UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

 

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 (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý  No o

 

The aggregate market value of the voting stock of the registrant, as of June 28, 2002 (the last trading day of the second fiscal quarter), less shares held by officers and directors was $833,667,515.

 

The number of shares outstanding of the registrant’s Common Stock was 92,658,751 as of March 26, 2003.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s Definitive Proxy Statement to be filed with the Securities and Exchange Commission (the “Commission”) pursuant to Regulation 14A in connection with the 2003 Annual Meeting of Stockholders to be held on May 14, 2003 (the “2003 Annual Meeting”) are incorporated herein by reference into Part III of this Report. Such Definitive Proxy Statement will be filed with the Commission not later than 120 days after December 31, 2002.

 

 

You should read the following together with the more detailed information regarding our company, our common stock and our financial statements and notes to those statements appearing elsewhere in this document or incorporated here by reference. The SEC allows us to “incorporate by reference” information that we filed with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this annual report, and information that we file later with the SEC will automatically update and supersede this information.

 

Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed here. Factors that could cause or contribute to such differences are described below in “Risk Factors Related To Our Business” and elsewhere in this Form 10-K. We assume no obligation to update any forward-looking statement.

 

PART I

 

Item 1. Business

 

Amylin Pharmaceuticals, Inc.

 

We are a biopharmaceutical company engaged in the discovery, development and commercialization of drug candidates for the treatment of diabetes and other metabolic diseases. We currently have two lead drug candidates in late stage development for the treatment of diabetes, SYMLIN® (pramlintide acetate) and exenatide, formerly referred to as AC2993 (synthetic exendin-4). We have received a letter from the United States Food and Drug Administration, or FDA, indicating that SYMLIN is approvable for marketing in the United States, as an adjunctive therapy with insulin, subject to satisfactory results from additional clinical trials. Our second candidate, exenatide, is in pivotal Phase 3 clinical trials. Additionally, we are developing a sustained release formulation of exenatide, exenatide LAR, that is in Phase 2 clinical trials.

 

In September 2002, we entered into a collaboration agreement with Eli Lilly and Company, or Lilly, for the worldwide development and commercialization of exenatide and sustained release formulations of that compound, including exenatide LAR. Under the terms of the agreement, Lilly made initial payments to us totaling $110 million, of which $30 million was for the purchase of approximately 1.6 million shares of our common stock at $18.69 per share (a 50% premium to the then current market price of our stock). Lilly has also agreed to make future development and commercialization milestone payments of up to $215 million upon achievement of these milestones. In the United States, Lilly will co-promote exenatide and sustained release formulations of exenatide with us, and each company will receive 50% of the operating profits. Outside of the United States, Lilly will be primarily responsible for commercialization efforts, and operating profits will be shared approximately 80% to Lilly and 20% to us.  Lilly has also committed to lend us up to $110 million, under certain circumstances, to fund development and commercialization efforts.

 

We are developing additional drug candidates for the treatment of metabolic diseases. These include AC3056, which is in early-stage clinical development for the treatment of atherosclerosis-related cardiovascular disease.  In January 2003, we acquired a Phase 2 program utilizing continuous infusion of glucagon-like peptide 1, or GLP-1, for the treatment of patients with severe congestive heart failure. We are studying AC162352 (Peptide YY 3-36), our preclinical candidate for the potential treatment of obesity. We maintain a focused research and development program to discover and in-license additional drug candidates for the treatment of metabolic diseases.

 

Our periodic and current reports that we file with the Securities and Exchange Commission, or SEC, are available free of charge, on our website at www.amylin.com, as soon as reasonably practicable after we have electronically filed them with, or furnished them to, the SEC.

 

Diabetes

 

Diabetes is a major health problem in most developed countries and is the sixth leading cause of death by disease in the United States. It is a progressive disease caused by a deficiency of the hormone insulin, which is secreted by the pancreas, or a failure of the body to properly use available insulin. Diabetes is characterized by poor control of blood sugar, or glucose, concentrations and frequently results in severe long-term complications, such as cardiovascular, eye, kidney and other vascular diseases.

 

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It is estimated that over 177 million people worldwide had the disease in 2001. Of that population, approximately 18 million had type 1 diabetes, also known as juvenile onset diabetes, and approximately 159 million had type 2 diabetes, also known as adult onset diabetes. In the United States alone, there are approximately 11.5 million people currently diagnosed with diabetes with approximately one million new cases of diabetes diagnosed each year.

 

In people without diabetes, the beta cells of the pancreas produce two hormones, insulin and amylin. Type 1 diabetes destroys beta cells that produce both insulin and amylin, and most often is diagnosed in children and young adults. Replacement of beta cells through islet transplant therapy can, in some cases, temporarily render patients insulin-independent; however, life-long daily insulin therapy is eventually necessary to sustain life for people with type 1 diabetes.

 

Type 2 diabetes is a complex metabolic disease resulting from the body’s inability to make enough insulin or to properly use available insulin. Amylin secretion is also impaired in people with type 2 diabetes. Historically, type 2 diabetes occurred later in life. However, primarily as a result of changes in diet and lifestyle, it is now occurring much earlier in life. Diet and exercise therapy, in addition to a number of oral medications that either stimulate insulin production or improve tissue sensitivity to insulin, are currently used to treat type 2 diabetes.

 

Type 2 diabetes begins with impaired glucose tolerance (a prediabetic state) and progresses to overt hyperglycemia (elevated blood glucose concentrations). Because of the progressive nature of the disease, no single therapy is currently effective in controlling the disease over time. As the disease progresses, additional treatments, typically oral medications, are necessary, and these often become ineffective to regulate blood glucose concentrations within accepted guidelines established by the American Diabetes Association. At this stage, the therapy must be supplemented or replaced. Insulin is added to the treatment regimen for many people with type 2 diabetes when oral therapies become ineffective. Over time, the insulin dosage and number of injections are usually increased when desired blood glucose control cannot be achieved. Even with additional insulin injections, however, many people are unable to regulate their blood glucose concentrations within accepted guidelines, or do so at the expense of weight gain and increased risk of low blood glucose concentrations, or hypoglycemia.

 

For people suffering from diabetes, poor control of blood glucose concentrations has been shown to result in severe long-term complications. For instance, damage to small blood vessels due to diabetes may result in disorders such as:

 

•         retinopathy, a condition manifested by damage to the retina;

 

•         nephropathy, or kidney disease;

 

•         neuropathy, a condition where there is damage to the nervous system; and

 

•         peripheral vascular disease.

 

Weight control and obesity are also major problems for patients with diabetes, particularly for those people using insulin as part of their treatment regimen. Other metabolic complications resulting from diabetes and associated metabolic disorders include high blood pressure and dyslipidemia, the abnormal metabolism of fat. These undesired metabolic effects might result in additional complications involving large blood vessels, which can lead to heart attacks, strokes and amputations of lower extremities. Further, patients with diabetes frequently have wide fluctuations in blood sugar following meals. These fluctuations in blood sugar can significantly affect a patient’s quality of life. Collectively, these complications and associated metabolic disorders can lead to increased pain, suffering, reduced quality of life and early death.

 

The most widely accepted measure of long-term blood glucose is glycated hemoglobin, or HbA1c. A person’s HbA1c level is a recognized indicator of that individual’s average blood glucose concentrations over a 3 to 4-month period. Lower HbA1c levels indicate better blood glucose control, on average. HbA1c levels in people without diabetes are usually less than 6%. The American Diabetes Association’s Clinical Practice Recommendations suggest that people with diabetes should aim for a HbA1c level that is lower than 7%. Only a minority of people diagnosed with diabetes in the United States is able to achieve the American Diabetes Association’s recommended target HbA1c level, even with available drug therapies. Additionally, aggressive use of insulin and other available therapies to achieve target glucose control can be associated with an increased risk of hypoglycemia and weight gain. Consequently, there is a pressing need to develop new treatment strategies that improve the overall health profile of patients with diabetes and reduce the risk of complications without increased pain and suffering.

 

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In 1993, a landmark study in patients with type 1 diabetes, called the Diabetes Control and Complications Trial, showed that improved glucose control — as measured by any reduction in an individual’s HbA1c level — reduced the incidence of long-term complications. In 1998, a similar landmark study in patients with type 2 diabetes, the United Kingdom Prospective Diabetes Study, reported similar conclusions for type 2 diabetes. Unfortunately both of these studies showed that available therapies cannot mitigate the progressive nature of diabetes and long-term complications are to be expected.

 

SYMLIN® (pramlintide acetate)

 

SYMLIN is a unique injectable product candidate intended for the treatment of patients with type 1 diabetes and insulin-using patients with type 2 diabetes. Other than insulin and insulin analogues, SYMLIN is the first potential treatment addressing glucose control for patients with type 1 diabetes that has completed Phase 3 clinical trials since the discovery of insulin approximately 80 years ago. SYMLIN is intended to improve blood glucose control in people treated with insulin alone, or insulin plus one or more oral medications, without causing a weight increase.

 

Scientific Overview.  SYMLIN is a synthetic version of the human hormone, amylin. It is the first member of a new class of therapeutic medications known as amylinomimetic agents, or amylin receptor agonists. Amylinomimetic agents mimic the actions of the hormone amylin and have demonstrated activity in blood glucose regulation. Amylin is made in and secreted from the same cells in the pancreas that make and secrete insulin. These pancreatic cells are called beta cells. Amylin complements the actions of insulin, and these two hormones work together with another pancreatic hormone, glucagon, to maintain normal glucose concentrations. Along with insulin, amylin concentrations normally increase and glucagon levels decrease after meals.

 

In people with type 1 diabetes, insulin and amylin concentrations are extremely low or undetectable and do not increase after meals, and conversely, glucagon levels tend to rise after meals. In people with type 2 diabetes whose disease has progressed to the point where they need insulin therapy, the normal post-meal increase in insulin and amylin concentrations also fails to occur and glucagon levels also are inappropriately elevated in the post-meal period. These hormonal abnormalities contribute significantly to the disturbance of glucose metabolism in the context of a meal. Replacement of insulin alone, the current therapy, cannot replace amylin’s actions nor can insulin normalize post-meal glucagon concentrations.

 

Clinical Trials.  Approximately 4,800 patients have been treated with SYMLIN. We have completed six Phase 3 clinical trials with various doses of SYMLIN as well as numerous Phase 2 and Phase 1 trials. Additionally, we completed long-term open-label safety trials and open-label extensions of the Phase 3 clinical trials to assess long-term effects of SYMLIN. Our Phase 3 trials have shown a statistically significant reduction in HbA1c levels for both type 1 and insulin-using type 2 patients. Data from our short-term clinical trials involving both type 1 and insulin-using type 2 patients with diabetes show that SYMLIN, as an adjunct to insulin, can:

 

•          prevent the abnormal rise in glucagon after meals;

 

•          slow the rate of gastric emptying; and

 

•          reduce the range of after-meal variations in blood glucose levels.

 

Collectively, across all of our long-term Phase 3 clinical trials, patients with type 1 diabetes and type 2 diabetes receiving the recommended dosage of SYMLIN in addition to their existing diabetes therapy achieved an average additional reduction in HbA1c of 0.3% and 0.4%, respectively, at the end of 26 weeks, compared to patients using insulin with placebo. In these studies, patients with type 2 diabetes who were treated with SYMLIN lost an average of 3.3 pounds during the trial period, while patients with type 2 diabetes in the control group gained an average of 0.7 pounds. Trial participants with type 1 diabetes who received the recommended dose of SYMLIN lost an average of 2.4 pounds at the end of 26 weeks, while those patients receiving insulin and placebo gained an average of 1.5 pounds.

 

In our two most recent Phase 3 clinical trials, each of which lasted 52 weeks, patients with type 1 diabetes and type 2 diabetes receiving the recommended dosage of SYMLIN in addition to their existing diabetes therapy achieved an average additional reduction in HbA1c levels of 0.4% and 0.6%, respectively, compared to patients using insulin with placebo. In these trials, patients with type 2 diabetes treated with SYMLIN lost an average of 3.1 pounds during the trial period, while patients with type 2 diabetes in the control group gained an average of 1.5 pounds. Trial participants with type 1 diabetes who were overweight upon trial entry and who received the recommended dose of SYMLIN lost an average of 3.5 pounds during the trial period, while patients receiving insulin and placebo gained an average of 3.5 pounds.

 

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In our long-term clinical trials of 26 or 52 weeks, the addition of SYMLIN did not adversely affect patients’ lipids or blood pressure. The most commonly occurring side effects in our SYMLIN trials have been nausea, anorexia and vomiting, which were generally mild to moderate in intensity, were dose related, occurred early in treatment and generally dissipated over time.

 

In April 2002, after consultation with the FDA, we initiated a seven-month dose titration study of SYMLIN focused on safety involving approximately 300 subjects with type 1 diabetes and four smaller studies to clarify suggested prescribing information.  In late March 2003, the dose titration study completed in the clinic and we are currently in the process of collecting and reviewing data from this study.  In response to inquires for additional information from Swiss regulatory authorities, we conducted an interim summary consisting of data from 16 weeks of treatment for all subjects in the study.  This data indicate that initiation of SYMLIN therapy using a dose-titration protocol reduced the impact of nausea and that SYMLIN was associated with a positive effect on post-meal glucose.  The data also showed a reduction in HbA1c at 16 weeks consistent with the non-inferiority objective for the study.  As shown in previous pivotal studies, the SYMLIN treated subjects used less insulin and had a reduction in weight, and the control group used more insulin and gained weight.  However, conclusions cannot be drawn with respect to the non-inferiority outcome, weight or insulin use until data is available from the full seven months of treatment.

 

SYMLIN dose titration also reduced the incidence of severe hypoglycemia during the initiation phase of this study compared to earlier pivotal trials.  The rate of severe hypoglycemia observed is consistent with that seen in the landmark Diabetes Control and Complication Trials.  Approximately 75% of the SYMLIN treated subjects progressed to the highest trial dose of 60 micrograms, in accordance with the protocol, and experienced a similar rate of severe hypoglycemia to the control group during the titration period.  Doses of SYMLIN higher than 30 micrograms were not well tolerated by approximately 25% of subjects.  This group experienced higher rates of nausea with initiation of therapy and subsequently experienced higher rates of hypoglycemia.  Most of the 30 microgram dose subjects chose to continue in the study and experienced reductions in both post-meal glucose and HbA1c.  Conclusions cannot be drawn with respect to severe hypoglycemia until data is available from the full seven months of treatment.

 

Regulatory Status.  In December 2000, we submitted a New Drug Application, or NDA, for SYMLIN to the FDA. In October 2001, we received a letter from the FDA stating that SYMLIN was approvable for marketing in the United States, as an adjunctive therapy with insulin, for the treatment of type 1 and insulin-using type 2 diabetes patients, subject to satisfactory results from additional clinical trials. In April 2002, we commenced the seven-month dose titration study and in March 2003 all patients completed the study.  We have also completed four smaller trials to clarify suggested prescribing information. Based on the approvable letter from the FDA, we believe that efficacy for SYMLIN has been established. As a result, the dose titration study employs a “non-inferiority” design that will permit evaluation of the results without having to demonstrate statistically significant differences in efficacy between the SYMLIN and placebo treatment groups. While focusing principally on safety, however, we expect the FDA will want the safety of SYMLIN to be established without giving up improvement in glucose control or other important parameters of diabetes management. We plan to submit an NDA amendment for SYMLIN during the first half of 2003.

 

We submitted our Marketing Authorization Application, or MAA, for SYMLIN to the European regulatory authorities in May 2001.  In October 2002, following consultation with the European Committee for Proprietary Medicinal Products, we determined that additional information will be required for approval of SYMLIN in Europe. The European centralized regulatory procedure provides no mechanism for adding new information to an application in progress; therefore, we withdrew our MAA for SYMLIN. We are engaging in further discussions with European regulatory authorities and other regulatory experts to clarify regulatory alternatives and requirements for SYMLIN.

 

In August 2001, we submitted an application to regulatory authorities in Switzerland.  In March 2003, at the request of the Swiss authorities, we submitted interim summary data from our SYMLIN dose titration trial and study reports from four smaller studies.  The interim summary was performed with concurrence from the FDA and the FDA has received a copy of the Swiss submission.  Our application remains under review by the Swiss regulatory authorities.

 

Target Market.  The primary patient population focus for SYMLIN is people with diabetes who use insulin. This target population currently has limited therapeutic options. Patients with type 1 diabetes have complete beta cell deficiency and must use insulin to sustain life or undergo islet transplant therapy, which, in some cases, can temporarily render them insulin-independent. Patients with type 2 diabetes who have progressed to insulin therapy have typically exhausted other therapeutic options for improved blood glucose control due to advanced beta cell dysfunction. We estimate that this group is made up of approximately 4.5 million people in the United States, based on published and proprietary estimates. Within this population group, we estimate that approximately one million people, or 22%, have type 1 diabetes, and the remaining 3.5 million, or 78%, have type 2 diabetes. SYMLIN is an injectable product and we plan to market it in syringe/vial form and a reusable pen/cartridge system similar to those currently marketed with newer insulin preparations.

 

Exenatide

 

Exenatide is a first-in-class drug candidate for the treatment of type 2 diabetes. Exenatide is initially being developed to improve glucose control in patients with type 2 diabetes who are not using insulin and are not achieving target levels with diet and oral medications.

 

Scientific Overview.  Exenatide is a potent 39-amino acid peptide that exhibits several anti-diabetic, or glucose lowering, actions. Our clinical trials have shown that exenatide uniquely stimulates secretion of insulin in the presence of elevated blood glucose concentrations, but not during periods of low blood glucose concentrations. Our clinical trials have also shown that exenatide lowers post-meal glucagon concentrations and slows gastric emptying to modulate the entry of ingested nutrients into the bloodstream, and preclinical data indicate that exenatide reduces food consumption leading to reduced body weight. Most importantly, in patients with type 2 diabetes, exenatide administration can lower blood glucose concentrations, resulting in a marked reduction of HbA1c levels.

 

Clinical Trials.  A small Phase 2 clinical trial of exenatide completed in 1999 in people with type 2 diabetes showed statistically significant reductions in post-meal glucose concentrations, post-meal increases in glucagon concentrations and reductions in the rate of nutrient release from the stomach. Patients also reported sensations of fullness and satiety following exenatide administration. In another Phase 2 clinical trial completed in 1999, the blood glucose concentration during the first five hours following a standardized meal was reduced on average by 34% in participants that were treated with exenatide, compared to participants that were treated with placebos. In addition to lowering post-meal glucose concentrations, exenatide has also been shown to suppress post-meal elevations in

 

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serum triglyceride concentrations in people with type 2 diabetes. Elevations in post-meal triglycerides appear to be an independent risk factor for cardiovascular mortality.

 

In June 2001, we announced the results of a Phase 2 clinical trial designed to examine the effect of exenatide on glucose control in over 100 subjects with type 2 diabetes who were not achieving adequate blood glucose control with their current oral medications. In this 28-day trial, patients treated with exenatide, together with their current oral medications, experienced statistically significant lowering of HbA1c levels by 1.1% to 0.7%, compared with the average reductions experienced by patients treated with their current oral medications and placebo of 0.3%. Moreover, 90% of patients treated with exenatide together with their current oral medications experienced reductions in HbA1c levels of greater than or equal to 0.5%, compared to 33% of patients treated with their current oral medications and placebo. As HbA1c level is a measure of average blood glucose concentrations over a 3- to 4-month period, and this trial lasted only one month, our Phase 3 clinical trials are designed to examine the longer-term impact of exenatide on HbA1c levels.

 

In these clinical trials, exenatide was well tolerated. The majority of reported adverse events in the trials were judged to be mild or moderate in intensity. These events included nausea, which was the most common adverse event, and to a much lesser extent, vomiting. To better understand how to minimize nausea, we performed a Phase 2 dose-escalation trial in which patients achieved a target dose either gradually or suddenly. The data indicated that patients who gradually increased their dose of exenatide had a clinically meaningful reduction in the incidence of nausea over patients who did not receive a gradual dose increase.

 

In September 2001, we announced that another Phase 2 clinical trial conducted in people with type 2 diabetes after an overnight fast indicated that exenatide stimulated insulin secretion and lowered the elevated fasting blood glucose concentrations.

 

We commenced our Phase 3 evaluation of exenatide in December 2001, and are currently conducting three pivotal Phase 3 clinical trials. In October 2002, we announced the completion of enrollment of the first of the three Phase 3 clinical trials. In January 2003, we announced that all three of the pivotal Phase 3 trials were fully enrolled and we expect to complete these trials in the second half of 2003.

 

The first Phase 3 clinical trial of exenatide includes approximately 400 patients, randomized into three groups, two on exenatide and one on placebo. Those on active drug are to receive an introductory 5 microgram dose for one month, given by subcutaneous injection twice a day at breakfast and dinner, followed by six-months of exposure to doses of either 5 micrograms or 10 micrograms given twice a day. This trial is evaluating exenatide in people with type 2 diabetes who are currently not achieving target blood glucose concentrations using metformin alone. Metformin is one of several available oral therapies for the treatment of type 2 diabetes. The second of the three Phase 3 clinical trials includes approximately 400 patients, uses a similar protocol and is evaluating the effects of exenatide on patients who are currently not achieving target blood glucose concentrations using sulfonylureas alone. Sulfonylureas are another form of oral therapy for the treatment of type 2 diabetes. The third of the three Phase 3 clinical trials includes approximately 800 patients, also uses a similar protocol and is evaluating the effects of exenatide on patients who are currently not achieving target blood glucose concentrations using a combination of metformin and sulfonylureas. All of the treatment groups in each of the three Phase 3 clinical trials are continuing to use their current therapies of oral medications.

 

In August 2002, we commenced an open-label clinical study in patients who are currently not achieving target blood glucose concentrations using metformin, sulfonylureas or both metformin and sulfonylureas.  In early 2003, 59 patients in this on-going open-label study of exenatide showed mean reductions in HbA1c of 1.5% at the end of four months.  The patients in this study were not achieving target blood glucose levels with their current oral diabetes medications before entering the study.  At the end of four months, 54% of these participants had lowered their HbA1c to the treatment goal of less than or equal to 7% set by the American Diabetes Association.  In this trial, the effect of exenatide on HbA1c appears unaltered by the formation of antibodies in some patients. The most common adverse event reported was mild to moderate nausea, consistent with previous exenatide clinical studies. Participants maintain their current diabetes treatment regimens for the duration of the trial. Subjects received an introductory 5-microgram dose for four weeks, given by subcutaneous injection twice a day at breakfast and dinner. After four weeks, the dose was increased to 10 micrograms twice a day.

 

In addition to the ongoing Phase 3 trials and the open-label study, to date we have completed ten clinical trials with exenatide, including one Phase 1 and nine Phase 2 clinical trials.

 

Regulatory Status.  We filed an Investigational New Drug Application, or IND, for exenatide in January 1999 prior to our initiation of clinical trials. We commenced our Phase 3 evaluation of exenatide in December 2001, and are currently conducting three pivotal Phase 3 clinical trials. In October 2002, we completed enrollment of the first Phase 3 clinical trial and in January 2003, we completed enrollment of the remaining Phase 3 clinical trials.

 

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Target Market.  The initial patient focus for exenatide is patients with type 2 diabetes who are not using insulin and are not achieving target blood glucose concentrations with diet plus metformin, sulfonylureas or both metformin and sulfonylureas. The current therapeutic steps available to this patient population are additional oral medications, the addition of insulin to the oral agent regimen, or insulin therapy alone. These approaches are often not very successful and are often associated with inconvenience and side effects, particularly weight gain. We estimate this population of people with diabetes who were using oral medications as of 2001 to be 11.9 million in the United States, France, Germany, Italy, Japan, Spain and the United Kingdom, which comprise the seven largest pharmaceutical markets worldwide, of which an estimated 5.9 million people are in the United States. We currently plan to market exenatide in an injectable pen/cartridge delivery system, subject to our receiving the necessary regulatory approvals.

 

Exenatide LAR

 

The combination of potency and the glucose dependent mechanism of action inherent in exenatide makes it well suited to development of a sustained release formulation.  In May 2000, we signed an agreement with Alkermes, Inc. for the development, manufacture and commercialization of an injectable sustained release formulation of exenatide, which we refer to as exenatide LAR. This development program utilizes Alkermes’ patented, FDA approved and proprietary Medisorb® injectable sustained release drug delivery technology. Based upon results obtained from initial feasibility studies, the goal of the work under this agreement is to develop a formulation that might allow up to once-a-month administration of exenatide for the treatment of type 2 diabetes.

 

Under the terms of the agreement, Alkermes has granted us an exclusive, worldwide license to its formulation technology for the development of injectable sustained release formulations of exendins, such as exenatide, and other related compounds that we may develop. We are responsible for conducting clinical trials and securing regulatory approvals, and we have the right to market any approved products on a worldwide basis. Alkermes is responsible for continuing to support development efforts and manufacturing any products commercialized under our agreement. In exchange, Alkermes receives funding for research and development. Alkermes has also received warrants to purchase an aggregate of up to 75,000 shares of our common stock and cash payments for the achievement of development and commercialization milestones. We may make additional cash milestone payments to Alkermes upon the achievement of further development and commercialization goals. Alkermes will also receive a combination of royalty payments and manufacturing fees based on any future product sales.

 

In October 2000, we successfully completed the feasibility stage of development work and initiated additional preclinical work to support exenatide LAR human clinical trials. We completed the first Phase 1 clinical trial of exenatide LAR in 2001. This trial demonstrated a sustained release of exenatide for over 30 days, with no significant immediate release of the drug following administration.  Exenatide LAR was well tolerated in this trial with no significant adverse effects. Further, the results of a Phase 1 clinical trial with exenatide, also completed in 2001, demonstrated that sustained, continuous infusion of exenatide in patients with type 2 diabetes over a twenty-four hour period can lower both pre-meal and post-meal blood glucose concentrations throughout the day.

 

In June 2002, we initiated a Phase 2 clinical trial in the United States focusing on the safety and tolerability, as well as the pharmacokinetic profiles of rising doses of three formulations of exenatide LAR.  In March 2003, we received preliminary pharmacokinetic results from this study. The results from this study are consistent with our objective of demonstrating that sustained levels of exenatide are possible.  Based on these data and previous clinical results, in March 2003 we, along with Lilly and Alkermes, submitted an IND to the FDA to support an independent development program for exenatide LAR.

 

Lilly Collaboration

 

In September 2002, we entered into the collaboration agreement with Lilly for the global development and commercialization of exenatide, including sustained release formulations of that compound, such as exenatide LAR. Under the terms of the agreement, Lilly made initial payments to us totaling $110 million, of which $30 million was for the purchase of approximately 1.6 million shares of the Company’s common stock at a purchase price of $18.69 per share.

 

In addition to these up-front payments, Lilly has agreed to make future milestone payments of up to $85 million upon the achievement of certain development milestones, including milestones relating to both twice-daily and sustained release formulations of exenatide. These milestone payments may be converted into our common stock, at Lilly’s option, if the filing of NDAs with the FDA are delayed beyond December 31, 2005 for the twice-daily formulation of exenatide and beyond December 31, 2007 for the

 

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sustained release formulation of exenatide. Lilly has agreed to make additional future milestone payments of up to $130 million contingent upon the commercial launch of exenatide in selected territories throughout the world, including both twice-daily and sustained release formulations.

 

We are responsible for the first $101.2 million of development costs for the exenatide program, following the date of the collaboration agreement. Subsequently, we will share U.S. development costs with Lilly equally. Commercialization costs in the United States will also be shared equally. Development costs outside of the United States will be shared 80% by Lilly and 20% by us, and Lilly will be responsible for all commercialization costs outside of the United States.

 

In addition, following successful completion of the three ongoing pivotal Phase 3 trials for exenatide and contingent upon certain other events, Lilly will make available to us a $110 million loan facility to fund a portion of our development and commercialization costs for exenatide. The loan facility will be secured by certain of our patents and other collateral and would become convertible into  our common stock if amounts remain outstanding for more than two years.

 

Each company will receive 50% of the operating profits from the sale of the product in the United States. Operating profits elsewhere will be shared at approximately 80% to Lilly and 20% to us.  Pursuant to our co-promotion agreement with Lilly, we will record all U.S. product revenues and Lilly will record all other product revenues.

 

Pursuant to our co-promotion agreement with Lilly, the parties have agreed to equally co-promote exenatide and sustained release formulations within the United States. With respect to commercialization outside of the United States, Lilly will be primarily responsible for commercialization efforts.

 

Also, as part of the agreement with Lilly, we will co-promote Humatrope®, Lilly’s recombinant human growth hormone product, in the United States.  All of our revenue in 2002 resulted from our collaboration with Lilly.

 

Our collaboration agreement with Lilly may be terminated by Lilly at any time in the event the FDA requires us to place our Phase III clinical trials involving exenatide on hold, or following the receipt of the full statistical data on the results of the Phase III clinical trials involving exenatide.

 

AC3056

 

We are currently evaluating AC3056, a compound we in-licensed from Aventis Pharma in 1997, in an on-going Phase 1 program. AC3056 is designed for the treatment of atherosclerosis-related cardiovascular disease. In animal studies, AC3056 has been shown to:

 

•         reduce serum low density lipoproteins, known as LDLs, but not serum high density lipoproteins, referred to as HDLs;

 

•         inhibit lipoprotein oxidation; and

 

•         inhibit the expression cell adhesion molecules in vascular cells.

 

In October 2000, we successfully completed our first Phase 1 clinical trial of AC3056. In this trial, 26 healthy subjects received an oral formulation of AC3056 over a range of doses. The peak levels of AC3056 observed in subjects in this clinical trial were comparable to levels necessary to produce the desired physiological benefits in preclinical trials. We did not observe any safety concerns in the trial. In June 2002, we reported on a Phase 1 study where 14 healthy subjects received an oral formulation of AC3056 administered in a dose-rising manner. Dose-dependent increases in blood levels of AC3056 were observed showing absorption following oral administration. Dose-dependent increases in serum antioxidant activity were also observed. No safety concerns were noted in this trial.

 

Under the terms of our license agreement with Aventis Pharma, we are responsible for conducting the preclinical evaluation and clinical development of AC3056. Upon completion of Phase 2 clinical trials of AC3056, Aventis Pharma will have a one-time right to elect to collaborate with us in the continuing development and commercialization of the drug candidate in a 50:50 cost-and-profit sharing arrangement. If Aventis Pharma exercises this option, we

 

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will continue to be responsible for developing and registering AC3056, and Aventis Pharma will be responsible for manufacturing and marketing. If the option is exercised, Amylin and Aventis Pharma will assume equal responsibility for all past and future research and development, manufacturing and commercialization expenses and will share equally in any operating profits from commercialization. If Aventis Pharma does not exercise its option, we will retain all development and commercialization rights, and Aventis Pharma will be entitled to a royalty based on any future net sales. In such case, we will be free to collaborate with other companies on the development, manufacture and commercialization of AC3056. Our agreement with Aventis Pharma will automatically terminate when neither we nor Aventis Pharma are conducting research and development or marketing and selling any of the compounds covered by our agreement, including AC3056. We also have the right to terminate the agreement voluntarily at any time upon six months notice. Aventis Pharma may terminate the agreement in the event that we fail to meet research and development milestones, or we discontinue research, development and commercialization activities with respect to the compounds covered by the agreement.

 

GLP-1

 

In January 2003, we completed the acquisition from Restoragen, Inc. of rights to a Phase 2 program utilizing continuous infusion of glucagon-like peptide 1, or GLP-1, targeted for the treatment of congestive heart failure, or CHF, in patients ineligible for transplant. GLP-1 is a naturally occurring hormone produced in the gut in response to food intake.  In connection with this transaction, we also acquired rights to various GLP-1 related patents.  We paid Restoragen approximately $3.3 million at closing and will pay an additional $700,000 upon receiving satisfactory results from an ongoing Phase 2 clinical trial. Restoragen may also receive future contingent milestone payments, and royalties on product sales.

 

CHF occurs when the heart cannot sufficiently pump oxygenated blood throughout the body, resulting in impaired kidney function and an accumulation of fluid in the lungs and other body tissues. CHF can be caused by common conditions such as high blood pressure, coronary heart disease, diabetes, and heavy alcohol consumption and carries a risk of morbidity and mortality. Nearly 5 million people in the U.S. are afflicted by congestive heart failure, of which approximately 80,000 are transplant ineligible.

 

AC162352

 

We are developing AC162352 (Peptide YY 3-36) as a preclinical candidate for the potential treatment of obesity. Independent researchers have reported that a reduction in food intake was demonstrated by this molecule. We plan to file an IND for this candidate in the second half of 2003.

 

Research and Licensing Activities

 

The metabolic components of diabetes, obesity and dyslipidemia are linked in many ways that may allow us to leverage our more than a decade of expertise to develop new metabolic drug candidates to treat these conditions. We currently have approximately 200 full-time employees dedicated to our research and development activities, including approximately 50 employees with Ph.D. or M.D. degrees, six of whom are diabetologists.

 

Our scientists are primarily focused on investigating the biological actions and potential utilities of new peptide hormone candidates. We are also using our resources to optimize pharmaceutical properties of peptide drugs to develop new peptide hormone analogs. Our scientists are also involved in the ongoing evaluation of in-licensing opportunities.

 

Patents, Proprietary Rights, and Licenses

 

We believe that patents and other proprietary rights are important to our business. Our policy is to file patent applications to protect technology, inventions and improvements that may be important to the development of our business. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. We plan to enforce our issued patents and our rights to proprietary information and technology. We review third-party patents and patent applications, both to shape our own patent strategy and to identify useful licensing opportunities.

 

We own or hold exclusive rights to 36 issued U.S. patents and 33 pending U.S. applications. We have a total of ten pending and 17 issued U.S. patents relevant to the development and commercialization of SYMLIN. We have a total of 15 pending and one issued U.S. patent relevant to the development and commercialization of exenatide. We have also filed foreign counterparts of many of these issued patents and applications. Included within our SYMLIN patent portfolio are issued patents for:

 

•       SYMLIN and other amylin agonist analogues invented by our researchers;

 

•       the amylin molecule;

 

•                    amylin agonist pharmaceutical compositions, including compositions containing pramlintide and compositions containing amylin;

 

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•       methods for treating diabetes using any amylin agonist;

 

•       methods for synthesis of amylin and amylin analogues; and

 

•       methods for preparing products that include an amylin agonist in composition for parenteral administration.

 

With respect to exenatide, we have patents and patent applications pending which include claims directed to exendin analogues and agonists and uses of exendin analogues and agonists to:

 

•       modulate gastric emptying;

 

•       inhibit glucagon secretion;

 

•       stimulate insulin release;

 

•       reduce serum lipids; and

 

•       generate insulin-producing cells from non-insulin producing cells.

 

We do not have a composition-of-matter patent for exenatide or exenatide LAR.

 

Generally, our policy is to file foreign counterpart applications in countries with significant pharmaceutical markets.

 

With regard to our development of AC3056, we received a letter from a third party informing us of the availability of three U.S. patents for licensure. We do not believe that these patents are material to our AC3056 development plans.

 

Manufacturing

 

We contract with others for the manufacture of SYMLIN and exenatide. We currently rely on three manufacturers, Bachem California, UCB-Bioproducts and Mallinckrodt, for bulk SYMLIN and two for fill-finishing, including one manufacturer, OMJ Pharmaceuticals, for the dosage-form of SYMLIN in vials and one manufacturer, CP Pharmaceuticals, for dosage-form SYMLIN in cartridges. We also have one manufacturer of pens, Disetronic Medical Systems, for delivery of SYMLIN in cartridges. We have a long-term supply agreement with Bachem and CP Pharmaceuticals and we are in discussions with the other manufacturers for the long-term supply of these materials. We have two bulk drug manufacturers and one manufacturer for dosage-form of exenatide. We currently have on-going development efforts with two manufacturers for pens for exenatide and are in initial discussions for a long-term supply agreement for the pens.

 

We have selected manufacturers that we believe comply with current good manufacturing practices and other regulatory standards. We have established a quality control and quality assurance program, including a set of standard operating procedures, analytical methods and specifications, designed to ensure that SYMLIN is manufactured in accordance with current good manufacturing practices and other domestic and foreign regulations and are in the process of establishing such a program for exenatide. Under our collaboration agreement regarding AC3056, Aventis Pharma has supplied AC3056 manufactured in accordance with current good manufacturing practices for our initial Phase 1 clinical trials.

 

Although some materials for our products are currently available from only one qualified source, we will attempt to acquire a substantial inventory of such materials, establish alternative sources and negotiate long-term supply arrangements. We believe we will not have any material supply issues; however, we cannot be certain that we will be able to obtain long-term supplies of those materials on acceptable terms.

 

Commercialization Operations

 

We have established a core commercial team to focus on the development and execution of our commercial strategies.  This team includes leadership of the following internal functions:

 

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•               sales

 

•               sales operations

 

•               marketing

 

•               training

 

•               medical education

 

•               medical affairs

 

•               regulatory affairs

 

•               manufacturing

 

•               distribution logistics

 

•               quality assurance

 

 

Members of this team have extensive industry experience from a wide range of large and small companies and have substantial experience in the field of diabetes, as well as in launching and marketing pharmaceutical products.  Their activities have been focused on developing the plans for commercializing SYMLIN and on preparations for the expansion of our organization that will be required to perform sales and marketing activities if the drug candidate is approved.

 

Our SYMLIN commercialization plan is designed to enable us to perform pre-marketing activities for SYMLIN in the United States and to prepare for its launch, pending the final outcome of the FDA’s review of our planned NDA amendment.  We believe the target market for SYMLIN is highly concentrated, with approximately 20,000 physicians in the United States prescribing approximately 50% of the insulin in the market.  Accordingly, we anticipate that a sales organization with a field force of approximately 150 employees will be sufficient to effectively launch and call on the major potential prescribers of SYMLIN in the United States.

 

We have recruited a small sales force of approximately 45 people and necessary support staff to enable us to co-promote Humatrope®, Lilly’s recombinant human growth hormone product, in the United States. This sales force will market Humatrope primarily to endocrinologists, the primary target prescribers of SYMLIN. We do not intend to hire additional sales representatives until the timing of SYMLIN approval is more certain. We will, however, continue our ongoing efforts to prepare the organization to be able to commence the commercialization of SYMLIN quickly and efficiently, if approved.

 

We may also continue to engage in discussions with companies that we believe may add value to our commercialization efforts for SYMLIN in the United States or in other countries.

 

Pursuant to our co-promotion agreement with Lilly, the parties have agreed to equally co-promote exenatide and sustained release formulations within the United States. We will increase our existing sales force to conduct our U.S. sales effort when the timing of approval of exenatide is more certain. With respect to commercialization outside of the United States, Lilly will be primarily responsible for commercialization efforts.

 

Government Regulation

 

Regulation by governmental authorities in the United States and foreign countries is a significant factor in the development, manufacture and marketing of pharmaceutical products. All of our potential products, including SYMLIN and exenatide, will require regulatory approval by governmental agencies prior to commercialization. In particular, human therapeutic products are subject to rigorous preclinical testing and clinical trials and other pre-market approval requirements by the FDA and regulatory authorities in foreign countries. Various federal and state statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of such products.

 

The activities required before a pharmaceutical agent 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 activity 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 a proposed clinical trial can begin. Typically, clinical trials involve a three-phase process. In Phase 1, clinical trials are conducted with a small number of healthy volunteers to determine the early safety and tolerability profile and the pattern of drug distribution and metabolism. In Phase 2, clinical trials are conducted with groups of patients afflicted with a specified disease in order to determine preliminary efficacy, dosing regimens and expanded evidence of safety. In Phase 3, large-scale, multi-center, adequate and well-controlled comparative clinical trials are conducted with patients afflicted with a target disease in order to provide enough data for the statistical proof of efficacy and safety required by the FDA and others. The results of the preclinical testing and clinical trials for a pharmaceutical product are then submitted to the FDA in the form of a New Drug Application, or NDA, for approval to commence commercial sales. In responding to an NDA, the FDA may grant marketing approval, request additional information, or deny the application if it determines that the application does not satisfy its regulatory approval criteria.

 

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Among the conditions for NDA approval is the requirement that the prospective manufacturer’s quality control and manufacturing procedures conform to current good manufacturing practices. In complying with these practices, manufacturers must continue to expend time, money and effort in the area of production and quality control and quality assurance to ensure full technical compliance. Manufacturing facilities are subject to periodic inspections by the FDA to ensure compliance.

 

We are also subject to various federal, state and local laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our research.

 

The activities required before a pharmaceutical agent may be marketed in the European Union are dictated by the International Conference on Harmonization and are generally similar to those established in the United States. Approval of new drugs across the European Union relies on either the mutual recognition process or the centralized approval process of the European Medicines Evaluation Agency, or EMEA. Under the centralized procedure, the marketing application is referred for review to two review teams, each representing one of the member countries. Each reviewer then forwards an early assessment to the Committee for Proprietary Medicinal Products, or CPMP, for discussion and preparation of an initial consolidated assessment report, including a list of questions requesting clarification as well as additional information. This step initiates a series of dialogues, meetings and other communications among the CPMP, the two review teams and us, leading in turn to clarification, education and refinement of the original assessment reports. Ultimately, a decision is reached to either grant marketing approval or deny the application if it is determined that the application does not satisfy the regulatory approval criteria. Initially, we chose the centralized procedure for SYMLIN. However, the centralized procedure provides no mechanism for adding new information to the application in progress. Therefore, in October 2002, when it became evident that further information would be needed, we withdrew our application for SYMLIN. We are currently evaluating whether to refile for approval of SYMLIN under the centralized procedure or whether we might file an application under the mutual recognition process. Under the mutual recognition process, an application is filed in one country for review. If the drug is approved in that country, it may only be marketed initially in that country. However, under the mutual recognition process, other European countries may individually recognize the approval and allow the drug to then be marketed in such countries.

 

The clinical testing, manufacture and sale of pharmaceutical products outside of the United States and the European Union are subject to regulatory approvals by other jurisdictions which may be more or less rigorous than those required by the United States or the European Union.

 

Competition

 

Biotechnology and pharmaceutical companies are highly competitive. There are many pharmaceutical companies, biotechnology companies, public and private universities and research organizations actively engaged in the research and development of products that may be similar to our products. A number of our largest competitors, including Bristol-Myers Squibb Company, GlaxoSmithKline plc, Eli Lilly and Company, Merck & Co., Novartis AG, Novo Nordisk A-S and Takeda Pharmaceuticals, are pursuing the development of or are marketing pharmaceuticals that target the same diseases that we are targeting, and it is possible that the number of companies seeking to develop products and therapies for the treatment of diabetes and other metabolic disorders will increase. Many of these and other existing or potential competitors have substantially greater financial, technical and human resources than we do and may be better equipped to develop, manufacture and market products. These companies may develop and introduce products and processes competitive with or superior to ours. In addition, other technologies or products may be developed that have an entirely different approach or means of accomplishing the intended purposes of our products, which might render our technology and products noncompetitive or obsolete. We cannot be certain that we will be able to compete successfully.

 

We believe that SYMLIN is the only non-insulin-based drug candidate in late-stage clinical development for improving blood glucose control in people with type 1 diabetes. Further, insulin and oral medications are often insufficient for many people with type 2 diabetes to achieve satisfactory glucose and weight control. SYMLIN or exenatide may be complementary to, or competitive with, these other medications. Although competitive activity in the diabetes market is intense, most recent activity has resulted in additional treatment options for people with type 2 diabetes who are responsive to oral medications.

 

If approved for marketing, SYMLIN or exenatide may compete with established therapies for market share. In addition, many companies are pursuing the development of novel pharmaceuticals that target diabetes. These companies may develop and introduce products competitive with or superior to SYMLIN or exenatide. Such competitive or potentially competitive products include:

 

•               acarbose

 

•               nateglinide

 

•               metformin

 

•               miglitol

 

•               pioglitazone

 

•               repaglinide

 

•               rosiglitazone

 

•               sulfonylureas

 

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Similarly, if AC3056 is ultimately approved for marketing, it may compete with established therapies for market share. Among the potentially competitive products are HMG-CoA reductase inhibitors commonly known as statins.

 

Current therapies for severe CHF in patients ineligible for heart transplant include angiotensin converting enzyme inhibitors, or ACEI, Nesiritide (B type natiuretic peptide), beta blockers and aldosterone antagonists. Endothelin receptor antagonist are under investigation for the treatment of heart failure. None of these aforementioned agents or therapies are directed at correcting the cardiac metabolic abnormalities associated with severe CHF.

 

Employees

 

As of December 31, 2002, we had approximately 350 full-time employees. A significant number of our management and professional employees have had experience with pharmaceutical, biotechnology or medical product companies. We believe that we have been highly successful in attracting skilled and experienced personnel. None of our employees is covered by collective bargaining agreements and we consider relations with our employees to be good.

 

Directors and Officers

 

The names of our directors and officers and certain information about them as of March 14, 2003 are set forth below: