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.  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes ý  No o

 

The aggregate market value of the common stock of the registrant, as of June 30, 2003, held by non-affiliates was $1,446,463,042.

 

The number of shares outstanding of the registrant’s common stock was 93,837,889 as of March 1, 2004.

 

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 2004 Annual Meeting of Stockholders to be held on May 5, 2004 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, 2003.

 

 

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 file with the SEC, 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.

 

Except for the historical information contained herein, this annual report on Form 10-K and the information incorporated by reference contains forward-looking statements that involve risks and uncertainties.  These statements include projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance.  These statements are not guarantees of future performance or events.  Our actual results may 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,” as well as those discussed in Part II, Item 7 entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere throughout this annual report on Form 10-K and in any other documents incorporated by reference into this report. 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, obesity and cardiovascular disease. We currently have two first-in-class lead drug candidates in late stage development for the treatment of diabetes, SYMLIN^® (pramlintide acetate) and exenatide.  In June 2003, we submitted an amendment to our SYMLIN New Drug Application, or NDA, to address questions from the United States Food and Drug Administration, or FDA.  In December 2003, we received a second approvable letter from the FDA indicating that SYMLIN is approvable for marketing in the United States as an adjunctive therapy with insulin, subject to our providing the FDA additional clinical data to identify a patient population and method of use for SYMLIN where there is no increased risk of significant hypoglycemia or where there is an added benefit that clearly counterbalances any potential for increases in episodes of hypoglycemia.  We believe that existing data generated since our June 2003 amendment to our SYMLIN NDA could provide the necessary data requested by the FDA.  We are currently in discussions with the FDA regarding the specific requirements for approval.

 

Our second drug candidate, exenatide, is being investigated for its potential to treat people with type 2 diabetes who fail to reach target blood glucose levels with diet, exercise, and metformin, sulfonylureas or a combination of metformin and sulfonylureas.  Exenatide is the first of a new class of compounds known as incretin mimetics.  We completed three pivotal Phase 3 clinical trials on exenatide in late 2003, and in December 2003, we received $35 million in milestone payments from Eli Lilly and Company, or Lilly, our collaboration partner for exenatide.  All of the pivotal studies met the primary glucose control endpoint as measured by hemoglobin A1C, or A1C.  A1C is a measure that reflects average glucose levels over the prior 3 to 4 month period.  We believe the data from our Phase 3 program provides a solid base for a regulatory submission to the FDA, currently projected for mid-2004.  Additionally, we are developing a sustained release formulation of exenatide, exenatide LAR, that is in a Phase 2 clinical program.  We have a collaboration agreement with Lilly for the worldwide development and commercialization of exenatide and sustained release formulations of exenatide.

 

We are developing additional drug candidates for the treatment of obesity.  This includes a Phase 2 program for AC137 (pramlintide acetate) which is the same compound as SYMLIN and a Phase 1 program for AC162352 (PYY 3-36).  We also have two drug candidates for the treatment of cardiovascular disease.  This includes a Phase 2 program for AC2592 (glucagon-like peptide 1, or GLP-1) for the treatment of severe congestive heart failure and a Phase 1 program for AC3056 for the treatment of atherosclerosis-related cardiovascular disease.  We maintain a discovery research program focused on peptide therapeutics and are actively seeking to in-license additional drug candidates.

 

Our principal executive offices are located at 9360 Towne Centre Drive, Suite 110, San Diego, CA 92121, and our telephone number is (858) 552-2200.  We were incorporated in Delaware in September 1987.  We maintain a website at www.amylin.com.  The reference to our worldwide web address does not constitute incorporation by reference of the information contained on our website.

 

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.

 

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Product Pipeline

 

Drug Discovery

Preclinical Development

Clinical Studies

Regulatory Review

Commercialization

P1

P2

P3

SYMLIN®

X

Exenatide

X

Exenatide LAR

X

AC2592

X

AC137

X

AC162352

X

AC3056

X

Peptide Programs

X

X

 

Diabetes

 

Diabetes is a major health problem in most developed countries and is the fifth leading cause of death by disease in the United States. It is a progressive disease caused primarily 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 heart, eye, kidney and peripheral vascular diseases.

 

It is estimated that over 194 million people worldwide have diabetes. Of that population, approximately 18 million have type 1 diabetes, also known as juvenile onset diabetes, and approximately 159 million have type 2 diabetes, also known as adult-onset diabetes. In the United States alone, in 2002 there were approximately 13 million people diagnosed with diabetes, and approximately 1.3 million new cases of diabetes are 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.

 

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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 may 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 A1C. A person’s A1C level is a recognized indicator of that individual’s average blood glucose concentrations over a 3 to 4-month period. Lower A1C levels indicate better blood glucose control, on average. A1C 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 an A1C level that is lower than 7%. Only a minority of people diagnosed with diabetes in the United States are able to achieve the American Diabetes Association’s recommended target A1C 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.

 

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 A1C 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 drug 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 an increase in body weight.

 

Scientific Overview.    SYMLIN is a synthetically manufactured analog 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 help 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 5,000 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 A1C 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 showed that SYMLIN, as an adjunct to insulin:

 

•                  prevented the abnormal rise in glucagon after meals;

 

•                  slowed the rate of gastric emptying; and

 

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

 

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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 A1C 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 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.  We also conducted four smaller studies to clarify suggested prescribing information.  In May 2003, we reported that results from the dose titration study met prospectively defined parameters for the non-inferiority objective of the study.  The dose titration study was conducted in patients who were intensively managing their disease with either multiple daily injections or insulin pump therapy.  In addition to reductions in A1C consistent with the non-inferiority objective of the study, SYMLIN-treated subjects used 12% less insulin overall compared to the control group.  SYMLIN was also associated with a significant reduction in post-meal blood glucose concentrations compared to the control group using insulin alone.  At the end of the study, SYMLIN-treated patients experienced a reduction in body weight while the control group gained weight.  The difference in the mean weight change from baseline between the SYMLIN-treated patients and the control group was approximately six pounds.

 

The data also indicate that the SYMLIN dose titration protocol reduced the impact of nausea and the event rate of severe hypoglycemia during the initiation phase of this study compared to earlier pivotal trials.  Overall severe hypoglycemia event rates for the entire study period for both the SYMLIN and placebo groups were similar to rates seen in the Diabetes Control and Complications Trial, a landmark study in type 1 diabetes.  Approximately 75% of the SYMLIN-treated subjects progressed to the highest 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 a higher rate of nausea with initiation of therapy, which was associated with a higher rate of severe hypoglycemia.  A majority of the 30-microgram dose subjects continued in the study and also experienced reductions in both post-meal blood glucose concentrations and A1C.

 

We currently have an open-label Phase 3 extension study of our dose titration trial and a Phase 3 open-label clinical study evaluating the use of SYMLIN in type 1 and type 2 patients in a standard endocrine/diabetes specialist practice setting.

 

Regulatory Status.    In December 2000, we submitted an NDA for SYMLIN to the FDA. We received a letter from the FDA in October 2001 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. After consultation with the FDA, we conducted a seven-month dose titration study and four smaller trials to clarify suggested prescribing information.  In June 2003, we submitted an amendment to our SYMLIN NDA.  In December 2003, we received our second approvable letter from the FDA stating that SYMLIN is approvable for marketing in the United States as an adjunctive therapy with insulin, subject to providing the FDA additional clinical data.  The FDA has requested clinical data to identify a patient population and method of use for SYMLIN where there is no increased risk of significant hypoglycemia or where there is an added benefit that clearly counterbalances any potential for increases in episodes of hypoglycemia.  We believe that existing data generated since our June 2003 amendment to our SYMLIN NDA could provide the necessary data requested by the FDA.  We are currently in discussions with the FDA regarding the specific requirements for approval.  Until these requirements are known, our research and development efforts for SYMLIN will be limited to specific activities related to our interactions with the FDA and continuation of ongoing open label clinical trials.

 

In August 2001, we submitted an application for SYMLIN to regulatory authorities in Switzerland.  In March 2003, at the request of Swiss authorities, we submitted interim summary data from our SYMLIN dose titration trial and study reports from four smaller studies.  The Swiss regulatory authorities indicated in January 2004 that they require additional data to demonstrate the benefit of SYMLIN therapy relative to adverse events, including nausea and hypoglycemia.  The Swiss regulatory procedure does not provide for the submission of additional data at this stage of the review process.  Accordingly, we withdrew our application in January 2004.  Once we have clarification on the process for obtaining marketing approval of SYMLIN in the United States, we will evaluate our regulatory strategy for SYMLIN in other countries.

 

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 generally 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.

 

5

 

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 approximately 4.5 million people in the United States use insulin, 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 initially in a syringe/vial form and eventually, in a disposible pen/cartridge system similar to those currently marketed with newer insulin preparations.

 

Exenatide

 

Exenatide, the first of a new class of compounds known as incretin mimetics, is an injectible 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 A1C levels with diet, exercise, and metformin, a sulfonylurea, or a combination of metformin and a sulfonylurea.

 

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 lowered 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 lowered blood glucose concentrations, resulting in a marked reduction of A1C levels. In addition to lowering post-meal glucose concentrations, exenatide has also been shown to suppress post-meal elevations in serum triglyceride concentrations in people with type 2 diabetes. Elevations in post-meal triglycerides appear to be an independent risk factor for cardiovascular disease.

 

Clinical Trials.  More than 2,000 patients have been treated with exenatide.  We have completed three pivotal Phase 3 clinical trials, which we have referred to as our AMIGO trials, as well as numerous Phase 2 and Phase 1 trials.  We are conducting open-label extension studies from the pivotal Phase 3 trials and an open label study.  We also have a number of studies planned and ongoing, including studies to support regulatory submissions outside the United States and studies to increase our understanding of exenatide’s potential in the United States and other markets.

 

The first pivotal Phase 3 clinical trial of exenatide included 336 patients and evaluated 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 pivotal Phase 3 clinical trial included 377 patients and evaluated exenatide in people who are currently not achieving target blood glucose concentrations using a sulfonylurea alone.  Sulfonylureas are another form of oral therapy for the treatment of type 2 diabetes.  The third pivotal Phase 3 clincial trial included approximately 734 patients and evaluated exenatide in patients who are currently not achieving target blood glucose concentrations using a combination of metformin and a sulfonylurea.  Of the randomized patients in each clinical trial, approximately two-thirds received exenatide and one-third received placebo.  Those on active drug received an introductory 5-microgram dose of exenatide for one month, given by subcutaneous injection twice a day at breakfast and dinner.  This was followed by six months of exposure to doses of either 5 micrograms or 10 micrograms given twice a day at breakfast and dinner.  All of the treatment groups in each of the three Phase 3 clinical trials continued to use their current therapies of oral medications.

 

In late November 2003, we announced the summary results of our combined pivotal Phase 3 clinical trial data.  All three studies met the primary glucose control endpoint as measured by A1C.  The average reduction in A1C across the Phase 3 program in patients completing the studies on the highest dose of exenatide (10 micrograms twice daily) was approximately one percentage point.  Additionally, approximately 40% of these patients achieved A1C measurements of 7% or less.  On average, subjects in the Phase 3 program on the highest dose of exenatide also showed statistically significant reductions in body weight of approximately 4.4 pounds.  The most common adverse event was mild to moderate nausea.

 

•                  In August 2003, results from our first pivotal trial showed that exenatide produced statistically significant, dose-dependent reductions in the primary glucose control endpoint in people with type 2 diabetes failing to achieve target blood glucose levels with metformin alone.  Of the participants receiving the 10 microgram dose of exenatide, 46% reduced their average A1C to less than or equal to 7%.  The subjects receiving exenatide also showed statistically significant reductions in body weight.  Consistent with exenatide’s glucose-dependent action, no difference was observed in rates of mild to moderate hypoglycemia between the exenatide and placebo groups, and no severe hypoglycemia was observed.  The drop out rate was similar between placebo and active arms of the study and was less than 20% overall. Only four patients in the exenatide group discontinued as a result of nausea.

 

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•                  In early November 2003, results from the second pivotal trial showed that exenatide produced statistically significant, dose-dependent reductions in the glucose control endpoint in people with type 2 diabetes failing to achieve target blood glucose levels with a sulfonylurea alone.  Reductions in average blood glucose were similar to reductions observed in the first exenatide pivotal study.  At the end of the study, 41% of subjects completing the study on the 10 microgram dose of exenatide reduced their A1C levels to less than or equal to 7%.  Patients receiving the 10 microgram dose of exenatide also showed statistically significant reductions in body weight.  No severe hypoglycemia was observed in the second study.  As glucose control improved in the exenatide arms of the study, the rate of mild to moderate, sulfonylurea-induced hypoglycemia increased.  Patients in the study were instructed to maintain their maximally effective dose of sulfonylurea unless hypoglycemia occurred, at which point they were instructed to reduce their dose of sulfonylurea.  Patients treated with the 10 microgram dose of exenatide showed the greatest improvement in A1C and a 36% incidence of mild to moderate hypoglycemia.  In contrast, the placebo arm, with no improvement in A1C, had an incidence of hypoglycemia of 3%.  Only one patient receiving exenatide withdrew from the second study due to mild to moderate hypoglycemia.  Although nausea was the most frequent adverse event in this trial, only eight patients receiving exenatide discontinued as a result.

 

•                  In late November 2003, results from our third exenatide pivotal trial showed that the reductions in A1C in the trial were similar to those observed in the first two pivotal Phase 3 studies. Despite having failed to reach treatment goals on both metformin and a sulfonylurea prior to entering this study, 34% of patients completing the study on the 10 microgram dose of exenatide reduced their A1C levels to less than or equal to 7%.  Patients receiving the 10 microgram dose of exenatide also showed statistically significant reductions in body weight.  In the third pivotal trial, in order to more effectively evaluate a sulfonylurea-related hypoglycemia, patients in each treatment group were further randomized into two groups. Patients in the first group were instructed to maintain their maximally effective dose of sulfonylurea unless hypoglycemia occurred, at which point they were instructed to reduce their dose of sulfonylurea. Patients in the second group reduced their sulfonylurea dose before starting study medication, and were later instructed to titrate their sulfonylurea dose to maximize glucose control.  As expected, rates of mild to moderate hypoglycemia were higher in patients in the first group who maintained their maximally effective dose of sulfonylurea at initiation of exenatide. In this group, patients treated with the 10 microgram dose of exenatide showed statistically significant reductions in A1C compared to placebo and a 35% incidence of mild to moderate hypoglycemia. In contrast, the placebo arm, with a slight increase in A1C, had an incidence of mild to moderate hypoglycemia of 15%. Patients in the second group, who reduced their sulfonylurea dose prior to initiation of exenatide, ended the study with a significant reduction in A1C and a 21% incidence of mild to moderate hypoglycemia, compared to 10% on placebo. No subjects withdrew from the study due to hypoglycemia. One patient reported a single episode of severe hypoglycemia while receiving the 5 microgram dose of exenatide. No severe hypoglycemia was observed in patients receiving 10 micrograms of exenatide.  Although mild nausea was the most frequent adverse event in this third trial, fewer than 3% of patients receiving exenatide discontinued as a result of nausea.

 

•                  In August 2002, we commenced an open-label Phase 3 clinical study of exenatide in patients who are currently not achieving target blood glucose concentrations using diet, exercise, and metformin, a sulfonylurea or both metformin and a sulfonylurea.  In January 2004, the 52 patients who have completed 52 weeks of treatment in this on-going study showed mean reductions in A1C of 1.2% and average body weight loss of approximately 8 pounds.  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 52 weeks, 46% of these participants had lowered their A1C to the treatment goal of less than or equal to 7%.  The most common adverse event reported was mild to moderate nausea, consistent with our pivotol Phase 3 exenatide clinical studies. Anti-exenatide antibodies are present in a portion of these patients.  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 the open-label Phase 3 extension studies of our pivotal Phase 3 trials, at 52 weeks of treatment, 162 patients showed mean reductions in A1C of 1.2%, and 50% had lowered their A1C to the treatment goal of less than or equal to 7%.  Anti-exenatide antibodies are present in a portion of the patients.  The data do not suggest a causal relationship between the presence of antibodies and A1C effect.

 

Regulatory Status.    We filed an Investigational New Drug Application, or IND, for exenatide in January 1999 prior to our initiation of clinical trials. We completed our pivotal Phase 3 clinical trials in late 2003, and plan to file our NDA for exenatide in mid-2004.

 

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, exercise, and 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 not always successful and are often associated with inconvenience and

 

7

 

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 6.0 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. The goal of the work under this agreement is to develop a formulation that might allow once-a-week to once-a-month administration of exenatide for the treatment of type 2 diabetes.

 

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 safety and tolerability, as well as the pharmacokinetic profiles of rising doses of multiple formulations of exenatide LAR.  In March 2003, we announced that the pharmacokinetic results from this study are consistent with our objective of demonstrating that sustained levels of exenatide are possible.  Safety or tolerability issues arising from this trial were the same as previous studies in exenatide.  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.  We have selected a target formulation.  In early 2004 we intend to initiate another Phase 2 study designed to characterize the proportion of drug made available in the blood stream over time, following various doses of exenatide LAR.

 

Obesity

 

Obesity is a condition that significantly raises the risk of illness or death from serious medical conditions including hypertension, type 2 diabetes, cardiovascular disease, stroke and certain cancers.  It is a major health problem in all developed countries.  In the United States, obesity-related condition costs exceed $75 billion a year.  It is estimated that approximately 60 million adults in the United States suffer from obesity.   Obesity-related conditions, such as stroke and myocardial infarction, are estimated to contribute to about 300,000 deaths yearly.

 

Obesity is characterized by excess body fat and occurs when more calories are consumed than burned.  Genetic, metabolic, psychological, and environmental factors can all contribute to obesity.   Obesity is measured by Body Mass Index, or BMI, a mathematical formula using a person’s height and weight.  A person with a BMI between 25 and 29.9 is considered overweight.  A person with a BMI of 30 or more is considered obese.  Current treatments for obesity include dietary therapy, physical activity, drug therapy and surgery.

 

AC137 (pramlintide acetate)

 

We are developing AC137 as a drug candidate for the potential treatment of obesity.  AC137 is pramlintide acetate, the same compound as SYMLIN.  Pramlintide acetate has been studied extensively in people with diabetes and has demonstrated a chronic effect of lowering body weight.  In 2003, we conducted preclinical studies on AC137.  In early 2004, we initiated a Phase 2 proof of concept study in the United States to evaluate the potential use of AC137 in the treatment of obesity.

 

AC162352 (PYY 3-36)

 

We are developing AC162352 (PYY 3-36) as a drug candidate for the potential treatment of obesity. Independent researchers have reported a reduction in food intake in humans using PYY 3-36.  In 2003, we conducted preclinical studies on AC162352.  We filed an IND for AC162352 in December 2003 and plan to initiate a Phase 1 study in the first quarter of 2004.

 

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Cardiovascular Disease

 

AC2592 (GLP-1)

 

In January 2003, we completed the acquisition from Restoragen, Inc. of rights to a Phase 2 program utilizing continuous infusion of GLP-1, or AC2592, 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 in January 2004, paid an additional $700,000 upon receiving satisfactory results from a Phase 2 clinical trial.  Restoragen may also receive future contingent milestone payments and royalties on product sales.

 

CHF occurs when the heart cannot adequately pump oxygenated blood throughout the body, resulting in impaired kidney function and an accumulation of fluid in the lungs and other body tissues. Many diseases or medical conditions contribute to CHF, including ischemic heart disease, high blood pressure and diabetes, and CHF carries risks of morbidity and mortality above and beyond those of the underlying diseases.

 

In July 2003, we reported on an open-label Phase 2 study involving 14 patients with New York Heart Association (NYHA) Class III or IV congestive heart failure, all of whom received GLP-1. The patients were followed for 12 weeks and monitored on a number of parameters. Outcome measures included peak oxygen consumption, left ventricular ejection fraction, quality of life assessment, and brain natriuretic peptide, or BNP (an indicator of heart dysfunction). Patients received infusion of GLP-1 at an introductory dose for the first week, a higher-level infusion of GLP-1 for weeks 2 through 5, the maximum infusion dose for weeks 6 through 9, and no medication from weeks 10 through 12. Patients showed general improvement in a composite score designed to quantify quality of life and cardiac function while receiving study medication. The score returned to baseline when medication was discontinued. The severity of heart failure, as indicated by NYHA class, also improved during GLP-1 administration. The most common adverse event reported was mild to moderate nausea.

 

We plan to file an IND for AC2592 and initiate a Phase 2 clinical study in the second half of 2004.

 

AC3056

 

We are currently evaluating AC3056, a compound we in-licensed from Aventis Pharma in 1997, in an on-going Phase 1 program in which we have completed three studies. AC3056 is designed for the treatment of atherosclerosis-related cardiovascular disease. In animal studies, AC3056: 1) reduced serum low density lipoproteins, known as LDLs, but not serum high density lipoproteins, referred to as HDLs; 2) inhibited lipoprotein oxidation; and 3) inhibited the expression cell adhesion molecules in vascular cells. We are evaluating our strategic opportunities for this drug candidate.

 

Research and Licensing Activities

 

The metabolic components of diabetes, obesity and cardiovascular disease are linked in many ways that may allow us to leverage our more than a decade of expertise to develop new drug candidates to treat these conditions. We currently have approximately 225 full-time employees dedicated to our research and development activities, including approximately 80 employees with Ph.D. or M.D. degrees, seven 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.

 

Lilly Collaboration

 

In September 2002, we entered into a 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 our common stock.  In addition to these up-front payments, Lilly 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. Under the agreement, these milestone payments could 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 sustained release formulation of exenatide. In December 2003, Lilly paid us $35 million in milestone payments and relinquished the right to convert these payments into our common stock at a future date.  $5 million of this payment is potentially creditable against future milestones.  Lilly has agreed to make additional future milestone payments of up to

 

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$130 million contingent upon the commercial launch of exenatide in selected territories throughout the world, including both twice-daily and sustained release formulations.  Our collaboration agreement may be terminated by Lilly at any time on sixty days notice.

 

We were responsible for the first $101.2 million of development costs for the exenatide program, following the date of the collaboration agreement. We reached this threshold in the third quarter of 2003.  Going forward, we 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 pivotal Phase 3 trials for exenatide and contingent upon certain other events, Lilly agreed to make available to us up to a $110 million loan facility to fund a portion of our development and commercialization costs for exenatide. At the end of 2003, a small portion of the loan facility was available to us and we expect more to become available in 2004.  The loan 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. We will record all U.S. product revenues and Lilly will record all other product revenues.