware (State or Other Jurisdiction of Incorporation or Organization) |
22-3192085 (I.R.S. Employer Identification No.) |
65 Hayden Avenue, Lexington, MA 02421
(Address of Principal Executive Offices and Zip Code)
(781) 860-8660
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
Series A Junior Participating Preferred Stock Purchase Rights
(Title of Each Class)
Nasdaq National Market
(Name of Each Exchange on Which Registered)
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, or the Securities Exchange Act, 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-X 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. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý No o
The aggregate market value of the registrant's common stock, $0.001 par value per share, held by non-affiliates of the registrant as of June 28, 2002 was approximately $264,794,266, based on 28,139,667 shares held by such non-affiliates at the closing price of a share of common stock of $9.41 as reported on the Nasdaq National Market on such date. The number of outstanding shares of common stock of Cubist on March 14, 2003 was 29,594,196.
DOCUMENTS
INCORPORATED BY REFERENCE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT FOR ITS ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 10, 2003 ARE INCORPORATED BY REFERENCE INTO PART III.
Cubist Pharmaceuticals, Inc.
Annual Report on Form 10-K
| Item |
|
|
|---|---|---|
| PART I | ||
1. |
Business |
|
| 2. | Description of Property | |
| 3. | Legal Proceedings | |
| 4. | Submission of Matters to a Vote of Security Holders | |
PART II |
||
5. |
Market For Registrant's Common Stock and Related Stockholder Matters |
|
| 6. | Selected Financial Data | |
| 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| 7A. | Quantitative and Qualitative Disclosures About Market Risk | |
| 8. | Financial Statements and Supplementary Data | |
| 9. | Changes in and Disagreements with Accountants on Accounting And Financial Disclosure | |
PART III |
||
10. |
Directors and Executive Officers of the Registrant |
|
| 11. | Executive Compensation | |
| 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
|
| 13. | Certain Relationships and Related Transactions | |
PART IV |
||
14. |
Exhibits, Financial Statement Schedules, and Reports on Form 8-K Signatures |
|
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This annual report contains "forward-looking statements" within the meaning of section 27A of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934. In some cases, these statements can be identified by the use of forward-looking terminology such as "may," "will," "could," "should," "would," "expect," "anticipate," "continue" or other similar words. These statements discuss future expectations, contain projections of results of operations or of financial condition, or state trends and known uncertainties or other forward-looking information. You are cautioned that forward-looking statements are based on current expectations and are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, including, but not limited to, the risks and uncertainties described or discussed in the Section "Risk Factors" below. The forward-looking statements contained herein represent our judgment as of the date of this annual report, and Cubist cautions readers not to place undue reliance on such statements. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions, or otherwise.
Forward-looking statements include information concerning possible or assumed future results of our operations, including, but not limited to, statements regarding:
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Many factors could affect our actual financial results, or could cause these actual results to differ materially from those in these forward-looking statements. These factors include, but are not limited to, the following:
Cubist®, Cidecin®, NatChem™, NatGen™ and VITA™ are our trademarks. This annual report contains trademarks and trade names of other companies.
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Corporate Overview
Cubist Pharmaceuticals, Inc., or Cubist, is a biopharmaceutical company focused on the research, development and commercialization of antiinfective drugs.
In December 2002, we filed a New Drug Application, or NDA, with the United States Food & Drug Administration, or FDA, for our lead investigational antibiotic Cidecin (daptomycin for injection) for the treatment of complicated skin and skin structure infections, or cSSSI, caused by Gram-positive organisms. Cidecin is the first antibiotic in a new class of drug candidates called lipopeptides and attacks bacteria through a novel mechanism of action. Cidecin has demonstrated the ability in vitro to rapidly kill virtually all clinically significant Gram-positive bacteria, including those resistant to current therapies. In February 2003, the FDA accepted the Cidecin NDA and granted the filing priority review status, indicating that Cidecin, if approved, would represent a therapeutic advance over existing medicines, and established a target date to act on the NDA filing by June 20, 2003.
In July 2002, we acquired exclusive worldwide rights to develop and commercialize a novel cephalosporin, referred to as CAB-175. CAB-175 is a unique investigational antibiotic in late-stage pre-clinical development that has demonstrated in vitro activity against most clinically relevant Gram-positive and Gram-negative bacteria, including important resistant species such as methicillin-resistant Staphylococcus aureus, or MRSA.
We are also developing an oral formulation of the antibiotic ceftriaxone, or OCTX, which is currently available only in an intravenous formulation and marketed by Hoffmann-La Roche under the brand name Rocephin. We have developed a capsule version of this formulation and are continuing pre-clinical studies to determine the suitability of this formulation for human clinical development.
Additionally, we use our natural products and other technologies to identify novel pharmaceutical compounds.
Overview of Infectious Disease and Drug Resistance
Infectious diseases are caused by pathogens present in the environment, such as bacteria, fungi and viruses, that enter the body through the skin or mucous membranes of the lungs, nasal passages or gastrointestinal tract, and overwhelm the body's immune system. These pathogens establish themselves in various tissues and organs throughout the body and cause a number of serious and, in some cases, lethal infections, including those of the bloodstream, skin, heart, lung and urinary tract.
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The antiinfective market can be broken down into three main categories: antibacterials (often referred to as antibiotics), antifungals and antivirals. At present, the majority of our research and development efforts are focused on the antibacterial market. According to Frost & Sullivan, the annual worldwide market for antibacterial agents was expected to reach $26 billion during 2002. Additionally, the U.S. market for new generation antibiotics alone was anticipated to reach approximately $10 billion in 2002. With an estimated 4.2% compound annual growth rate, the market is expected to surpass $32 billion by 2007.
Currently marketed antibacterial drugs have, in many cases, proven highly successful in controlling the morbidity and mortality that accompany serious bacterial infections. These drugs work by binding to specific targets in a bacterial pathogen, thereby inhibiting a function essential to the infecting cell's survival. Many antibiotics were developed and introduced into the market during the 1970s and 1980s. Most of these were developed from existing classes of drugs such as semi-synthetic penicillins, cephalosporins, macrolides, quinolones and carbapenems, and proved to be efficacious in treating most bacterial infections. We believe this efficacy prompted pharmaceutical companies to shift their resources to other areas of drug discovery and development. As a result, only one new antibiotic from a new chemical class has been introduced in the past 30 years.
The Centers for Disease Control, or CDC, continues to report on new strains of bacteria that are resistant to one or more currently marketed agents. The increasing prevalence of drug-resistant bacterial pathogens has led to significantly increased mortality rates, prolonged hospitalizations, and increased healthcare costs. In addition, the proportion of hospital patients that have compromised immune systems has risen sharply in recent years. This trend is the result of, among other things, the rising incidence of cancer and the associated use of chemotherapy, the general aging of the patient population and the increased use of complex surgical procedures such as organ transplants. Hospital patients with compromised immune systems are more susceptible to serious and life-threatening infections.
Certain pathogens have developed resistance to currently available drugs. Examples of such resistant pathogens include:
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Japan and North America and have recently emerged in Europe, causing one reported death in 2002.
Shortcomings of Current Antibacterial Therapies
Current antibacterial therapies do not provide adequate treatment for some serious and life-threatening infections for the following reasons:
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intravenous administration of some of these drugs does not occur through the veins in the arm but through catheters in the central venous system. The difficulty or inconvenience of administration of these drugs makes them less attractive choices for home therapy or for other therapy outside of the hospital. Existing antibiotics may cause side effects in some patients, such as severe allergic reaction, lower blood pressure, suppression of the bone marrow, inflammation and swelling at the site of injection, and headaches. Some of these side effects may be significant enough to require that therapy be discontinued.
Our Business Strategy
Our objective is to be a worldwide leader in the research, development and commercialization of new antiinfective agents. The principal elements of our strategy to achieve this objective include the following:
Develop and Commercialize Cidecin
We are developing Cidecin to treat serious bacterial infections, including those caused by drug-resistant pathogens. In December 2002, we filed an NDA with the FDA seeking U.S. marketing approval of Cidecin. In February 2003, the FDA accepted the NDA filing and granted it priority review status, establishing an FDA action date of June 20, 2003. We have the exclusive right to develop, manufacture and market Cidecin worldwide and are evaluating strategies for its worldwide commercialization.
Develop Existing Pre-Clinical Candidates
We have two drug candidates in pre-clinical development: an intravenous cephalosporin antibiotic called CAB-175 and an oral cephalosporin we call OCTX. If pre-clinical studies for CAB-175 and OCTX continue successfully, we expect to be in a position to file Investigational New Drug applications, or INDs, with the FDA in mid-2003 and late-2003, respectively, to begin clinical development.
License New Drugs and New Drug Candidates
Our internal expertise allows us to recognize viable licensing opportunities and to possibly save time and money in successfully developing antiinfectives by capitalizing on research initially conducted and funded by others. We intend to continue to review and acquire compounds with promising characteristics as antiinfective drug candidates.
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Discover and Develop New Antiinfective Drugs
We focus our research and drug discovery activities on identifying new classes of antiinfective drugs and on developing one or more antiinfective drugs from each of these new classes. We believe that novel drugs from new chemical classes will be effective against drug-resistant pathogens because these pathogens have not had an opportunity to develop resistance specific to these drugs. We have a research and development effort underway focused on a new class of drug candidates called lipopeptides. Daptomycin is a member of the lipopeptide class and, as a result of our work with daptomycin, we have developed expertise in the chemistry and biology of lipopeptides. Our proprietary lipopeptide program is focused on identifying new lipopeptide compounds for the treatment of a broad spectrum of bacterial infections.
Utilize our Natural Products Technologies to Discover Novel Drugs
We utilize our natural products technologies in our internal research programs to identify novel pharmaceutical compounds.
Development Pipeline
Cidecin (daptomycin for injection)
In 1997, we licensed worldwide rights to daptomycin from Eli Lilly & Company. Daptomycin is the first antibiotic in a new class of antimicrobial drug candidates called lipopeptides. In its intravenous form, branded as Cidecin, daptomycin has become our lead product candidate.
Under laboratory conditions, Cidecin exhibits rapid bactericidal activity against virtually all clinically significant Gram-positive bacteria, including drug-resistant bacteria such as MRSA, VISA/GISA, VRSA and VRE. Gram-positive bacteria, such as Staphylococcus, Streptococcusand Enterococcus, can cause a variety of serious infections that are a major cause of morbidity and mortality worldwide. Gram-positive bacteria can be differentiated from Gram-negative bacteria by the differences in the structure of the bacterial envelope. Gram-positive bacteria possess a singular cellular membrane and a thick cell wall component, whereas Gram-negative bacteria possess a double cellular membrane with a thin cell wall component. These cellular structures greatly affect the ability of an antibiotic to penetrate the bacteria and reach its target site.
In December 2002, Cubist filed an NDA with the FDA for Cidecin for the treatment of complicated skin and skin structure infections caused by Gram-positive organisms. In February 2003, the FDA accepted the Cidecin NDA and granted the filing priority review status, indicating that Cidecin, if approved, would represent a therapeutic advance over existing medicines. By granting priority review status to Cidecin, the FDA has established a target date to act on the NDA filing by June 20, 2003. An additional Phase 3 study is underway to investigate Cidecin's safety and efficacy in the treatment of
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infective endocarditis/bacteremia caused by Staphylococcus aureus, as is a Compassionate Use Protocol to treat patients resistant, refractory, intolerant, or contraindicated to receive currently available therapies.
Potential Cidecin Advantages
We believe that Cidecin, if approved, could provide the following benefits:
Cidecin has demonstrated activity in vitro against virtually all clinically significant Gram-positive bacteria, including MRSA, GISA/VISA, VRSA and VRE. We believe that Cidecin's broad spectrum of in vitro activity could give it a clinical therapeutic advantage in treating serious infections because, if approved, Cidecin could be used to treat these infections regardless of which Gram-positive bacterium is causing the infection.
Cidecin rapidly kills virtually all clinically significant Gram-positive bacteria in vitro. We believe this rapid bactericidal activity could give Cidecin a clinical therapeutic advantage in treating serious infections, if approved, particularly in patients that have compromised immune systems, as compared to other drugs that do not kill the bacteria but rather inhibit their growth and rely on the immune system to destroy the bacteria. In addition, data from the first of the two Phase 3 Cidecin cSSSI trials demonstrated that clinically successful patients receiving Cidecin required fewer days of intravenous therapy than patients receiving the comparator agents and that patients' temperatures returned to normal one day faster than patients receiving comparator.
Studies have shown that Cidecin has activity in vitro against drug-resistant bacteria, including MRSA, GISA/VISA, VRSA and VRE. Vancomycin, a glycopeptide, has become the treatment of choice for patients who have serious Gram-positive infections that have failed to respond to all other drugs. Recently, however, several strains of enterococci have developed resistance to vancomycin and strains of Staphylococcus aureus have become both intermediately susceptible and fully resistant to vancomycin. Currently, there are limited therapeutic alternatives to treat infections caused by MRSA, GISA/VISA, VRSA and VRE. We believe that Cidecin could become the therapy of choice to treat infections caused by drug-resistant Gram-positive bacteria, if approved by the FDA.
In completed and ongoing clinical trials, Cidecin is administered in a single daily dose, intravenously, over approximately 30 minutes. If approved for marketing, Cidecin should have an advantage over several
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other antibiotics that require administration in multiple doses each day, that take longer than 30 minutes to administer or that are administered through a central venous catheter located in parts of the body other than the arm.
Cidecin Clinical Data
On the basis of daptomycin's in vitro activity against clinically significant bacteria, its bacteria-killing mode of action and its promising profile in Phase 1 and Phase 2 trials conducted by Eli Lilly, we began clinical evaluation of intravenous daptomycin. We filed an IND with the FDA in December 1998, and we began Phase 2 and Phase 3 trials in order to evaluate the safety and efficacy of intravenous daptomycin in patients with cSSSI and in patients with bacteremia in February 1999. In early 2000, we branded our intravenous formulation of daptomycin, Cidecin.
To date, we have completed two pivotal Phase 3 trials for the treatment of cSSSIs caused by Gram-positive bacteria and two Phase 3 trials for the treatment of hospitalized community-acquired pneumonia, or CAP. In both of the cSSSI trials, Cidecin achieved the FDA-required primary endpoint of statistical equivalence to the comparator agents, which are currently considered optimal antibiotic standards of care for cSSSI. In 2002, we announced that the primary endpoint of demonstrating non-inferiority to an active comparator agent was not achieved in the Phase 3 trials investigating the safety and efficacy of Cidecin in the treatment of CAP requiring hospitalization. In all of these Phase 3 trials, Cidecin's safety profile was similar to that of the comparator agents. In a Phase 2 study investigating the safety and efficacy of Cidecin in the treatment of complicated urinary tract infection, or cUTI, caused by Gram-positive bacteria, there were no differences between the microbiologic and clinical cure rates for Cidecin versus the comparator agent across all patient populations and there were no meaningful differences in the adverse event profiles of the two agents in this study.
Cidecin Safety Profile
In our clinical trials to date, observed side effects in patients treated with Cidecin have been comparable to those observed in patients treated with standard therapies.
CAB-175
In July 2002, we acquired rights to CAB-175 from Biochemie GmbH. CAB-175 is a unique investigational cephalosporin antibiotic in late-stage pre-clinical development that has demonstrated in vitro activity against most clinically relevant Gram-positive and Gram-negative bacteria, including important resistant species.
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CAB-175 is a new chemical entity belonging to a sub-class of cephalosporins called azomethines. Although cephalosporins represent roughly one-third of the estimated $26 billion global market for antibiotics, limitations to their use now exist due to the continued emergence of bacterial resistance. For example, currently marketed cephalosporins are not effective against MRSA strains, which are estimated to be the cause of approximately 35% of Staphylococcus aureus infections in the U.S. and up to 42% and 70% of similar infections in parts of Europe and Asia, respectively. CAB-175 has demonstrated in vitro activity against MRSA, and is also active against most other important Gram-positive bacteria, including susceptible and certain multi-drug resistant Pneumococci, Streptococci and Enterococci and virtually all clinically relevant Gram-negative bacteria, including many (Greek beta) -lactamase-producing strains.
Preliminary pre-clinical animal studies indicate that CAB-175 could have a similar safety profile to ceftriaxone, a drug that has been successfully and safely prescribed for over 15 years in both adults and children. The compound is water soluble, with pharmacokinetics in non-human primates suggesting twice-daily parenteral dosing. We will initially be investigating CAB-175 in an intravenous formulation, but may also perform feasibility studies on potential intramuscular and oral dosage formulations. In in vitro studies, CAB-175 has thus far demonstrated a low potential for the development of bacterial resistance.
If successfully developed, CAB-175 could target hospitalized patient populations suffering from lower and upper respiratory infections, urinary tract infections, intra-abdominal infections, skin and skin structure infections and febrile neutropenia. It is estimated that these indications represent in excess of 15 million treated patients each year on a global basis. We believe CAB-175 complements Cidecin well, as commercialization efforts for CAB-175 and Cidecin would target a similar physician audience, should they both ultimately gain regulatory approval.
If pre-clinical studies of CAB-175 continue successfully, we anticipate filing a U.S. IND to begin human clinical development in mid-2003.
Oral Ceftriaxone
We have obtained exclusive worldwide licenses from International Health Management Associates, or IHMA, and the University of Utah to use their oral delivery technology to research, develop, and commercialize certain oral formulations of ceftriaxone, a third-generation cephalosporin antibiotic that has activity against both Gram-positive and Gram-negative bacterial infections. Ceftriaxone is currently only marketed in an intravenous formulation. This formulation is currently the largest-selling intravenous antibiotic worldwide, marketed by Hoffmann-LaRoche as Rocephin, and had sales of over $1.0 billion in 2001.
Gram-positive and Gram-negative bacteria are responsible for the majority of community-based infections, which include upper and lower respiratory tract infections (including otitis media, sinusitis,
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bronchitis and community-acquired pneumonia), urinary tract infections and skin and soft tissue infections. It is estimated that these infections result in nearly 80 million treated patients annually in the U.S.
To date, ceftriaxone has been primarily used to treat hospital in-patients. If successfully developed, we believe that an oral formulation could greatly expand the utility and revenue potential of ceftriaxone through community-based prescribing. In addition, we believe oral ceftriaxone could also be used for the continuation of antibiotic therapy by converting intravenous therapy to oral therapy, known as step-down therapy. Step-down therapy provides multiple benefits, including convenience and cost savings, potential earlier hospital discharge, the reduction of associated healthcare costs and increased physician confidence in an optimal therapeutic outcome given that a discharged patient is receiving the same therapy that was taken intravenously in the hospital setting.
In January 2002, we announced successful results from a human clinical research study in the UK, examining the bioavailability of ceftriaxone in a variety of oral formulations. In these studies, we achieved our goal, demonstrating clinically relevant blood levels of ceftriaxone delivered intraduodenally, or directly to the small intestine, in human volunteers. Based on these studies, we have continued development of OCTX and have developed a capsule formulation that demonstrates good bioavailability of the compound in animal models.
If pre-clinical studies of OCTX continue successfully and on a timely basis, it is our goal to file a U.S. IND in late 2003 to begin human clinical development.
Oral Daptomycin
We are not currently performing active research on any oral formulations of daptomycin.
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Our Drug Discovery Programs and Technologies
Our drug discovery technologies are an integral part of our mission to accelerate the discovery of novel antiinfectives. Through experience and acquisition, we have amassed a comprehensive portfolio of proprietary methods for discovering novel pharmaceuticals. We focus on the use of biodiversity as a means of natural product drug discovery, while also using traditional chemical discovery and development techniques.
Our Lipopeptide Program
Cidecin is the first member of a new class of chemical molecules called lipopeptides. Within traditional classes of antibiotics, such as penicillins and cephalosporins, multiple agents have been developed. We believe there may be additional clinically useful lipopeptides with the potential for commercialization. To discover these compounds, we are engaged in a comprehensive drug discovery and development program designed to capitalize on our knowledge of the chemistry and biology of lipopeptides that we have acquired through our development work with Cidecin. Based on the results of this program, we have filed multiple patent applications on several different series of novel analogs and are currently screening these analogs to enable the selection of investigational pre-clinical candidates.
Our Proprietary Natural Products Drug Discovery Technologies
We own multiple proprietary assets and technologies in the area of natural products that are being applied to discover novel antiinfective agents and will attempt to eliminate the bottlenecks that currently exist in the natural products drug discovery process. This portfolio includes assets such as NatChem and proprietary natural products technologies including macrodroplet screening, NatGen and Directed Biosynthesis.
NatChem
Our NatChem asset consists of compound extracts from a unique collection of rare, diverse fungi and actinomycetes. Designed and curated for maximum chemical diversity, a range of fermentation and extract conditions are employed for each organism. The resource is continually evaluated and improved by replacing the most heavily screened extracts with new extracts derived from previously unexploited organisms.
Macrodroplet Screening
In natural products screening, our proprietary macrodroplet screening technology eliminates the need to ferment, extract and assay individual cultures. The technology is a miniaturized, ultra high-throughput
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system that integrates multiple fermentation conditions and screening into one system. It can efficiently screen millions of strains annually against a broad panel of antimicrobial bioassays and can be adapted for different assay formats for a range of applications. The technology provides for the rapid determination of desired biological activities, temporal and spatial detection of secondary metabolite synthesis and easy recovery of the organisms producing compounds with desired biological activity.
NatGen.
The NatGen proprietary technologies are comprised of advanced genetics tools that enable the cloning of large fragments of DNA that encode entire metabolic pathways and the heterologous expression of encoded novel secondary metabolites in the surrogate host organism. Using these technologies, new members of biosynthetic pathways can be rapidly isolated and identified. In addition, these tools facilitate the directed biosynthesis of novel secondary metabolites, which may have useful pharmaceutical properties.
Directed Biosynthesis.
Directed biosynthesis is employed to genetically modify a metabolic pathway such that novel natural product analogs are produced. For example, the non-ribosomal peptide synthetase responsible for the biosynthesis of daptomycin is composed of four enzymatic subunits. Novel analogs of daptomycin with differences in the amino acid core of this lipopeptide have been synthesized by genetically producing hybrid non-ribosomal peptide synthetases composed of subunits from the daptomycin synthetase and complementary subunits from other non-ribosomal peptide synthetases. Using directed biosynthesis, the metabolic pathway for a specific natural product is genetically modified to produce novel natural product analogs. This directed evolution of metabolic pathways also produces new chemical classes of compounds not found in nature.
The 10M Challenge
A major application of our natural products technologies focuses on our "10M Challenge." This program challenges our scientists to screen through 10 million unique microbes during 2003. Using proprietary screening technologies, we aim to accelerate the discovery of new antibiotics isolated from approximately 25,000 soil samples collected by our employees throughout 2002. Our researchers are currently able to screen through more than 250,000 microbes per week.
Other Research Programs
We are no longer using our LEAPS (Lead Evolution for Antiinfectives using Pharmacophores and Scaffolds) technology and are no longer pursuing our target-based drug discovery programs.
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Our Research and Development Agreements
We seek to enter into drug discovery and development agreements to research and, develop novel antiinfective agents. In addition to providing us with funding, collaborations give us access to libraries of diverse compounds and to the research development, capabilities of the partners.
From February 1999 until February 2003, we were engaged in a research and license collaboration with Novartis Pharma AG, or Novartis, to validate and develop assays for antiinfective targets and to identify new antiinfective agents. During the collaboration, we successfully delivered to Novartis four novel, validated antiinfective drug targets and high-throughput screening assays. Novartis will optimize, clinically develop and commercialize any compounds that result from their ongoing screening efforts and would make payments to us upon the achievement of clinical milestones or sales.
To expand our access to novel small molecule libraries and other technologies for drug discovery, we have formed and are currently engaged in alliances with biotechnology companies including Albany Molecular Research Inc., Asinex, Cetek Corporation and Synthematix, Inc.
In September 2001, Cubist entered into a services agreement with PPD Development, LLC, or PPD, pursuant to which PPD has agreed to provide various clinical research services for our endocarditis/bacteremia Phase 3 Cidecin clinical trial.
Details on Cubist's research and development expenditures can be found in Item 6 titled "Selected Financial Data."
Patents and Proprietary Technology
We seek to protect our cloned targets, expressed proteins, assays, organic synthetic processes, novel compounds, screening technology and other technologies by, among other things, filing, or causing to be filed on our behalf, patent applications.
To date, we own or co-own 33 issued U.S. patents, 24 pending U.S. patent applications, 12 issued foreign patents and numerous pending foreign patent applications. We have licenses to research, develop and commercialize an oral formulation of ceftriaxone from International Health Management Associates, or IHMA, and the University of Utah under an issued U.S. patent related to oral formulations of ceftriaxone, and together with the University of Utah and IHMA, we co-own pending U.S. and foreign patent application equivalents related to oral formulations and specific oral dosage forms of antibiotics. We have also licensed exclusive worldwide rights to a novel cephalosporin known as CAB-175 from Biochemie GmbH, a unit of Novartis Generic business sector. Additionally, we have exclusively licensed rights from Eli Lilly under U.S. patents and foreign patents related to the composition, manufacture, and use of daptomycin. Eli Lilly has also agreed to assign to us other U.S. patents and foreign patents related
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to the composition, manufacture and use of daptomycin. The primary composition of matter patent covering daptomycin in the U.S. has expired. However, we have also filed a number of patent applications in our name relating to the composition, manufacture, administration and use of daptomycin and other lipopeptides. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our technology.
Sales and Marketing
We have the exclusive worldwide rights to commercialize daptomycin and any analogs of daptomycin to which we have intellectual property rights.
In North America, it is our plan to commercialize Cidecin through a Cubist sales force, if we receive regulatory approval from the FDA. We are currently in the process of building a commercial infrastructure and expect to launch Cidecin with an initial sales force of approximately 50-75 representatives. As part of our commercialization strategy in the U.S., we have established a medical science liaison team of 11 representatives to provide medical education services to infectious disease specialists and other opinion leaders. Should Cidecin gain FDA approval, this team will form the basis for the larger medical education team. Until such time, the team is leveraging its current relationships with infectious-disease thought leaders to aid in the recruitment and education of clinical trial physicians involved in the development of Cidecin. The group also plays an important role in determining the strategic direction of Cubist by identifying antibiotic resistance and trends, initiating medical affairs efforts, providing input on Phase 3/Phase 4 clinical studies, guiding the advancement of early-stage clinical candidates, and profiling the formulary committees and physician staffs at the medical centers on which we would focus our initial marketing efforts.
In September 2002, Cubist and Gilead Sciences jointly announced the termination of the licensing agreement for the exclusive rights to commercialize Cidecin and an oral formulation of daptomycin in 16 European countries following regulatory approval. Gilead paid us up-front licensing fees of $13.0 million, and subsequently paid us $7.5 million for the achievement of certain clinical milestones.
In October 2002, we entered into a commercialization agreement with Medison Pharma, Ltd. (Israel) for the regulatory filing and marketing of Cidecin in Israel and Palestine. In these territories, Medison has existing capabilities in sales, marketing, medical education, pharmaceutical operations and clinical trial management.
We are currently investigating additional commercialization strategies for Cidecin, exclusive of Israel and Palestine.
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As a result of our agreement with Biochemie, we have exclusive worldwide rights to commercialize CAB-175, an investigational cephalosporin antibiotic. This compound is undergoing pre-clinical evaluation, and therefore, we have not yet formulated a commercialization strategy.
As a result of our agreements with IHMA and the University of Utah, we have exclusive worldwide rights to use their oral delivery technology to commercialize certain oral formulations of ceftriaxone. Our formulations of oral ceftriaxone are in pre-clinical research, and therefore, we have not yet formulated a commercialization strategy.
Manufacturing and Distribution
In June 2000, we entered into a manufacturing and supply agreement with DSM Capua pursuant to which DSM Capua agreed to manufacture and supply to us bulk daptomycin drug substance for commercial purposes. Under the terms of the manufacturing and supply agreement, DSM Capua is required to prepare its manufacturing facility in Italy to manufacture bulk daptomycin drug substance in accordance with Good Manufacturing Practices, or GMP, standards. Upon completion of the preparation of DSM Capua's manufacturing facility and a determination by the FDA that the manufacturing facility complies with GMP standards, we will purchase bulk daptomycin drug substance from DSM subject to a minimal annual quantity requirements over a five-year period, provided that we obtain FDA approval for the commercialization of Cidecin.
In September 2001, we entered into a manufacturing and supply agreement with ACS Dobfar SpA, or ACS, pursuant to which ACS agreed to provide scale-up services and to construct a production facility dedicated to the manufacture of daptomycin and to sell bulk daptomycin exclusively to us for commercial purposes. Under the terms of this agreement, which was amended in February 2003, ACS is required to prepare its manufacturing facility in Italy to manufacture bulk daptomycin drug substance in accordance with GMP standards. Upon completion of the preparation of ACS's manufacturing facility and a determination by the FDA that the manufacturing facility complies with GMP standards, we will purchase bulk daptomycin drug substance from ACS subject to minimal annual quantity requirements over a seven-year period, provided that we obtain FDA approval for the commercialization of Cidecin. We also currently engage ACS to manufacture bulk clinical grade daptomycin drug substance for our clinical trials.
In April 2000, we entered into an agreement with Abbott Laboratories. Under this agreement, Abbott will supply our finished, vialed formulation of daptomycin, provided that we obtain FDA approval for the commercialization of Cidecin.
We are engaged in active negotiations with potential packaging and distribution partners for Cidecin.
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Competition
The biotechnology and pharmaceutical industries are intensely competitive. Many companies, including large, multinational pharmaceutical and biotechnology companies, are actively engaged in activities similar to ours. Many of these companies may employ greater financial and other resources, including more extensive research, development, marketing and manufacturing organizations than us or our collaborative partners. There are also academic institutions, governmental agencies and other research organizations that are conducting research in areas in which we are working.
If approved by the FDA, Cidecin will face competition primarily from vancomycin, a widely used intravenous antibiotic for serious infections. Although we believe that Cidecin would be used as a vancomycin replacement, we cannot be sure how the medical community will choose to use Cidecin. In addition, there are other intravenous antibiotics on the market and under development that could compete with Cidecin.
We also expect to encounter significant competition with respect to the drugs that we and our collaborative partners may develop in the future.
Government Regulation
Overview
The development, manufacture and marketing of drugs, including antibiotics, developed by us or our collaborative partners are subject to regulation by numerous governmental agencies in the U.S., principally the FDA, by state and local governments, and in some instances by foreign governments. Pursuant to the Federal Food, Drug, and Cosmetic Act, or FDC Act, and the regulations promulgated thereunder, the FDA regulates the pre-clinical and clinical trials, safety, effectiveness, manufacture, labeling, storage, record keeping, distribution, and promotion of drugs in the U.S. Product development and approval within the FDA regulatory framework usually takes a significant number of years, involves the expenditure of substantial capital resources and is uncertain.
FDA Process
Before testing of any compounds with potential therapeutic value in human subjects may begin in the U.S., stringent government requirements for pre-clinical data must be satisfied. Pre-clinical testing includes both in vitro and in vivo laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation. Pre-clinical testing results obtained from studies in several animal species, as well as from in vitro studies, are submitted to the FDA as part of an IND and are reviewed by the FDA prior to the commencement of human clinical trials. These pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initial studies in human volunteers. Unless
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the FDA objects to an IND, the IND becomes effective 30 days following its receipt by the FDA. Once trials have commenced, the FDA may stop the trials by placing them on "clinical hold" because of concerns about, for example, the safety of the product being tested.
Clinical trials involve the administration of the drug to healthy human volunteers or to patients under the supervision of a qualified investigator, usually a physician, pursuant to an FDA-reviewed protocol. Human clinical trials are typically conducted in three sequential phases, although the phases may overlap with one another. Clinical trials must be conducted 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 IND. Each clinical trial must be conducted under the auspices of an Institutional Review Board that considers, among other things, ethical factors, the safety of human subjects, the possible liability of the institution and the informed consent disclosure, which must be made to participants in the clinical trial.
Phase 1 clinical trials represent the initial administration of the investigational drug to a small group of healthy human subjects or, more rarely, to a group of selected patients with the targeted disease or disorder. The goal of Phase I clinical trials is typically to test for safety, dose tolerance, absorption, bio-distribution, metabolism, excretion and clinical pharmacology and, if possible, to gain early evidence regarding efficacy.
Phase 2 clinical trials involve a small sample of the actual intended patient population and seek to assess the efficacy of the drug for specific targeted indications, to determine dose response and the optimal dose range and to gather additional information relating to safety and potential adverse effects.
Once an investigational drug is found to have some efficacy and an acceptable safety profile in the targeted patient population, Phase 3 clinical trials are initiated to establish further clinical safety and efficacy of the investigational drug in a broader sample of the general patient population at geographically dispersed study sites in order to determine the overall risk-benefit ratio of the drug and to provide an adequate basis for product labeling. The Phase 3 clinical development program consists of expanded, large-scale studies of patients with the target disease or disorder, to obtain definitive statistical evidence of the efficacy and safety of the proposed product and dosing regimen. All of the phases of clinical studies must be conducted in conformance with the FDA's bioresearch monitoring regulations.
All data obtained from a comprehensive development program including research and product development, manufacturing, pre clinical and clinical trials and related information are submitted in an NDA to the FDA and the corresponding agencies in other countries for review and approval. In addition to reports of the trials conducted under the IND, the NDA includes information pertaining to the preparation of the new drug or antibiotic, analytical methods, details of the manufacture of finished products and proposed product packaging and labeling. Although the FDC Act requires the FDA to
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review NDAs within 180 days of their filing, in practice, longer times may be required. The FDA also frequently requests that additional information be submitted, requiring significant additional review time. Any of our proposed products would likely be subject to demanding and time-consuming registration approval procedures in virtually all countries where marketing of the products is intended. These regulations define not only the form and content of safety and efficacy data regarding the proposed product but also impose specific requirements regarding manufacture of the product, quality assurance, packaging, storage, documentation and record keeping, labeling, advertising and marketing procedures.
In some cases, the FDA review of drug development program may proceed under the "fast track" guidelines. Fast Track is designed to facilitate the development and expedite the review of new drugs to that are intended to treat serious or life threatening conditions and demonstrate the potential to address unmet medical needs. An NDA may proceed under "priority review" and/or accelerated approval. Priority review for an NDA is granted if the drug provides a significant improvement compared to marketed products in the treatment, diagnosis, or prevention of a disease; eligibility is not limited to drugs for a serious or life-threatening disease. The accelerated approval provisions are largely codified in FDA's accelerated approval regulations. While the statutory provisions expand upon the regulations, the FDA continues to rely on its regulations to implement the statutory provision. The accelerated approval regulations apply to products used in the treatment of serious or life-threatening illnesses that appear to provide meaningful therapeutic benefits over existing treatments. These regulations permit approval of such products before clinical research is completed based on the product's effect on a clinical endpoint or surrogate endpoint. When a product is approved under the accelerated approval regulations, the sponsor may be required to conduct additional adequate and well controlled studies to verify that the effect the surrogate endpoint correlates with improved clinical outcome or to otherwise verify the clinical benefit. In the event such post-marketing studies do not verify the drug's anticipated clinical benefit, or if there is other evidence that the drug product is not shown to be safe and effective, expedited withdrawal procedures permit the FDA, after a hearing, to remove a product from the market. Significant uncertainty exists as to the extent to which these accelerated approval regulations will result in accelerated review and approval. The FDA retains considerable discretion to determine eligibility for accelerated review and approval.
Other Regulatory Processes
We are also subject to regulation under other federal laws and regulation under state and local laws, including laws relating to occupational safety, laboratory practices, the use, handling and disposition of radioactive materials, environmental protection and hazardous substance control. Although we believe that our safety procedures for handling and disposing of radioactive compounds and other hazardous materials used in our research and development activities comply with the standards prescribed by federal, state and local regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of any such accident, we could be held liable for any damages that result and any such liability could exceed our resources.
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The development, manufacture and marketing of drugs, including antibiotics, developed by us or our collaborative partners are subject to regulation by numerous governmental agencies in the U.S.
Our Employees
As of March 14, 2003, we had 204 full-time employees, 96 of whom were engaged in research and development and 108 of whom were engaged in management, marketing, sales, manufacturing, quality assurance/quality control, administration and finance. Advanced degrees are held by 72 of our employees. Our employees are not covered by a collective bargaining agreement. We have never experienced an employment-related work stoppage and we consider our employee relations to be good.
Our Executive Officers and Directors
Our executive officers and directors and their ages as of March 14, 2003 are as follows:
| Scott M. Rocklage, Ph.D. | 48 | Chairman of Board of Directors & Chief Executive Officer | ||
| Michael W. Bonney | 44 | President & Chief Operating Officer | ||
| Francis P. Tally, M.D. | 62 | Executive Vice President, Scientific Affairs & Chief Scientific Officer | ||
| Barry I. Eisenstein, M.D. | 55 | Executive Vice President, Research & Development | ||
| Oliver S. Fetzer, Ph.D., MBA | 38 | Senior Vice President, Corporate Development & Chief Business Officer | ||
| David W.J. McGirr, MBA | 48 | Senior Vice President & Chief Financial Officer | ||
| Christopher D.T. Guiffre, J.D., MBA | 34 | Vice President, General Counsel & Secretary | ||
| Susan B. Bayh, JD (3)* | 43 | Director | ||
| Barry M. Bloom, Ph.D. (1)(3) | 74 | Director | ||
| John K. Clarke, MBA (1)* | 49 | Director | ||
| David W. Martin, Jr., M.D. (2)* | 62 | Director | ||
| Walter R. Maupay, MBA (2) (3) | 64 | Director | ||
| John L. Zabriskie, Ph.D. (1) (2) | 63 | Director |
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In February 2003, Cubist announced that Michael W. Bonney will succeed Scott M. Rocklage, Ph.D., as Cubist's Chief Executive Officer at Cubist's Annual Meeting of Stockholders on June 10, 2003. Dr. Rocklage, our current Chairman & CEO, will remain Cubist's Chairman.
Dr. Rocklage was elected Chairman of the Board of Directors in March 2000. Dr. Rocklage has served as our Chief Executive Officer and as a member of the board of directors since July 1994. He served as our President from July 1994 until March 2001. In June 2003, Mr. Bonney will succeed Dr. Rocklage as CEO of Cubist. Dr. Rocklage will remain as Chairman of the Board of Directors. From 1990 to 1994, Dr. Rocklage served as President and Chief Executive Officer of Nycomed Salutar, Inc., a diagnostic imaging company. From 1992 to 1994, he also served as President and Chief Executive Officer and Chairman of Nycomed Interventional, Inc., a medical device company. From 1986 to 1990, he served in various positions at Nycomed Salutar, Inc. and was responsible for designing and implementing research and development programs that resulted in three drug products in human clinical trials, including the approved drugs Omniscan and Teslascan. Dr. Rocklage currently serves as a director of MDS Proteomics, Inc. He received his B.S. in Chemistry from the University of California, Berkeley and his Ph.D. in Chemistry from the Massachusetts Institute of Technology.
Mr. Bonney has served as our President & Chief Operating Officer since January 2002. In June 2003, Mr. Bonney will succeed Dr. Rocklage as Chief Executive Officer and will become President & CEO of Cubist. From 1995 to 2001, he held various positions of increasing responsibility at Biogen, Inc., including Vice President, Sales and Marketing from 1999-2001. While at Biogen, Mr. Bonney built the commercial infrastructure for the launch of Avonex. Prior to that, Mr. Bonney held various positions in sales, marketing and strategic planning at Zeneca Pharmaceuticals, ending his eleven-year career there serving as National Business Director. Mr. Bonney received a BA in Economics from Bates College.
Dr. Tally has served as our Executive Vice President, Scientific Affairs since January 1997 and as Chief Scientific Officer since July 2001. From March 1995 to January 1997, he served as our Vice President of Research and Development. From 1986 to February 1995, Dr. Tally served as Executive Director of Infectious Disease, Molecular Biology and Natural Products Research at the Lederle Laboratories of American Cyanamid/American Home Products, where he was responsible for worldwide clinical studies for piperacillin/tazobactam, which was registered for sales in Europe in 1992, approved by the FDA in 1993 and marketed as Zosyn. From 1975 to 1986, he served as Senior Physician in Infectious Disease at the New England Medical Center and Associate Professor of Medicine at Tufts Medical Center. Dr. Tally received his A.B. in Biology from Providence College and his M.D. from George Washington University School of Medicine.
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Dr. Eisenstein has served as our Executive Vice President, Research and Development since January 2003. He joined Cubist from ActivBiotics, Inc., where he served as President, Chief Scientific and Medical Officer throughout the year 2002 and as a member of ActivBiotics' Board of Directors from 1997 to 2003. From 1996 to 2002, he was Vice President, Science and Technology at Beth Israel Deaconess Medical Center, responsible for technology transfer, clinical trials and research, research administration and research operations. From 1992 to 1996, Dr. Eisenstein served as Vice President of Eli Lilly and Company's Lilly Research Laboratories and from 1986 to 1992, Dr. Eisenstein was Chairman of the Department of Microbiology and Immunology at The University of Michigan Medical School. He has also held various academic positions and currently serves as Clinical Professor of Medicine at Harvard Medical School. Dr. Eisenstein received an AB from Kenyon College and his MD from Columbia University College of Physicians and Surgeons.
Dr. Fetzer has served as our Senior Vice President, Corporate Development & Chief Business Officer since January 2003. From July 2002 to January 2003, he served as our Senior Vice President, Business Development. Prior to joining Cubist, he served as Vice President and Director from 2000 to 2002, as Manager from 1997 to 2000, as Project Leader from 1995 to 1997 and as Consultant from 1993 to 1995 at The Boston Consulting Group. While there, he focused on domestic and international strategic issues, predominantly in the healthcare industry, covering all functions of the pharmaceutical value chain. Dr. Fetzer received a B.S. in Biochemistry from the College of Charleston (South Carolina), a Ph.D. in Pharmaceutical Sciences from the Medical University of South Carolina and an MBA from Carnegie Mellon University.
Mr. McGirr has served as our Senior Vice President & Chief Financial Officer since November 2002. He also served as our Treasurer from November 2002 until January 2003. Prior to joining Cubist, Mr. McGirr was the President, Chief Operating Officer and a member of the Board of Directors of hippo inc, an internet technology, venture-financed company, from 1999 to 2002. Mr. McGirr continues to serve as a member of hippo's Board of Directors. From 1996 to 1999, he was the President of GAB Robins North America, Inc., serving also as Chief Executive Officer from 1997 to 1999. Mr. McGirr was a private equity investor from 1995 to 1996. From 1978 to 1995, Mr. McGirr served in various positions within the S.G. Warburg Group, ultimately as Chief Financial Officer, Chief Administrative Officer and Managing Director of S.G. Warburg & Co., Inc., a position held from 1992 to 1995. Mr. McGirr received a B.Sc. in Civil Engineering from the University of Glasgow and received an MBA from The Wharton School at the University of Pennsylvania.
Mr. Guiffre has served as our Vice President, General Counsel & Secretary since December 2001. From 1997 to 2001, Mr. Guiffre held various positions of increasing responsibility at Renaissance Worldwide, Inc., a provider of information technology consulting services, including Counsel, Corporate Counsel and Director of Legal Affairs, and Vice President, General Counsel & Clerk. Prior to joining
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Renaissance Worldwide, he was an Associate at Bingham Dana & Gould, a leading Boston law firm. He received a B.S. in Marketing from Babson College, a J.D. from Boston College Law School, and an MBA from Boston College Carroll School of Management. Mr. Guiffre is a member of the Massachusetts Bar.
Ms. Bayh has served as one of our directors since June 2000. From 1994 to present, Ms. Bayh has served as the Commissioner of the International Joint Commission (IJC), a bi-national organization between the United States and Canada focusing on environmental issues of the Great Lakes. Ms. Bayh served as an attorney in Eli Lilly's Pharmaceutical Division handling federal regulatory issues for marketing and medical clients from 1989 to 1994 and, from 1984 until 1989, Ms. Bayh practiced law, focusing on litigation, utility and corporate law, and antitrust. She is also a director of Anthem, Inc., (a Blue Cross/Blue Shield company), Corvas International, Inc., a biotechnology company, Curis, Inc., a biotechnology company, Esperion Therapeutics, a biotechnology company, Emmis Communications, and Golden State Foods. Ms. Bayh has a B.A. from the University of California at Berkeley and a J.D. from the University of Southern California Law Center.
Dr. Bloom has served as a one of our directors since September 1993. Dr. Bloom has more than 40 years experience in the pharmaceutical industry. From 1952 to 1993, Dr. Bloom served in various positions at Pfizer Inc., including Executive Vice President of Research and Development. He is a director of Vertex Pharmaceuticals, Inc., Microbia and Neurogen Corp., biotechnology companies. Dr. Bloom received his S.B. in Chemistry and his Ph.D. in Organic Chemistry from the Massachusetts Institute of Technology.
Mr. Clarke has served as one of our directors since our incorporation and as Chairman of the Board of Directors from our incorporation to March 2000. From 1992 to 1994, Mr. Clarke served as our acting President and Chief Executive Officer. Since 1982, he has been a general partner of DSV Management in Princeton, New Jersey, the general partner of DSV Partners IV. He is a founder and director of Alkermes, Inc. and a director of VISICU, Inc., MedContrax, Inc., Molecular Mining, Inc. and TechRx, Inc. Mr. Clarke is the Managing General Partner for Cardinal Partners, founded in 1997. Mr. Clarke is also the General Partner for DSV Partners. Mr. Clarke has been employed with DSV Partners since 1982. Mr. Clarke received his B.A. in Biology and Economics from Harvard College and his MBA from The Wharton School of the University of Pennsylvania.
Dr. Martin has served as one of our directors since October 1997. Since July 1997, Dr. Martin has served as President, Chief Executive Officer and a founder of Eos Biotechnology, Inc. Dr. Martin was a Professor of Medicine, Professor of Biochemistry and an Investigator of the Howard Hughes Medical Institute at the University of California San Francisco until 1983 when he became the first Vice President and subsequently Senior Vice President of Research and Development at Genentech, Inc., a position he held until 1990. He was Executive Vice President of DuPont Merck Pharmaceutical Company from 1991 through 1993 and then returned to California in 1994 where he was Senior Vice-President of Chiron
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Corp., a biotechnology company, and President of Chiron Therapeutics. In May 1995, he assumed the position of President and Chief Executive Officer of Lynx Therapeutics, Inc., a biotechnology company, and served until November 1996. Dr. Martin is also a Director of Varian Medical Systems, Inc., a medical equipment and software supplier. Dr. Martin received his M.D. from Duke University.
Mr. Maupay has served as one of our directors since June 1999. Mr. Maupay served as President of Calgon Vestal Laboratories, a division of Merck & Co., Inc. from 1988 to 1995, when it was sold to Bristol-Myers Squibb. From January 1995 until June 1995, Mr. Maupay served as Group Executive of Calgon Vestal Laboratories after the sale to Bristol-Myers Squibb. From 1984 to 1988, Mr. Maupay served as Vice-President, Healthcare at Calgon Vestal Laboratories. Mr. Maupay is a director of Life Medical Sciences, Inc., a medical device company, Kensey Nash Corporation, a medical device company, PolyMedica Corporation, a healthcare distribution company, Neshaminy Golf Club, Inc. and Warwick Golf Farm. Mr. Maupay received his Bachelor of Science in Pharmacy from Temple University and his MBA from Lehigh University.
Dr. Zabriskie has served as one of our directors since June 1999. Dr. Zabriskie is currently president of Lansing Brown Investments, LLC, an investment firm, and Co-Founder and Director of Puretech Ventures, LLC. From July 1997 to July 2000, Dr. Zabriskie served as Chairman of the Board of NEN Life Science Products, Inc., a laboratory supply company. From July 1997 to December 1999, Dr. Zabriskie also served as President and Chief Executive Officer of NEN Life Science Products, Inc. From November 1995 to January 1997, he was President and Chief Executive Officer of Pharmacia & Upjohn, a pharmaceutical company. Dr. Zabriskie is a director of the Kellogg Company, a food products company, and of Biomira Inc., Array Biopharma Inc., MacroChem Corporation and Biosource International, biotechnology companies. From 1994 to November 1995, he served as President, Chief Executive Officer and Chairman of Upjohn Co. Dr. Zabriskie received a Bachelor of Arts from Dartmouth and his Ph.D. from the University of Rochester.
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Investing in our company involves a high degree of risk. You should consider carefully the risks described below, together with the other information in and incorporated by reference into this document. If any of the following risks actually occur, our business, operating results or financial condition could be materially adversely affected. This could cause the market price of our common stock to decline, and could cause you to lose all or part of your investment.
Risks relating to daptomycin
Our operating results for the foreseeable future will depend significantly on our ability to commercialize daptomycin successfully, if it is approved by the FDA.
The commercialization of daptomycin involves a high degree of risk. Many important factors may affect our ability to successfully commercialize daptomycin, including, but not limited to, our ability to:
We cannot be sure that we will be successful at any or all of the foregoing items. As a result, even if daptomycin receives regulatory approval, we may not generate revenues or royalties from sales of daptomycin.
Daptomycin may not receive regulatory approval in the U.S. or in other countries.
Daptomycin is first drug for which we have conducted clinical trials, and it is the first drug for which we have filed for regulatory approval. We have only filed for regulatory approval in the U.S. Although the FDA has given daptomycin priority review, we may not obtain regulatory approval to commercialize
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daptomycin in the U.S. or in other countries. If we do not obtain regulatory approval for daptomycin, we will not receive any revenues or royalties from commercial sales of daptomycin.
We depend on third parties to manufacture daptomycin, and our commercialization of daptomycin could be stopped, delayed, or made less profitable if those third parties fail to provide us with sufficient quantities of daptomycin at acceptable prices.
We anticipate that we will depend entirely on one company, DSM Capua, or DSM, to manufacture bulk daptomycin drug substance for commercial sale at the time of the potential U.S. launch of daptomycin unless FDA approval for such launch is withheld or delayed past 2003. We currently depend entirely on one company, ACS Dobfar, or ACS, to manufacture bulk daptomycin drug substance for our clinical trials. We have entered into manufacturing and supply agreements with both DSM and ACS to manufacture and supply to us bulk daptomycin drug substance for commercial purposes. We currently depend on one company, Abbott Laboratories, or Abbott, to manufacture clinical grade vialed formulations of daptomycin. We have also entered into a development and supply agreement with Abbott to manufacture and supply final vialed daptomycin commercial drug product.
We may not be able to enter into definitive agreements on acceptable terms for the expanded commercial scale manufacturing of daptomycin, either for bulk or final vialed substance. If we are unable to enhance our current manufacturing network, we could experience significant delays in the supply of daptomycin. If we are required to transfer manufacturing processes to other third-party manufacturers, we would be required to satisfy various additional regulatory requirements, and we could experience significant delays in supply of daptomycin.
If we are unable to develop satisfactory sales and marketing capabilities, we may not succeed in commercializing daptomycin.
We have not previously marketed or sold a drug product. Except for a marketing collaboration in Israel and Palestine, we do not have a sales and marketing collaboration for daptomycin anywhere in the world. We may seek to collaborate with third parties to market daptomycin, or we may seek to develop marketing and sales capabilities on our own. If we seek to collaborate with third parties, we cannot be sure that collaborative agreements can be reached on terms acceptable to us. If we seek to market and sell daptomycin by ourselves in North America, we will need to hire a significant sales force and marketing team with extensive sales and marketing skills. We cannot be sure that we will be able to acquire, or establish third party relationships to provide, any or all of these marketing and sales capabilities in North America.
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Daptomycin faces significant competition.
The market for therapeutic products that address infectious diseases is large; competition is intense and may increase. Should daptomycin receive regulatory approval, it would face worldwide competition from commercially available drugs such as vancomycin (marketed generically by Abbott, Shionogi & Co. Ltd., and others), Zyvox (marketed by Pharmacia Corporation), and Synercid (marketed by King Pharmaceuticals). In addition, daptomycin may face competition from drug candidates currently in clinical development. Several products currently in development at competitors may prove to be competitive to daptomycin and could receive regulatory approval before daptomycin does.
Daptomycin may not be accepted by physicians, patients, third party payors, or the medical community in general.
The commercial success of daptomycin will depend upon its acceptance by the medical community. We cannot be sure that daptomycin will be accepted by purchasers in the pharmaceutical market even if it is approved by the relevant regulatory authorities. Daptomycin will compete with a number of existing antiinfective drugs manufactured and marketed by major pharmaceutical companies and potentially against new antiinfective drugs that are not yet marketed. The degree of market acceptance of daptomycin depends on a number of factors, including, but not limited to:
We cannot be sure that physicians, patients, third party payors, or the medical community in general will accept and utilize daptomycin.
Risks Relating to Research and Development
If we are unable to discover, develop, and commercialize drug products, we may not generate significant revenues or become profitable.
We currently have only three product candidates, and two of these are in the early stages of development. We do not know whether any of these three product candidates, or any other discovery or in-licensing efforts, will result in a marketable product. To date, we have not commercialized any products nor recognized any revenue from product sales. To commercialize products will require significant additional investment in research and development, pre-clinical testing and clinical trials, regulatory approvals, sales and marketing, and other infrastructure necessary to conduct commercial sales of
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pharmaceutical products. Pre-clinical and clinical testing will likely take several years, and we cannot predict with accuracy the time required to commercialize new pharmaceutical products. Even if we are successful in building commercial capabilities and generating revenue, we may not be successful in manufacturing drug products economically, our drug products may not be well received by the marketplace, or other drug products may be developed that are superior to ours. As a result, even if we commercialize one or more drug products, we may not become profitable.
Our approach to drug discovery is unproven, we have not discovered any drug candidates, and we may not discover any drug candidates.
Our approach to drug discovery requires the development of multiple novel technologies to create a successful drug candidate. While we have demonstrated that some compounds have the ability to inhibit the activity of certain molecular targets and bacterial growth, we have not proven that these compounds can be utilized clinically as a therapeutic drug. We have not tested any drug candidates developed from our drug discovery program in humans, and we cannot assure you that there will be clinical benefits associated with any drug candidates we do develop. Our failure to develop new drug candidates could have a material adverse effect on our business, operating results and financial condition.
Our research and development program for drug products other than daptomycin is at an early stage, and we cannot be certain our program will result in the commercialization of any drug.
Except for our development program for daptomycin, our research and development program is at an early stage. To date, we have not, independently or with our collaborative partners, optimized any lead drug candidates generated in our research program. Any drug candidates we develop will require significant additional research and development efforts prior to commercial sale, including extensive pre-clinical and clinical testing, and regulatory approval. This may require increases in spending on internal projects, the acquisition of third party technologies or products and other types of investments. We cannot be sure that our approach to drug discovery, acting independently or with our collaborative partners, will be effective or will result in the development of any drug candidate. We cannot be sure that we will be able to in-license any drug candidate. Even if we are able to discover or in-license additional drug candidates, we cannot be sure that we will be able to develop such candidates successfully. In addition, even if we are successful in developing one ore more drug candidates, we cannot expect that any drug products that do result from our research and development efforts will be commercially available for many years.
Even if we receive initially positive pre-clinical or clinical results, those results will not necessarily mean that similar results will be obtained in the later stages of drug development. All of our potential
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drug candidates are prone to the risks of failure inherent in pharmaceutical product development, including the possibility that none of our drug candidates will be:
We have limited experience in conducting the pre-clinical and clinical testing necessary for us to obtain regulatory approvals of our drug candidates.
Before we receive regulatory approvals for the commercial sale of any of our drug candidates, our drug candidates are subject to extensive pre-clinical testing and clinical trials to demonstrate their safety and efficacy in humans. We depend on our collaborative partners to assist us with our pre-clinical testing and clinical trials for our drug candidates. We have limited experience in conducting pre-clinical testing or clinical trials. We have conducted clinical trials with daptomycin, but we have not conducted clinical trials for any other drug candidates. We have initiated bioavailablity, pharmacokinetic, and safety studies in healthy human volunteers for CAB-175 and oral ceftriaxone, but we have not initiated formal clinical trials for these drug candidates. Furthermore, we cannot be sure that pre-clinical testing or clinical trials of any drug candidates will demonstrate the safety and efficacy of our drug candidates at all or to the extent necessary to obtain regulatory approvals. Companies in the biotechnology and pharmaceutical industries, including companies with greater experience in pre-clinical testing and clinical trials than we have, have suffered significant setbacks in advanced clinical trials, even after demonstrating promising results in earlier trials. The failure to demonstrate the safety and efficacy of a drug candidate under development could delay or prevent regulatory approval of the drug candidate and could have a material adverse effect on our business, operating results and financial condition.
Delays in enrolling patients or developing suitable protocols for clinical trials could increase costs and delay regulatory approvals.
The rate of completion of our clinical trials will depend on the rate of patient enrollment. There will be substantial competition to enroll patients in clinical trials for our drug candidates in development, and the patient population may choose to enroll in clinical trials sponsored by other companies or choose alternative therapies. In addition, there may be limited availability of patients who meet the criteria for
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certain clinical trials. Delays in planned patient enrollment can result in increased development costs and delays in regulatory approvals.
Our clinical trials must be carried out under protocols that are acceptable to regulatory authorities and to the committees responsible for clinical studies at the sites at which the studies are conducted. There may be delays in preparing protocols or receiving approval for them that may delay either or both of the start and finish of our clinical trials. In addition, feedback from regulatory authorities or results from earlier stage clinical studies might require modifications or delays in later stage clinical trials. These types of delays can result in increased development costs and delayed regulatory approvals.
If clinical trials for our drug candidates are unsuccessful or delayed, we will be unable to meet our anticipated development and commercialization timelines, which could harm our business.
Before obtaining regulatory approvals for the commercial sale of any products we develop, we must demonstrate through pre-clinical testing and clinical trials that our drug candidates are safe and effective for use in humans. Conducting pre-clinical testing and clinical trials is a lengthy, time-consuming and expensive process. Completion of clinical trials may take several years. Our commencement and rate of completion of clinical trials may be delayed by many factors, including:
The results from pre-clinical testing and early clinical trials are often not predictive of results obtained in later clinical trials. If clinical trials for our products are unsuccessful or delayed, we will be unable to meet our anticipated development and commercialization timelines, which could harm our business and cause our stock price to decline.
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If we cannot enter into new licensing arrangements, we may not be able to expand our product pipeline.
All three of our drug candidates (daptomycin, CAB-175, and oral ceftriaxone) are the result of in-licensing activities. In-licensing drug candidates developed by other pharmaceutical and biotechnology companies or academic research laboratories is an important part of our business strategy. We cannot be sure that we will be successful in identifying potential candidates to in-license or that we will be successful in negotiating agreements with owners of such technology. Competition for acquiring promising compounds can be intense. If we are not able to identify future licensing opportunities and enter into future licensing arrangements on acceptable terms, we may not be able to expand our product pipeline.
Risks Relating to Collaboration
If our collaborative partners do not perform, we may not be successful.
We have entered into, and will continue to enter into, collaborative arrangements with multiple third parties to discover, test, manufacture, and market drug candidates and drug products. These collaborations are necessary for us to research, develop, and commercialize drug candidates. We may not be successful if our collaborators do not perform. Current or future collaborative arrangements may not be successful because our collaborators do not perform their obligations as expected. Dependence on collaborative arrangements with third parties is a critical part of our business strategy, and any inability on our part to be able to establish collaborations on terms favorable to us or to work successfully with our current collaborators will have an adverse effect on our operations and financial performance.
Collaborative partners may not devote adequate resources to their collaborations with us and/or they may take actions that are contrary to our interests.
The amount and timing of resources dedicated by our collaborative partners to their respective collaborations with us is not under our control. Some drug candidates discovered by us may be viewed by our collaborative partners as competitive with their drug candidates or drug products. Accordingly, our collaborative partners may not elect to proceed with the development of drug candidates that we believe to be promising. In addition, our collaborative partners may pursue their own existing or alternative technologies in preference to our drug candidates.
As a result: