Use these links to rapidly review the document
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, 2003
or
o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 0-28494
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.) |
40 Landsdowne 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. o
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 as of June 30, 2003 was $4,612,936,511 based on the last reported sale price of the Common Stock on the Nasdaq Stock Market on that date.
Number of shares outstanding of the registrant's Common Stock as of March 5, 2004: 303,942,934.
Documents incorporated by reference:
Portions of the information required by Part III of Form 10-K will appear in the registrant's definitive Proxy Statement on Schedule 14A for the 2004 Annual Meeting of Stockholders and are hereby incorporated by reference into this report.
i
ii
We are a leading biopharmaceutical company focused on developing and commercializing breakthrough products in the disease areas of cancer, cardiovascular disease and inflammatory disease. We currently have a cancer product and a cardiovascular disease product on the market. We also have other potential products in various stages of preclinical and clinical development in all three of our therapeutic disease areas of focus.
Our cancer product, VELCADE® (bortezomib) for Injection, was approved for marketing in the United States in May 2003 as a treatment for patients with multiple myeloma, a type of blood cancer, who have received at least two prior therapies and demonstrated disease progression on their most recent therapy. We started to market VELCADE in the United States shortly after receiving marketing approval and we sell VELCADE directly through our cancer sales force. In June 2003, we entered into a commercialization and development agreement for VELCADE with Ortho Biotech Products, L.P., or Ortho Biotech, a wholly owned subsidiary of Johnson & Johnson. If VELCADE receives regulatory approval in areas outside of the United States, Ortho Biotech and its affiliates will sell VELCADE in those areas and pay us distribution fees. In 2003, sales of VELCADE were approximately $59.6 million, which represented approximately 14% of our total revenue for 2003.
Our market-leading cardiovascular product, INTEGRILIN® (eptifibatide) Injection, has been marketed in the United States since 1998 and outside of the United States since 1999. In the United States, we co-promote INTEGRILIN with Schering-Plough Corporation and Schering-Plough Ltd., together referred to as SGP, and share profits and losses. Outside of the United States, SGP sells INTEGRILIN pursuant to a royalty-bearing license. In 2003, worldwide sales of INTEGRILIN were approximately $305.8 million. Approximately 93% of those sales were made in the United States. Our co-promotion revenue from INTEGRILIN in the United States was approximately $184.3 million, which represented approximately 43% of our total revenue for 2003.
Our strategy is to develop multiple products in three broad disease 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 collaborators when we believe that this 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 for markets outside of the United States.
We were incorporated in Delaware in 1993. Our principal executive offices are located at 40 Landsdowne Street, Cambridge, Massachusetts 02139.
We remain committed to building our business as a leading biopharmaceutical company. We focus on developing and commercializing important new medicines in three therapeutic areas. A key element of the strategy in our disease areas is to build a portfolio 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 the related effects of proteins on cellular performance, replication and death.
In the near term, we expect to focus our commercial activities in the cancer and cardiovascular therapeutic areas. In cancer, in May 2003, we successfully obtained marketing approval of VELCADE from the United States Food and Drug Administration, or FDA, and launched the product in the United States shortly after the approval date with our new cancer sales force. In the cardiovascular
1
area, our acquisition of COR Therapeutics, Inc., or COR, in 2002 brought us INTEGRILIN® (eptifibatide) Injection and a hospital-based cardiovascular sales and marketing organization.
We believe we will make substantial progress in bringing new products to market from our current pipeline of compounds in clinical development. We are seeking to gain approval to market VELCADE outside of the United States. We also are working to obtain approval to market VELCADE in the United States and elsewhere for earlier use in multiple myeloma and for the treatment of additional cancer types. We believe that these additional uses of VELCADE would lead to a significant expansion of our cancer business. In inflammatory disease, we hope to advance novel product candidates in clinical development as potential treatments for serious and widely prevalent conditions.
In the long term, 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.
VELCADE® (bortezomib) for Injection
VELCADE, the first of a new class of medicines called proteasome inhibitors, is the first treatment in more than a decade to be approved in the United States for patients with multiple myeloma. We received accelerated approval from the FDA on May 13, 2003 to market VELCADE for the treatment of multiple myeloma patients who have received at least two prior therapies and have demonstrated disease progression on their most recent therapy.
In February 2003, our Marketing Authorization Application to market VELCADE in the European Union for the treatment of patients with multiple myeloma who have received at least two prior therapies and have demonstrated disease progression on their most recent therapy was accepted for review by the European Agency for the Evaluation of Medicinal Products, or EMEA. In January 2004, the EMEA's Committee on Proprietary Medicinal Products, or CPMP, issued a positive opinion to recommend approval under exceptional circumstances for VELCADE. The CPMP's opinion was forwarded to the European Commission, and we anticipate that the European Commission will ratify the opinion and issue a Marketing Authorization in the second quarter of 2004. Under a Marketing Authorization, the EMEA would issue us a single license to market VELCADE in the 15 member states of the European Union, the ten other participating accession member countries, plus Norway and Iceland. Under our agreement with Ortho Biotech, after issuance, we would transfer the license to an affiliate of Ortho Biotech and Ortho Biotech's affiliates will market VELCADE in these countries.
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 15,000 new cases of multiple myeloma were diagnosed in the United States in 2003 and approximately 11,000 people in the United States died of this disease in 2003. Multiple myeloma is one of the top ten causes of cancer death among African-Americans. We estimate that in the United Kingdom, France, Germany, Italy, Spain and Sweden a total of approximately 14,000 new cases of multiple myeloma were diagnosed in 2003.
VELCADE is the first in a new class of drugs called proteasome inhibitors. These drugs act in a different way from other anti-cancer therapies. Proteasomes are enzyme complexes in all cells that break down intracellular proteins in a regulated manner in both healthy and cancerous cells. Intracellular proteins form pathways by which cancer cells multiply, spread, interact with other cells and avoid programmed cell death. Inhibition of the proteasome by VELCADE prevents the regulated
2
breakdown of these intracellular proteins, thereby interfering with many of these varied functions. This disruption of essential pathways in cancer cells can lead to cell death and inhibit tumor growth.
The most commonly reported side effects of VELCADE are asthenic conditions (including fatigue, malaise and weakness), nausea, diarrhea, decreased appetite (including anorexia), constipation, thrombocytopenia, peripheral neuropathy, pyrexia, vomiting, and anemia, neutropenia and orthostatic hypotension.
VELCADE® (bortezomib) for Injection Clinical Development
We believe that VELCADE may have broad applications in the treatment of cancer. In order to widely investigate VELCADE to its fullest potential, during 2003, patients were enrolled in approximately 50 on-going clinical trials studying the use of VELCADE alone and in combination with other therapies in a variety of cancers in both the United States and Europe.
Our largest clinical trial of VELCADE in multiple myeloma was the confirmatory phase III APEX trial. The APEX trial includes relapsed or refractory patients who had received from one to three prior therapies. This is a broader patient population than the SUMMIT trial, the results of which were included in our New Drug Application, or NDA, for VELCADE filed with the FDA and formed the basis for the FDA's approval. In December 2003, we permitted the control arm of the APEX trial to have the opportunity to switch to VELCADE on the recommendation of an independent committee after reviewing data that indicated a statistically significant improvement in time to disease progression in patients receiving VELCADE compared to patients receiving high-dose dexamathasone, a current standard of care.
In addition to clinical trials investigating VELCADE in combinations with other therapies and in patients with various stages of multiple myeloma, clinical trials covering other hematologic cancers, such as non-Hodgkin's lymphoma, as well as various solid tumors, including non-small cell lung, breast, prostate and ovarian cancers are also being conducted. In December 2003, we stopped further patient enrollment to a phase II trial examining VELCADE in colorectal cancer because interim findings produced results that did not meet the pre-specified efficacy criteria for continuation of study accrual.
Our Ortho Biotech Collaboration
On June 30, 2003, we entered into an agreement with Ortho Biotech to collaborate on the commercialization and continued clinical development of VELCADE. Under the terms of the agreement, we retain all commercialization rights to and profits from VELCADE in the United States. Subject to obtaining regulatory approvals of VELCADE outside of the United States, Ortho Biotech and its affiliate, Janssen-Cilag, have agreed to commercialize VELCADE outside of the United States. We are entitled to distribution fees from Ortho Biotech and its affiliates on sales of VELCADE outside of the United States. We also retain an option to co-promote VELCADE with Ortho Biotech at a future date in certain European countries.
Under this agreement, we are engaged with Ortho Biotech in an extensive global program for further clinical development of VELCADE with the purpose of maximizing the clinical and commercial potential of VELCADE. This program is investigating the potential of VELCADE to treat multiple forms of solid and hematological cancers, including continued clinical development of VELCADE for multiple myeloma. Ortho Biotech is responsible for 40% of the joint development costs through 2005 and for 45% of those costs after 2005. In addition, we may receive payments from Ortho Biotech for achieving clinical development milestones, regulatory milestones outside of the United States or agreed-upon sales levels of VELCADE.
Under this agreement, decisions regarding the ongoing development and marketing of VELCADE are generally subject to the oversight of a joint steering committee with equal membership from Ortho Biotech and us. However, in the event of a dispute, specified development, United States
3
commercialization and other decisions are allocated specifically to us, and commercialization decisions outside of the United States and some other decisions are allocated specifically to Ortho Biotech. Unless our agreement with Ortho Biotech is terminated early due to a material uncured breach by one of the parties or by Ortho Biotech unilaterally subject to notice obligations, the agreement continues on a country by country basis outside of the United States until no earlier than the expiration of the last to expire patent covering the manufacture, use or sale of the product in the country. For the year ended December 31, 2003, revenues from this alliance including license fees, reimbursement of development expenses and milestone payments accounted for approximately 11% of our total revenues.
INTEGRILIN® (eptifibatide) Injection
General
In collaboration with SGP, INTEGRILIN is 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 platelet receptor GP IIb-IIIa. The effects of INTEGRILIN are specific to platelets, avoiding interference with other normal cardiovascular processes. In addition, these effects can be reversed following INTEGRILIN discontinuation when no longer needed. We believe that more than one million people in the United States are candidates for INTEGRILIN therapy each year. 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.
INTEGRILIN is approved for marketing in the United States for the treatment of patients with acute coronary syndromes, which include unstable angina and non-ST segment elevation myocardial infarction 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 growth of INTEGRILIN sales for its current indications will depend on increasing early usage in patients with acute coronary syndromes and the number of hospitals using INTEGRILIN.
We have a specialized United States cardiovascular sales force that focuses on expanding hospital use of INTEGRILIN. We market INTEGRILIN in the United States 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.
INTEGRILIN Clinical Development
We are pursuing opportunities to expand the market potential for INTEGRILIN by increasing the use of the product in its currently approved indications. For instance, we believe that it may be possible to increase usage before patients enter cardiac surgery. We expect to initiate an EARLY ACS trial in 2004 to demonstrate the benefits of earlier usage of INTEGRILIN. Additionally, through the CRUSADE quality improvement initiative conducted by Duke Clinical Research Institute, we are seeking to increase awareness of the 2002 American College of Cardiology and the American Heart Association guidelines for the management of non-ST-Segment Elevation Acute Coronary Syndromes providing for early use of GP IIb-IIIa inhibitors in certain high risk patients.
We are also continuing to invest in clinical trials like PROTECT, which is investigating the potential additional benefit of a GP IIb-IIIa inhibitor over anti-thrombin treatment. We and SGP are funding the EVENT patient registry, which is investigating the incremental benefit of using INTEGRILIN with drug eluting stents. In addition, we are funding investigator-initiated clinical studies to look at INTEGRILIN without anti-thrombin treatment in the REMOVE study for low-risk PCI
4
patients, and to study the benefit of INTEGRILIN® (eptifibatide) Injection in patients with ST segment elevation myocardial infarction in the TITAN study. Finally, 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, some 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 decision-making authority with respect to marketing issues.
Under our collaboration agreement with SGP, we generally 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, except for costs associated with marketing programs specific to us. We have granted SGP an exclusive license to market INTEGRILIN outside the United States, and SGP pays royalties to us based on sales outside of the United States. We have the right, in the future, to co-promote INTEGRILIN in Europe and Canada. If we exercise this right, we would share any profits or losses from this additional co-promotion 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 that country, or expiration of the last to expire patent covering the manufacture, use or sale of that product in that country.
In 2003, we met our goal of commencing human clinical trials for three new compounds: MLN944, MLN3897 and MLN2222. In addition to VELCADE® (bortezomib) for Injection and INTEGRILIN, we now have ten drug candidates in clinical development. We plan to advance the clinical development of these drug candidates based on our assessment of their market potential, the results of clinical trials and our available resources.
Our Cancer Pipeline
In addition to our ongoing clinical trials of VELCADE in patients with multiple myeloma and other cancers discussed above, we have completed or have ongoing, directly or through collaborators or third party investigators, the following clinical trials for our cancer product candidates:
5
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 February 2004, we and Xenova amended this agreement to provide us the right to conduct clinical trials in North America prior to pivotal clinical trial stages.
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. Under this agreement, we currently have exclusive development and worldwide marketing rights to these products. We are required 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. On October 31, 2003, the research phase of this strategic alliance ended. On October 10, 2003, we and Bayer amended the agreement to provide both parties access to certain targets identified in the collaboration for a period of seven years.
We expect Bayer will continue to develop small molecule drugs based on drug targets identified during the research portion of the alliance. The alliance covers several disease areas, including cardiovascular disease, cancer, pain, blood diseases, viral infections and urology. If Bayer develops and commercializes drugs that modulate targets discovered in the alliance, Bayer will be obligated to make success and royalty payments to us based on product sales.
For the year ended December 31, 2003, revenues from this alliance accounted for approximately 14% of our total revenues.
Our Cardiovascular Pipeline
In addition to the ongoing trials of INTEGRILIN® (eptifibatide) Injection discussed above, we have completed 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, MLN2222 and MLN2201, 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 if XOMA does not so elect, to receive future milestone and royalty payments from us.
6
Under this agreement, XOMA made an initial payment to us and may be required to make additional milestone payments. In addition, we originally agreed to purchase up to $50.0 million of XOMA common shares. As the preliminary results of a phase I trial of MLN2201 failed to meet pre-defined criteria, the MLN2201 development program was terminated in October 2003. As a result of this termination, our remaining obligation under the terms of the investment agreement was reduced by 40%. As of February 29, 2004, as part of this obligation, we had purchased $16.9 million in XOMA common shares, and XOMA may require us to purchase up to an additional $19.7 million of XOMA common shares including the conversion of a $5.0 million convertible promissory note.
Our Inflammatory Disease Pipeline
We have completed 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 entered into a 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 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 outside of North America. Under this agreement, Aventis acquired 4.5 million shares of our common stock over a two year period for $250.0 million.
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
7
Aventis will focus our joint resources on the identification and evaluation of compounds for preclinical and clinical development. As of the end of 2003, the alliance had identified several early development candidates, one of which, MLN3897 is now being tested in a phase I clinical trial.
In April 2003, Aventis exercised its option to terminate the Technology Transfer Agreement between us and Aventis effective on the third anniversary of the Agreement, July 21, 2003. Under the terms of the agreement, upon providing this notice to us, Aventis paid us $40.0 million in consideration of future use of technology transferred by us to Aventis. For the year ended December 31, 2003, revenues from this agreement accounted for approximately 15% of our total revenues.
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 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 a full range of genomics capabilities to decipher the workings of the human genome and identify genes the regulation of which may play an important role in disease. From among these genes, we select those whose properties 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, in an effort 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.
During this process, 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 particular diseases.
As we shift our focus to clinical development and product commercialization, and as we conclude our discovery-based alliances, 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 2003 of approximately $191.0 million and expect to record additional restructuring charges during 2004 and 2005 in the aggregate of approximately $60.0 million. As part of this restructuring, in August 2003 we terminated our strategic alliance in the metabolic disease area with Abbott Laboratories.
Company-sponsored research and development expenses totaled $316.8 million in 2003, $337.5 million in 2002 and $99.7 million in 2001. Our strategic collaborator-sponsored research and development expenditures totaled $171.7 million in 2003, $173.7 million in 2002 and $300.9 million in 2001. 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
8
we may receive future compensation as milestone payments, royalties or otherwise even though we provide the current funding.
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 and manufacture 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 VELCADE® (bortezomib) for Injection. The issued patents related to VELCADE expire in 2014.
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 also own issued and pending United States and foreign patent applications related to MLN02 and MLN1202. The issued United States patents for MLN02 expire in 2015 and 2016 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. These licenses generally are for a fixed duration, typically the life of the licensed patents, and require us to use reasonable or diligent efforts to develop and commercialize and to pay ongoing royalties on product sales. We are the exclusive licensee of issued United States and foreign patents and/or pending United States and foreign applications relating to our products on the market and in clinical development as follows:
9
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®, INTEGRILIN® and "Breakthrough Science. Breakthrough Medicine." All are covered by registrations or pending applications for registration in the United States Patent and Trademark Office and many other countries.
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 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, any delay in obtaining or any failure to maintain, 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 pharmaceutical product are then submitted to the FDA for approval to commence commercial sales. For a chemical pharmaceutical product, the submission is in the form of an NDA and for a biological pharmaceutical product the submission is in the form of a biologic license application, or BLA. 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.
10
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, Good Laboratory Practices, or GLP, for specific non-clinical toxicology studies, 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 Europe Union.
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 at least 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.
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.
As a result of gaining approval of and launching VELCADE® (bortezomib) for Injection, the first product we have sold directly, we became 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 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.
We make VELCADE 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
11
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 affect 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.
We are subject to the United States 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 payors 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 Canada this practice has led to lower priced products than in the United States. As a result, importation of products from Canada into the United States may result in reduced potential product revenues. 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. For example, the passage of the Medicare Prescription Drug and Modernization Act of 2003 imposes new requirements for the distribution and pricing of prescription drugs which may affect the marketing of our products. While we cannot predict whether any such future 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.
In many foreign markets, including the countries in the European Union, pricing of 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 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.
12
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 payors, such as government and private insurance plans. Third party payors 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.
General
We have limited manufacturing capabilities and produce only a small amount of product for research and development and preclinical testing. We rely on third parties to manufacture all of our commercial supply and most of our compounds for research, development, preclinical and clinical trials.
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 GLP. The facilities of our contract manufacturers of marketed products 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. Our manufacturers may not abide by the limitations or confidentiality restrictions in licenses or other agreements with us. In addition, any of our manufacturers may develop process technology related to the manufacture of our compounds that such suppliers own either independently or jointly with us. This would increase our reliance on such manufacturers or require us to obtain a license from such manufacturers in order to have our products manufactured.
VELCADE® (bortezomib) for Injection
We currently rely on third-party contract manufacturers to complete the manufacturing, fill/finish and packaging of VELCADE for both commercial purposes and for ongoing clinical trials. We are currently seeking to establish long-term supply relationships for the production of commercial supplies of VELCADE. We work with one manufacturer to complete fill/finish for VELCADE. We believe we currently have a sufficient quantity of commercial grade VELCADE drug substance to meet the anticipated commercial demand for the product for the next year and to fulfill the needs for our ongoing clinical trials. Subject to receiving approval to market VELCADE in the European Union, an affiliate of Ortho Biotech will perform packaging for European sales of VELCADE.
INTEGRILIN® (eptifibatide) Injection
We have no manufacturing facilities for INTEGRILIN and, accordingly, rely on third-party contract manufacturers for the clinical and commercial production of INTEGRILIN. Although we believe our contracted supply of INTEGRILIN is sufficient to meet current market demand, our manufacturing plans call for the addition of extra manufacturing capacity.
We have two manufacturers that provide us with eptifibatide, the raw material necessary to make INTEGRILIN. In January 2003, we entered into a new supply agreement with one of those
13
manufacturers, Solvay, Societe Anonyme, or Solvay. This agreement is initially for a four year term with one year renewal periods thereafter. Solvay owns the process technology used by it and the other manufacturer for the production of bulk product. We also have one manufacturer that performs fill/finish services. INTEGRILIN® (eptifibatide) Injection that we use for ongoing clinical trials is manufactured by the same suppliers as those that produce commercial supply.
We have built our cancer expertise in our commercial operations by recruiting a cancer specific sales force geographically dispersed across the United States. This sales force markets VELCADE® (bortezomib) for Injection to physicians, hospitals and other health care providers. Subject to approval in areas outside the United States, Ortho Biotech or its affiliates will market VELCADE and pay us distribution fees on product sales. See "Our Ortho Biotech Collaboration."
We currently have a specialized cardiovascular sales force geographically dispersed across the United States. This sales force markets, together with SGP's sales force, INTEGRILIN to clinical cardiologists, interventional cardiologists and emergency medicine physicians. One of the primary goals of this sales force is to expand hospital emergency room early use of INTEGRILIN for when a patient first presents with acute coronary syndrome. 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. SGP markets and sells INTEGRILIN outside the United States. See "Our SGP Collaboration."
We have not developed commercialization plans for our product candidates beyond VELCADE and INTEGRILIN. 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 co-promotion, corporate collaboration, licensing or other arrangements for the marketing and sale of some products in some or all geographic markets.
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. It is possible that sales of VELCADE will be similarly affected by fluctuations in buying patterns. Additionally, wholesaler management decisions to increase or decrease their inventory of VELCADE may result in sales of VELCADE to wholesalers that do not track directly with demand for the product at hospitals and other health care providers.
Sales of VELCADE, 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 products. We believe this approach may assist in obtaining reimbursement authorization for our products from these third party payors. See "Government Regulation—Third Party Reimbursement."
General
We face competition, and believe significant long-term competition can be expected, from pharmaceutical companies as well as 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 discovery, research,
14
development, 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 our discoveries and advances and our capabilities for early stage research and drug discovery. 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 discovery, research, 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:
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 off-label use in multiple myeloma based on data published in peer-reviewed publications. Celgene Corporation recently filed an sNDA for thalidomide for the treatment of multiple myeloma that was accepted by the FDA for review. There are also other potentially competitive therapies that are in late-stage clinical development for multiple myeloma. We believe that VELCADE generally competes with other therapies on the basis of safety, efficacy, convenience and price.
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. INTEGRILIN generally competes with other therapies on the basis of safety, efficacy, convenience and price. Two GP IIb-IIIa inhibitors which compete with INTEGRILIN have received regulatory approval in the United States and Europe:
15
Other competitive factors that could negatively impact the future growth and development of the GP IIb-IIIa inhibitors market segment include:
As of March 3, 2004, we had approximately 1,530 full-time employees. We believe that relations with our employees are good.
Our Internet website is http://www.millennium.com. We make available free of charge 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.
Our code of conduct, the Core Values Handbook, our Board Policies, and the charters of the Audit Committee, Compensation and Talent Committee and the Nominating and Board Governance Committee are all available on our corporate governance section of our website at http://www.millennium.com/investors. Stockholders may request a free copy of any of these documents by writing to Investor Relations, Millennium Pharmaceuticals, Inc., 40 Landsdowne Street, Cambridge, Massachusetts 02139.
16
RISK FACTORS THAT MAY AFFECT RESULTS
This Annual Report on Form 10-K and certain other communications made by us contain forward-looking statements, including statements about our growth and future operating results, discovery and development of products, potential acquisitions, strategic alliances and intellectual property. For this purpose, any statement that is not a statement of historical fact should be considered a forward-looking statement. We often use the words "believe," "anticipate," "plan," "expect," "intend," "will" and similar expressions to help 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. Such 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 fulfill certain post-approval requirements of the FDA relating to VELCADE® (bortezomib) for Injection or obtain approval to market VELCADE for additional therapeutic uses.
The FDA granted accelerated approval for VELCADE for specific therapeutic uses that requires the fulfillment of specific post-approval requirements. Our business would be seriously harmed if we do not fulfill these requirements and the FDA revokes its marketing approval for VELCADE. In addition, an important part of our strategy to grow our business is to market VELCADE for additional indications. To do so, we will need to successfully conduct clinical trials and then apply for and obtain the appropriate regulatory approvals. If we are unsuccessful in our clinical trials, or we experience a delay in obtaining or are unable to obtain authorizations for expanded uses of VELCADE, our revenues may not grow as expected and our business and operating results will be harmed.
We may not be able to obtain approval in additional countries to market VELCADE.
We have filed a Marketing Authorization Application with the European Agency for the Evaluation of Medicinal Products, or EMEA, for approval to market VELCADE in the European Union and in January 2004 received a positive opinion from the EMEA's Committee on Proprietary Medicinal Products to recommend approval to market VELCDE under exceptional circumstances. The European Commission may not grant marketing approval for VELCADE within the time frame that we anticipate, or at all. For example, we filed our application for the approval of VELCADE with the EMEA based on phase II clinical trial data. It is possible that the European Commission will not approve VELCADE for marketing prior to our filing of the results of a phase III clinical trial with the EMEA.
If we are not able to obtain approval to market VELCADE in additional countries, we will lose the opportunity to sell in those countries and will not be able to earn potential milestone payments under our agreement with Ortho Biotech or collect potential distribution fees on sales of VELCADE by Ortho Biotech in those countries.
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, and can often take a number of years. In some cases, the length of time that it
17
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 address successfully 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 commercial use.
In some cases, we may experience challenges to the extension of exclusivity of our marketing approval in certain jurisdictions. With respect to INTEGRILIN, regulatory authorities in Luxembourg instituted a claim to reduce the effective term of supplemental protection certificates for INTEGRILIN in the European Community from 2014 to 2012. That claim was denied by the court of first instance in Europe. That denial has been appealed to the European Court of Justice, which we expect will hold a hearing on the appeal in 2004. If that court decides against us, the term of the supplemental protection certificates covering INTEGRILIN could be shortened in any particular European Community Member State in which a subsequent action requesting enforcement of the appellate decision was filed and decided against us. Shortening of such term could allow earlier generic competition in any such Member State.
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, is subject to continual review and periodic inspections by the FDA, and other regulatory bodies. In particular, the marketing approval that we received from the FDA for VELCADE requires that we satisfactorily complete specified post-approval clinical trials of this product. Later discovery of previously unknown problems or safety issues with our products or manufacturing processes, or failure to comply with regulatory 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. As with any newly approved therapeutic product, we expect that our knowledge of the safety profile for VELCADE will expand after wider usage and the possibility exists of patients receiving VELCADE treatment experiencing unexpected serious adverse events which could have a material adverse effect on our business.
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 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, and VELCADE, which was approved by the FDA in May 2003 and commercially launched in the United States shortly
18
after that date. Marketing of INTEGRILIN outside the United States commenced in mid-1999. Demand for GP IIb-IIIa inhibitors, such as INTEGRILIN® (eptifibatide) Injection, has been flattening since the beginning of 2003, although we did see an increase in demand for INTEGRILIN in the fourth quarter of 2003. Because of the recent introduction of VELCADE® (bortezomib) for Injection, we have very limited experience as to the sales levels of this product. Our business plan contemplates obtaining marketing authorization to sell VELCADE outside the United States for the treatment of patients with multiple myeloma, and both in the United States and abroad for other indications. We will be adversely affected if VELCADE does not receive such approvals. We will not achieve our business plan, and we may be forced to scale back our operations and research and development programs, if:
We face substantial competition, and others may discover, develop or commercialize products and services before or more successfully than we do.
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 research, 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 we do. In addition, our competitors may discover, develop and commercialize products or services that make the products or services that we or our collaborators have developed or are seeking to develop and commercialize non-competitive or obsolete.
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 biotechnology companies. The two products that compete directly with INTEGRILIN in the GP IIb-IIIa inhibitor 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. outside of the United States and by Guilford Pharmaceuticals, Inc. in the United States.
Other competitive factors that could negatively affect INTEGRILIN include:
With respect to VELCADE, we face competition from Celgene Corporation's Thalomid® (thalidomide) and its derivatives, a treatment for complications associated with leprosy which is
19
increasingly used for multiple myeloma based on data published in peer-reviewed publications. Celgene Corporation recently filed an sNDA for thalidomide for the treatment of multiple myeloma that was accepted by the FDA for review. We also face competition for VELCADE from traditional chemotherapy treatments, and there are other potentially competitive therapies for VELCADE that are in late-stage clinical development for the treatment of multiple myeloma. In addition, multiple myeloma therapies in development may reduce the number of patients available for VELCADE treatment through enrollment of these patients in clinical trials of these potentially competing products.
Sales of INTEGRILIN® (eptifibatide) Injection and possibly VELCADE® (bortezomib) for Injection 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. It is possible that sales of VELCADE will be similarly affected by fluctuations in buying patterns.
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 that 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.
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 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 December 2003, we decided to stop further accrual to a phase II trial examining VELCADE in colorectal cancer because interim findings produced results that did not meet the pre-specified efficacy criteria for continuation of study accrual.
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 our potential drugs in long-term clinical trials, which may result in a delay or failure to commercialize our products. In addition, due to the substantial demand
20
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.
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 of $483.7 million for the year ended December 31, 2003 and losses of $590.2 million for the year ended December 31, 2002 and $192.0 million for the year ended
21
December 31, 2001. 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.
We expect to continue to incur significant expenses in connection with 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 business and 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 VELCADE® (bortezomib) for 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 cash flow and otherwise negatively affect our operations.
At December 31, 2003, we had approximately $105.5 million of outstanding convertible debt and $102.3 million of capital lease obligations. During each of the last five years, our earnings were insufficient to cover our fixed charges. We will be required to make interest payments on our outstanding convertible notes totaling approximately $19.5 million over the next three years, assuming our convertible debt remains outstanding until maturity and we will be required to make interest payments on our capital lease obligations totaling approximately $9.6 million over the next three years.
We may in the future incur additional indebtedness, including long-term debt, credit lines and property and equipment financings to finance capital expenditures. We intend to satisfy our current and future debt service obligations from cash generated by our operations, our existing cash and investments and, in the case of principal payments at maturity, funds from external sources. We may not have sufficient funds and we may be unable to arrange for additional financing to satisfy our principal or interest payment obligations when those obligations become due. Funds from external sources may not be available on acceptable terms, or at all.