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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 2 TO FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 000-28324
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BIOTRANSPLANT INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 04-3119555
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
CHARLESTOWN NAVY YARD, BUILDING 75 02129
THIRD AVENUE, CHARLESTOWN, MA (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (617) 241-5200
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:COMMON STOCK,
$.01 PAR VALUE
(Title of each
class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. / /
The aggregate market value of voting Common Stock held by non-affiliates of
the registrant was $44,937,925 based on the last reported sale price of the
Common Stock on the Nasdaq consolidated transaction reporting system on
March 21, 2001.
Number of shares of the registrant's class of Common Stock outstanding as of
March 21, 2001: 11,795,120.
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This Amendment No. 2 on Form 10-K/A to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 2000 is being filed to reflect the
Registrant's June 2001 financing and to provide a report of the Registrant's
independent public accountants for fiscal 2000 that, as a result of the
June 2001 financing, is not subject to a going concern contingency.
In connection with the June 2001 financing, the Registrant was required to
register for resale the shares of common stock that it sold in the financing. As
a part of the registration process, the Registrant requested that its
independent public accountants reissue its report for fiscal 2000. The
Registrant's independent public accountants have, as a result of the June 2001
financing, issued a report for fiscal 2000 that is not subject to a going
concern contingency and this report is filed with this Amendment No. 2 on
Form 10-K/A. The Registrant is also amending the "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
sections of the Form 10-K to reflect the June 2001 financing.
Items 1, 7, 8 and 14 of the Registrant's Annual Report on Form 10-K are
hereby amended and restated as follows:
ITEM 1. BUSINESS
COMPANY OVERVIEW
BioTransplant is developing pharmaceutical products and systems to enable
the body's immune system to better tolerate the transplantation of foreign
cells, tissues and organs. Our lead product, MEDI-507, is being developed in
collaboration with MedImmune, Inc. We are also independently developing other
proprietary technology, which we refer to as ImmunoCognance technology, which is
based upon mixing elements of a donor's immune system with that of a patient in
a manner that enables the patient to recognize the donor's tissues as if those
foreign tissues belonged to the patient. We believe that our ImmunoCognance
technology will have the following benefits when compared to current
technologies:
- improve clinical outcomes in bone marrow transplantation for cancer and
other diseases;
- reduce or eliminate the need for long-term administration of potentially
debilitating immunosuppressive drugs to a patient after a transplantation
procedure;
- minimize infections and health complications that may result from
conventional therapies used in connection with the transplantation of
foreign cells, tissues and organs;
- reduce the cost of treating end-stage organ disease; and
- increase the supply of cells, tissues and organs available for
transplantation procedures.
Based upon our ImmunoCognance technology, we are developing a portfolio of
products designed to improve therapies associated with organ and bone marrow
transplantation as well as to improve the treatment of cancer, autoimmune
diseases and blood disorders. Our AlloMune System for Cancer is currently in a
multi-center Phase I/II clinical trial for therapy-resistant lymphoma, and we
anticipate filing an investigational new drug application in 2001 for a Phase I
clinical trial in patients with advanced melanoma and kidney cell tumors. We
expect that Phase I clinical studies of our AlloMune System for Transplantation
for human kidney transplantation will begin in 2001.
In September 2000, we and Novartis Pharma AG formed a new company, Immerge
BioTherapeutics AG, to conduct further research in the area of
xenotransplantation, which is the transplantation of cells, tissues and organs
from one species to another. We and Novartis contributed our respective
technology and intellectual property to Immerge. Novartis owns 67% of Immerge,
and we own 33%. See "--Collaborations and Agreements--Novartis/BioTransplant
Joint Venture."
2
We are working with MedImmune in the development of MEDI-507. We have
exclusively licensed MEDI-507 to MedImmune as a stand-alone agent, and we are
entitled to royalties on the sale of the drug, as well as milestone payments for
the achievement of specific product-related milestones. MEDI-507 is currently in
Phase II clinical trials for the treatment of psoriasis. MedImmune has completed
Phase I/II trials for graft-versus-host disease, an often fatal outcome of bone
marrow transplantation procedures.
In addition to our corporate collaboration with MedImmune and our joint
venture with Novartis, we are collaborating with a number of other
organizations, including the Massachusetts General Hospital, in the field of
cell, tissue and organ transplantation.
We believe that we have built a strong patent portfolio relating to our
technology. As of February 28, 2001, we owned or had licensed 37 issued United
States patents and 39 allowed or pending United States patent applications, as
well as applications for foreign patents.
RECENT DEVELOPMENT
On December 8, 2000, we entered into a definitive agreement to acquire
Eligix, Inc. Upon consummation of the merger, Eligix will become a wholly-owned
subsidiary. Under the terms of the merger, we will issue up to 5,610,000 shares
of our common stock in exchange for the fully-diluted common stock of Eligix and
990,000 shares of our common stock to members of Eligix management. The merger
is expected to close in the second quarter of 2001, subject to the satisfaction
of closing conditions, including BioTransplant and Eligix stockholder approval.
For a description of Eligix' business, see "--Information Concerning Eligix" on
page 19.
We have entered into a promissory note with Eligix whereby Eligix will
borrow up to $2.0 million to fund operations through the closing date of the
merger. The loan bears interest at the prime rate. Upon consummation of the
merger, the loan will be forgiven, provided that if the merger does not close on
or before June 30, 2001, the note will become immediately due and payable in
full.
INDUSTRY OVERVIEW
TRANSPLANTATION BIOLOGY
The immune system is one of the major biological defense mechanisms
protecting an individual against disease and invasion by disease-carrying
agents, referred to as pathogens. In the context of transplantation, the immune
system can distinguish self from foreign, non-self, cells by recognizing
specific markers on cells called antigens. The immune system is capable of
producing a biological response to clear and destroy the cells carrying the
foreign, non-self antigens.
When an individual receives a cell, tissue or organ transplant, the
recipient's immune system generally recognizes the transplanted tissue as
foreign and initiates an immune response, resulting in rejection of the foreign
cell, tissue or organ. This immune response results from the recognition by the
immune system of foreign antigens on the surface of the cells of the donor that
are different from those of the recipient. If, as in the case of identical
twins, the antigens of the donor and the recipient are identical, no rejection
response occurs. In all other cases, differences between antigens can provide
sufficient stimulus to cause an immune response and, consequently, rejection of
the cell, tissue or organ.
Throughout an individual's life, the immune system reacts to foreign
antigens and develops white blood cells known as T cells that are capable of
recognizing and responding to specific foreign antigens. T cells learn to
distinguish self from non-self when they mature in a specialized organ called
the thymus. This maturation step induces tolerance to the individual's own
antigens. When mature antigen-specific T cells recognize antigens in
transplanted tissue, they become activated and initiate a cascade of events,
including the proliferation of T cells and another type of white blood cell,
known as B cells.
3
Certain activated T cells can kill cells bearing foreign antigens and B cells
are capable of producing antigen-specific proteins called antibodies. Antibodies
can bind to foreign cells or proteins and lead to their destruction or clearance
from the body.
There are two primary types of immune response to transplanted foreign
tissue--hyperacute and acute rejection. Hyperacute rejection occurs immediately
upon transplantation and results from the reactivity of pre-existing antibodies
with antigens presented by the donor tissue. In hyperacute rejection, the donor
cell, tissue or organ is destroyed within hours and no treatment is currently
available. Acute rejection occurs after transplantation of a cell, tissue or
organ when T cells recognize the antigens of the donor as foreign, become
activated and, over a period of days or weeks, initiate a rejection response
that may lead to the ultimate loss of the cell, tissue or organ. Approximately
50% of organ transplant patients will experience an acute rejection episode in
the first year after transplantation.
The current approach to preventing acute rejection in transplant patients is
to administer a combination of immunosuppressive medications, which suppress the
ability of T cells to recognize and respond to antigens. These medications,
however, not only inhibit T cells from recognizing antigens of donor cells,
tissues or organs, but also block the patient's T cells from recognizing other
foreign antigens. As a result, the transplant recipient is vulnerable to viral,
bacterial and fungal infections. In addition, long-term use of these
immunosuppressive drugs can lead to cardiovascular disease, kidney and liver
damage, as well as an increased incidence of some types of cancer such as skin
and lip cancer and lymphomas. Most importantly, despite the administration of
various immunosuppressive medications, instances of rejection still occur
frequently and may necessitate increased doses of immunosuppressive drugs or
inclusion of other anti-rejection therapies, thus compounding unwanted side
effects and complications. If the rejection cannot be controlled, the rejected
cell, tissue or organ must be removed and another transplant will be required.
BONE MARROW TRANSPLANTATION
Bone marrow contains cells, referred to as stem cells, which have the
ability to develop into the different kinds of blood cells in the human body.
When bone marrow containing these stem cells is collected from one individual
and transplanted into a recipient who has been conditioned with irradiation or
chemotherapy, the stem cells from the donor bone marrow take root, or engraft,
into the bone marrow of the recipient and replace some or all of the recipient's
blood cells. Because it is often easier to collect the stem cells from blood
rather than bone marrow, a donor can be treated with chemical agents that induce
the stem cells to migrate from the bone marrow into the blood. Thus, the same
effect can be achieved by transplanting either bone marrow or blood from
pretreated individuals. For simplicity, we use the term bone marrow
transplantation to refer to the transplantation of stem cells from either bone
marrow or blood.
Bone marrow transplantation is used as a treatment for:
- a number of cancers, including:
- kidney cell tumors,
- breast tumors,
- certain childhood cancers, such as Ewing's sarcoma, and
- hematologic, or blood cell, cancers such as acute and chronic
leukemia, lymphoma, and multiple myeloma;
- certain congenital immune system deficiencies; and
- bone marrow failure, referred to as aplastic anemia.
4
Researchers are also investigating experimentally bone marrow
transplantation for:
- the treatment of a number of metabolic diseases, such as Hurler's
syndrome;
- genetic disorders, such as sickle cell anemia and thalassemia; and
- severe autoimmune diseases, such as therapy-resistant psoriasis and
rheumatoid arthritis.
There are two types of bone marrow transplantation that are currently
performed: autologous bone marrow transplantation and allogeneic bone marrow
transplantation.
AUTOLOGOUS BONE MARROW TRANSPLANTATION. In autologous transplantation,
doctors treat the patient with high-dose chemotherapy to kill the tumor, and use
the patient's own bone marrow cells, harvested prior to administration of the
chemotherapy, to reconstitute the patient's bone marrow cells following the
chemotherapy treatment. In autologous transplantation, the goal of
administration of the bone marrow that had been harvested prior to the
chemotherapy is to overcome the damage to the patient's bone marrow that occurs
during the chemotherapy.
ALLOGENEIC BONE MARROW TRANSPLANTATION. In allogeneic transplantation, the
patient receives transplanted bone marrow cells harvested from a healthy donor.
In allogeneic transplantation for cancer, not only does the bone marrow
transplantation overcome the damage that the chemotherapy causes to the bone
marrow, but the transplanted donor immune cells also may be capable of
eradicating the patient's tumor. In allogeneic transplantation for metabolic
diseases and genetic disorders, the infusion of donor cells allows for the
recovery of healthy, metabolically normal donor cells to replace the recipient's
genetic defects. In autoimmune disease, the body's immune response becomes
abnormal in that it mistakenly recognizes its own cells or tissues as non-self.
For allogeneic transplantation for severe autoimmune disease, the goal is to
ablate, or destroy, the patient's malfunctioning immune system and replace it
with the donor immune system. We expect this treatment to result in the
patient's reconstituted immune system ceasing to recognize its own cells or
tissues as non-self and tolerating them.
In conventional autologous or allogeneic bone marrow transplantation,
patients first undergo a pre-transplant process called ablation in which their
diseased bone marrow is destroyed by either intense radiation or chemotherapy,
essentially wiping out their immune system. More recently, milder conditioning
regimens have been introduced to minimize the damage of the chemotherapy. The
use of milder, non-ablative preparatory regimens has expanded the group of
patients eligible for bone marrow transplantation.
Differences in the antigens of donor and recipient significantly limit donor
availability for allogeneic bone marrow transplantation. Even when the donor and
the recipient are tissue-matched siblings, complications such as
graft-versus-host disease, poor immune function, and graft failure can occur
from minor antigen differences between donor and recipient as well as from the
side effects caused by the treatments used to overcome these differences.
Graft-versus-host disease is a potentially fatal complication of allogeneic
transplantation in which the donor cells, once transplanted in the patient,
recognize the patient as non-self, and attack the patient's normal tissues, such
as the skin, gastrointestinal track and liver. Moderately severe to
life-threatening acute graft-versus-host disease occurs in 10 to 50% of patients
given an allogeneic transplantation from a tissue-matched sibling donor. A
significantly higher incidence and severity of the disease is reported in
patients receiving transplants from partially matched family donors or unrelated
volunteers. The treatment for graft-versus-host disease includes steroids and
other immunosuppressive drugs. However, up to 50% of patients do not respond to
steroids and other currently-available immunosuppressants, and a significant
number of these patients will die as a result of the graft-versus-host disease.
To minimize the possibility of graft-versus-host disease, typically only
patients who have closely genetically matched donors are considered suitable
candidates for allogeneic bone marrow
5
transplantation. The likelihood of having a perfectly matched donor is only
approximately 1%, which is the approximate rate of identical twin births in the
United States. Statistically, the likelihood of any sibling being a full tissue
match is 25%, and there is approximately an additional 5% likelihood of finding
a full tissue matched relative in the extended family. Thus, there is
approximately a 30% chance of finding a suitably matched donor in the family,
where suitability is defined as being an appropriate donor for a conventional
transplant. Because of the difficulty in locating a fully tissue matched bone
marrow donor, many patients are unable to undergo the bone marrow
transplantation procedure.
ORGAN TRANSPLANTATION
During the last two decades organ transplantation has become an established
therapy for end-stage organ disease due in part to the significant progress that
has been made since the introduction of cyclosporine by Novartis in 1983. In
1999, over 30,000 organ transplants were performed in patients suffering from
end-stage kidney, liver, heart and lung disease in the United States and Western
Europe. We estimate that patients in the United States spend over $5.0 billion
annually on organ transplantation. However, rejection of the transplanted organ
by the recipient's immune system frequently limits the success of these
procedures. To prevent rejection of the transplanted organ, recipients must
maintain a lifelong regimen of immunosuppressive therapy. Care subsequent to the
transplant accounts for over half of the costs of organ transplantation. These
post-transplant healthcare costs include costs associated with lifelong
immunosuppressive therapy and hospitalizations due to complications resulting
from the chronic use of immunosuppressive drugs, infections and transplant
rejections. Other treatments for end-stage organ disease, such as kidney
dialysis, are even more expensive. While dialysis is an option for the treatment
of kidney failure, many non-kidney transplant patients die while waiting for
organs. Accordingly, we expect that improvements in transplantation technology
that reduce the wait for suitable organs and minimize infections and other
complications, including retransplantation and the toxicities associated with
chronic use of immunosuppressive drugs, will lower the overall cost of treating
end-stage organ disease.
There is a critical shortage of organs worldwide and waiting lists have been
established for potential organ transplant recipients. Over 74,000 patients in
the United States suffering from end-stage organ disease were on waiting lists
for a lifesaving organ transplant in 2000, based on data provided by the United
Network for Organ Sharing. This number has more than quadrupled since 1988, and
the number of deaths on the waiting list has increased proportionately. If an
adequate supply of transplant organs were available and the complications of
transplantation minimized, we estimate that an additional 100,000 critically ill
patients annually could benefit from treating end-stage organ disease by using
organ transplantation to replace disease-damaged organs instead of using
artificial devices.
While the number of cadaver donors has increased in the last ten years, the
demand for organs has increased even more rapidly. Efforts to ease this organ
shortage through public campaigns and advertisements designed to enlarge the
pool of potential organ donors have been only moderately successful. Increased
automotive safety has adversely affected the donation rate by reducing the
number of deaths resulting from automobile accidents. In addition, we believe
the decline in the quality of organs available for transplant may reduce organ
graft half-lives, thereby increasing the need for additional organs to be used
in repeated transplantation procedures. The potential donor pool has also been
limited by the risk that allotransplantation, which is the transplantation of
organs between different individuals of the same species, can spread infectious
disease. Advances have been made in the procedures used to obtain multiple
organs from a single donor and in organ preservation techniques, but a severe
shortage of organs still exists and the backlog of patients awaiting
transplantation continues to grow. The shortage of donor organs restricts the
number of transplant procedures performed and forces many patients to undergo
costly and less effective alternatives to transplantation. This delay renders
transplant candidates much sicker at the time of transplantation than they would
have been if the organ transplant had been possible sooner.
6
PRODUCTS UNDER DEVELOPMENT
The following table summarizes the status of our, and our collaborator's and
joint venture's, product research and development programs:
PRODUCT UNDER DEVELOPMENT INDICATION STATUS* COLLABORATOR
------------------------- ---------------------------- --------------- ------------------
MEDI-507.................... Psoriasis Phase II MedImmune
Graft-Versus-Host Disease Phase I/II MedImmune
ALLOMUNE SYSTEM FOR Lymphoma Phase I/II None
CANCER....................
Kidney Cell Tumors Investigational None
new drug
application in
preparation
Melanoma Investigational None
new drug
application in
preparation
Other cancers Preclinical None
ALLOMUNE SYSTEM FOR Kidney Transplantation Phase I None
TRANSPLANTATION...........
Congenital Blood Disorders Preclinical None
Autoimmune Diseases Preclinical None
Metabolic Diseases Preclinical None
Animal to Human Preclinical Joint Venture with
Transplantation Novartis
XENOTRANSPLANTATION.........
------------------------
* Preclinical means that the product is being evaluated or optimized in animal
models. Phase I means an investigational new drug application, or IND, has
been filed with the United States Food and Drug Administration and that the
product candidate is in clinical trials to evaluate safety. Phase I/II means
that the product candidate is in clinical trials for safety and potential
efficacy.
MEDI-507
MEDI-507 is a novel and proprietary humanized monoclonal antibody derived
from the BTI-322 monoclonal antibody. A monoclonal antibody is a single antibody
that reacts to a specific antigen and can trigger or block an immune response.
Drs. Herve Bazin and Dominique Latinne of the Experimental Immunology Unit of
the Catholic University of Louvain, Belgium, discovered the BTI-322 monoclonal
antibody, the rodent precursor of MEDI-507. In early 1993, we obtained exclusive
rights to develop and commercialize the BTI-322 monoclonal antibody. We modified
the BTI-322 monoclonal antibody to create MEDI-507, a molecule more similar to a
human antibody, and in 1995 we formed a collaboration with MedImmune to develop
and commercialize products derived from MEDI-507. We are also independently
developing MEDI-507 as an important component of our AlloMune System and have
sublicensed to our joint venture with Novartis our rights to develop MEDI-507 as
part of a xenotransplantation system.
MedImmune is focusing its initial development efforts with MEDI-507 for the
treatment of psoriasis and graft-versus-host disease. In psoriasis, an
autoimmune response leads to chronic inflammation and hyperproliferating skin,
as well as other more serious consequences. Graft-versus-host disease is an
often fatal outcome of bone marrow transplantation where white blood cells from
the donor bone marrow attack the tissue of the recipient.
7
We believe that MEDI-507 could be used to reduce undesired immune system
activity by binding to CD2, which is a receptor found on T cells. T cells are
immune cells that act as the agents of the immune system and are responsible for
part of the body's primary immune response to foreign antigens. When these
immune cells come in contact with foreign tissue, they become activated and
proliferate. The immune cells then attack and destroy the targeted foreign
tissue, or in the case of autoimmune disease, mistakenly attack the body's own
tissue. The theory behind MEDI-507's development plan is tied to its ability to
bind to the T cell and block activation of these cells. We expect that through
this process, MEDI-507 can either turn off the T cells completely or selectively
eliminate them from the body, while allowing other immune cells to respond
normally to other antigens.
Clinical studies conducted by us and by others have demonstrated that
MEDI-507 has the potential to be a safe and effective agent for the prevention
and treatment of graft-versus-host disease, as well as transplant rejection. For
example, during 1999, MedImmune concluded a multicenter Phase I/II trial of
MEDI-507 in patients with severe acute graft-versus-host disease who had failed
previous treatment with corticosteroids, the most commonly used initial
treatment in this patient population. Seventeen patients with moderate to severe
graft-versus-host disease were given four doses of MEDI-507. Over the 100-day
observation period, 71 percent of the patients experienced a reduction in grade
of graft-versus-host disease; over half of the patients resolved their disease
at some point during the follow up.
MedImmune is currently conducting additional Phase I/II clinical trials to
evaluate MEDI-507 for the treatment of graft-versus-host disease. One study of
this type, which was completed in 2000, examined the effect of adding MEDI-507
to conventional steroid treatment at the onset of graft-versus-host disease. In
this study, 34 adult patients who developed severe acute graft-versus-host
disease following a stem cell transplant or bone marrow transplant were treated
with steroids in addition to either four doses of MEDI-507 or a placebo. The
results demonstrated that the addition of MEDI-507 to steroid treatment at the
onset of graft-versus-host disease was well tolerated. In another study,
MedImmune is using an open label trial to assess the ability of MEDI-507 to
treat graft-versus-host disease in pediatric stem cell transplant or bone marrow
transplant patients. Currently, there are no agents approved for the treatment
of graft-versus-host disease in children. MedImmune did not design these initial
clinical trials to allow retreatment of the patient with MEDI-507.
We believe that MEDI-507 may also be effective in treating T cell mediated
diseases such as psoriasis, inflammatory bowel disease, multiple sclerosis and
rheumatoid arthritis. Presently, MedImmune has completed a Phase I clinical
trial evaluating MEDI-507 and is conducting two Phase II clinical trials for the
treatment of psoriasis as a proof-of-concept for its use in autoimmune disease.
The results of the Phase I study showed that MEDI-507 was well tolerated by the
patients.
In 1998, MedImmune received orphan drug designation from the Office of
Orphan Products Development of the FDA for the use of MEDI-507 in the treatment
of graft-versus-host disease. Congress enacted the Orphan Drug Act to encourage
development of drugs for rare diseases and conditions affecting a small patient
population, generally less than 200,000 people. Orphan drug designation of a
product can potentially provide a company with seven years of market exclusivity
if the company is the first to receive FDA product marketing approval for the
orphan drug in the designated indication. Additionally, this designation
provides a company with tax credits of 50% for clinical research expenses and
the opportunity for clinical research grants.
ALLOMUNE SYSTEMS
We are designing our AlloMune Systems to re-educate a patient's immune
system so that it does not reject transplanted cells, tissues and organs. We are
currently evaluating the use of our AlloMune Systems in the treatment of blood
cell cancers and to reduce the need for lifelong immunosuppressive therapy in
connection with human organ transplants.
8
The AlloMune System is a proprietary system that we are developing to
incorporate multiple components. We are designing it to allow a milder procedure
for allogeneic bone marrow transplantation and to reduce or eliminate the need
for lifelong immunosuppressive therapy in human-to-human organ transplantation.
Because the AlloMune System is expected to be suitable for elderly and
relatively infirm patients, as well as patients without tissue-matched donors,
we expect that it will enable a significantly expanded pool of patients to be
considered for transplantation. We expect that the AlloMune System will expand
the pool of eligible transplantation recipients by reprogramming the immune
system to recognize donor and patient as self, thereby overcoming the
complications that result when the patient or the donor recognizes the other's
cells, tissues and organs as non-self. This reprogramming of the immune system
is expected to be created by establishing a state of mixed bone marrow chimerism
between the donor and the patient with the use of MEDI-507.
Mixed bone marrow chimerism refers to bone marrow in which the cells of both
the donor and the patient co-exist. To achieve mixed bone marrow chimerism, the
doctor first blocks the patient's immune response to the new foreign antigens
from the donor by giving the patient injections of anti-T cell antibody, such as
MEDI-507, which depletes the patient's mature T cells. The doctor performs this
process prior to the transplantation of the donor bone marrow into the patient.
Concurrent with the administration of the anti-T cell antibody, the patient
receives doses of radiation or, in the case of cancer patients, chemotherapy, to
make space in the patient's bone marrow and allow the transplanted bone marrow
to "seed" the newly created space. The doctor then injects bone marrow cells
from the donor into the patient.
We and others have conducted studies that demonstrate that the creation of
the mixed bone marrow chimerism will cause the patient to tolerate the donor
antigens and regard them as antigens of the patient. By regarding the donor's
antigens as self, the patient's immune system retains its ability to respond to
foreign pathogens without rejecting cells, tissues or organs transplanted from
the bone marrow donor. In addition, in the case of blood cell cancers, the
creation of mixed bone marrow chimerism allows the immune cells from the donor
to preferentially attack the cancer cells rather than the patient's own cells.
ALLOMUNE SYSTEM FOR CANCER. We are developing our AlloMune System to treat
several types of blood cancers, such as lymphomas, leukemias and myelomas, as
well as other malignancies such as kidney cell tumors, melanoma and other
cancers. We are designing our AlloMune System for Cancer to re-program a
patient's immune defenses so that the patient can benefit from potentially life
saving bone marrow transplantation. By using a combination of chemotherapy and
the AlloMune System, we are seeking to make bone marrow transplants more
successful by allowing the transplanted bone marrow to aggressively attack
cancer cells but not the patient's own immune defenses, and without the side
effects of graft-versus-host disease or the morbidity caused by destroying the
patient's own bone marrow, as is done in conventional bone marrow transplants.
We are designing the AlloMune System for Cancer to employ a less-intensive,
non-ablative amount of chemotherapy, which we believe will increase the types of
disease conditions that can be treated, as well as patients' ability to tolerate
the treatment. We believe that doctors can administer this regimen safely to
patients who, because of their age or concomitant other medical problems, would
not have been suitable transplant candidates with ablative regimens.
In 1999, our research collaborator, Massachusetts General Hospital,
performed a study under an investigational new drug application using a
prototype of the AlloMune System for Cancer with 21 patients having
therapy-resistant blood cancers, including lymphomas. Results of the study
demonstrated that treatment led to an overall positive response rate of 67% (38%
complete response, 29% partial response). In a recent extension of that study,
Massachusetts General Hospital demonstrated the feasibility of using this
prototype AlloMune System for transplantation using donors who were not fully
tissue matched.
9
In early 2000, we initiated a Phase I/II clinical trial of our AlloMune
System for Cancer to treat patients with therapy-resistant lymphoma under an
investigational new drug application. We expect to complete our Phase I/II
clinical trial in late 2001. We are planning to file an investigational new drug
application and begin studies in patients with solid tumors in 2001.
ALLOMUNE SYSTEM FOR TRANSPLANTATION. We are also developing the AlloMune
System for Transplantation to re-program the patient's immune system to accept a
transplanted donor organ without the need for life-long immunosuppressive
therapy. During 1999, we received clearance of an investigational new drug
application with the FDA to begin a Phase I clinical trial of the AlloMune
System for Transplantation in living-donor kidney transplantation. Recent
results from our cancer clinical studies have led us to make changes to the
protocol for this Phase I clinical trial.
Our academic collaborators at the Massachusetts General Hospital have
initiated a hospital internal review board-approved Phase I/II
proof-of-principle evaluation of the prototype AlloMune System for
transplantation in humans. Physicians at Massachusetts General Hospital treated
the initial patient under the investigational new drug application for myeloma,
a blood cell cancer, and end-stage kidney disease using a prototype AlloMune
System approach. The patient received both a kidney transplant and a bone marrow
transplant more than two years ago. The patient has been free of
immunosuppressive drugs for nearly two years and has normal kidney function, no
evidence of graft-versus-host disease, and her myeloma is at nearly undetectable
levels.
XENOTRANSPLANTATION
Xenotransplantation refers to the transplantation of cells, tissues or
organs from one species to another. Xenotransplantation is intended to address
the problems arising from the limited supply of available human cells, tissues
and organs for transplantation by developing technologies to permit the
transplantation of cells, tissues and organs from other species, such as swine.
Since 1993, we have collaborated with Novartis to research and develop
xenotransplantation products.
In September 2000, we entered into a joint venture with Novartis to continue
research on xenotransplantation products using the technology and intellectual
property that we and Novartis had previously developed, both independently and
in collaboration with one another. This joint venture began operations in
January 2001. The goal of the joint venture is to demonstrate the feasibility
and safety of swine to primate transplantation leading to clinical trials of
xenotransplantation for the treatment of end-stage organ failure in humans. We
expect that the joint venture will conduct this research in three general areas:
- First, the joint venture will seek to demonstrate proof of concept for
organ survival in primate model systems in collaboration with researchers
at the Massachusetts General Hospital. These experiments will employ
several technologies and procedures, including:
- swine that carry human genes that inhibit hyperacute rejection, referred
to as transgenic swine;
- proprietary inbred miniature swine;
- proprietary technology licensed from the Alberta Research Council, which
removes natural antibodies from the recipient's blood prior to the
transplant to reduce or eliminate hyperacute rejection;
- immunosuppressive compounds; and
- the transplantation of pig thymus tissue to reprogram the recipient's
immune system to recognize the donor tissue as self.
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Our objective is to extend the current survival times for swine organs
transplanted into primates from approximately one month post-transplant to
three to six months by destroying the pre-existing antibody-producing
cells in combination with pig thymus tissue transplantation. We refer to
this process as transplantation tolerance. Previous studies have
demonstrated the ability of porcine, or pig, thymic tissue transplanted
into a mouse to induce transplantation tolerance. In these studies,
researchers documented permanent acceptance of pig skin transplants in
mice with an otherwise normal immune system and specific T cell
unresponsiveness to pig antigens in culture. Allogeneic large animal
studies using inbred miniature swine have also demonstrated the ability of
allogeneic pig thymic transplants to induce tolerance to kidney grafts
from the donor of the thymic tissue in the absence of chronic
immunosuppressive drug use.
- Second, the joint venture will continue studies begun by us to examine the
safety of porcine to human xenotransplantation. Others have demonstrated
that a type of porcine viruses, referred to as porcine endogenous
retroviruses, have the potential to infect human cells. We previously
reported on the results of studies that documented the ability of one
strain of miniature swine to be free of the porcine endogenous retrovirus
types that have been shown to be capable of infecting human cells in
culture.
- Third, the joint venture will focus on adapting recent successes in
porcine nuclear transfer technology in which a genetically modified
miniature swine has been cloned with modifications that are believed to
enhance the survival rates of porcine organs in primates.
COLLABORATIONS AND AGREEMENTS
As part of our strategy, we have established alliances with pharmaceutical
and other biotechnology companies, academic institutions, scientists and
government laboratories. Since inception, substantially all of our revenues have
been derived from our strategic alliances. For the fiscal year ended
December 31, 2000, revenues from our strategic alliance with Novartis accounted
for all of our revenues. Currently, our principal strategic alliances are the
following:
MEDIMMUNE
In October 1995, we formed a collaborative arrangement with MedImmune for
the development and commercialization of products to treat and prevent
rejection. The collaboration is based upon the development of products derived
from the BTI-322 monoclonal antibody, MEDI-507 and future generations of
products derived from these molecules. In connection with the collaboration, we
granted MedImmune an exclusive worldwide license to develop and commercialize
the BTI-322 monoclonal antibody and MEDI-507 and any products based on the
BTI-322 monoclonal antibody or MEDI-507, other than the use of the BTI-322
monoclonal antibody or MEDI-507 in kits or systems for xenotransplantation or
allotransplantation. MedImmune paid us a $2.0 million license fee at the time of
formation of the collaboration and agreed to fund and assume responsibility for
clinical testing and commercialization of any resulting products. MedImmune also
provided $2.0 million in non-refundable research support through December 31,
1997 and has agreed to make milestone payments which could total an additional
$11.0 million, all of which is repayable from royalties on the BTI-322
monoclonal antibody or MEDI-507. MedImmune has also agreed to pay royalties on
any sales of the BTI-322 monoclonal antibody or MEDI-507 and future generations
of products, if any. Royalties will depend, in part, upon the efforts of
MedImmune to perform clinical testing, obtain regulatory approvals and market
and sell the BTI-322 monoclonal antibody and MEDI-507. MedImmune controls the
amount and timing of the resources devoted to these activities.
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DR. DAVID H. SACHS/THE MASSACHUSETTS GENERAL HOSPITAL
In January 1991, we entered into a ten-year agreement with MGH, which was
extended for an additional five-year term in December 2000, under which we fund
a portion of the research of Dr. Sachs and other MGH personnel in the area of
transplantation of cells, tissues and organs. In exchange for our research
funding, MGH has granted us exclusive worldwide royalty-bearing rights to
technology and inventions developed in the course of research funded by us,
subject to a royalty to be paid to MGH and subject to customary retention rights
of the United States government. We also have a right of first refusal in
connection with any additional research proposals in the field of tissue and
organ transplantation to be submitted by Dr. Sachs and his colleagues, who are
funded by us, to other commercial sponsors.
NOVARTIS/BIOTRANSPLANT JOINT VENTURE
From 1993 through October 2000, we were party to two collaboration
agreements with Novartis to research, develop and commercialize
xenotransplantation products. During the collaboration, we received an aggregate
of $33.5 million in research funding and $16.5 million in license fees and
milestone payments from Novartis. In September 2000, we entered into an
arrangement with Novartis to combine our respective expertise in the field of
xenotransplantation into a newly-formed, independently-run Swiss company,
Immerge BioTherapeutics AG, and terminated our prior collaborations in
xenotransplantation.
Novartis has committed to provide an aggregate of $30.0 million in research
funding over three years to the joint venture. Both we and Novartis have
exclusively licensed to the joint venture patent rights and technology in the
field of xenotransplantation. The joint venture has granted to Novartis an
exclusive, worldwide, royalty-bearing license to develop and commercialize any
xenotransplantation products resulting from its research. We will receive
royalties from the sale of xenotransplantation products by Novartis, if any.
In December 2000, Immerge BioTherapeutics AG formed a wholly-owned Delaware
subsidiary, Immerge BioTherapeutics, Inc. The Delaware subsidiary expects to
enter into a contract research agreement with us, under which we will commit
approximately 20 full-time employees to perform research for the joint venture
and we will also agree to provide administrative services for the joint venture,
all at a rate to be negotiated.
Novartis holds 67% of the shares of the joint venture and we hold the
remaining 33%. All income, gain, profit or loss of the joint venture will be
allocated to us and Novartis pro rata based on our respective equity ownership
of the joint venture in effect in the period in which these items accrue.
Initially, the board of directors of Immerge BioTherapeutics, Inc. will consist
of four directors: one selected by us, one selected by Novartis and two
additional directors, one each designated by us and Novartis, who are experts in
the field of xenotransplantation. Immerge BioTherapeutics AG has agreed not to
undertake, or permit its subsidiaries to undertake, specified fundamental
corporate actions without the consent of both shareholders. The joint venture
began operations in January 2001.
CHARLES RIVER LABORATORIES
According to the terms of a miniature swine transfer and maintenance
agreement with Charles River Laboratories, we and the joint venture will have
exclusive rights to use miniature swine that Charles River Laboratories is
developing for use in the allotransplantation and xenotransplantation programs,
respectively. The joint venture and BioTransplant will bear their proportionate
costs of maintaining the miniature swine herd. The agreement expires in 2003,
but the parties may agree to renew the agreement for an additional five-year
period.
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STEM CELL SCIENCES LTD.
According to the terms of a strategic alliance with Stem Cell Sciences Ltd.,
our joint venture with Novartis will have worldwide, exclusive rights, subject
to the payment of a royalty, to technology, products and processes for the
derivation and manipulation of porcine embryonic stem cells and nuclear transfer
technology developed during the research term and useful in xenotransplantation
in humans. We have made equity investments in Stem Cell Sciences that
represented 30% of the outstanding shares of that company. Stem Cell Sciences
has used substantially all of the consideration from our equity investment to
fund the research and development of nuclear transfer technology and, in
particular, the development of technology, products and processes useful for
xenotransplantation in humans. We made additional investments in Stem Cell
Sciences in 1996, 1997 and 1998 to maintain our 30% ownership position and to
support additional research through December 31, 1999. Stem Cell Sciences raised
additional equity during 2000, resulting in a dilution of our ownership to
approximately 25%.
ALBERTA RESEARCH COUNCIL
The Alberta Research Council has granted us a worldwide royalty-bearing
license for specified patents and patent applications covering technology
potentially useful for removal of natural antibodies against xenografts. We
expect to exclusively sublicense our rights under this agreement to our joint
venture with Novartis. The license is exclusive except for one patent
application directed to the removal of natural antibodies against xenografts,
which is co-owned by one of the inventors and was assigned to a competitor. The
Alberta Research Council has also granted a non-exclusive, worldwide, royalty-
bearing license to use any of its information, data, formulas or processing
information that pertain to the manufacture, development or use of any products
resulting from the licensed patents in the field of xenotransplantation.
The agreement imposes on us an obligation to indemnify Alberta Research
Council against claims arising from our, or our sublicensee's, development,
manufacture or sale of any products that are developed through the use of the
patented technology licensed from Alberta Research Council. In addition, during
any time when we or our sublicensees are selling products based upon the
licensed technology, we are required to maintain general liability insurance.
Finally, the agreement imposes on us an obligation to use reasonable efforts and
diligence to research, develop and commercialize products based upon the
licensed technology. If we fail to meet these obligations, Alberta Research
Council may reduce the exclusive license to a non-exclusive one or terminate the
agreement. Moreover, if we materially breach the agreement and fail to remedy
our breach within 30 days, Alberta Research Council may terminate the agreement
at any time on written notice to us. The license agreement expires when the last
patent within the patent rights licensed to us by Alberta Research Council has
expired.
CATHOLIC UNIVERSITY OF LOUVAIN (BELGIUM)
We are funding research by Drs. Herve Bazin and Dominique Latinne at the
Experimental Immunology Unit of the Catholic University of Louvain, Belgium, for
the development of monoclonal antibodies. We have exclusive, worldwide
royalty-bearing commercialization rights to discoveries, including the BTI-322
monoclonal antibody, made in laboratories under our sponsorship, subject to a
royalty.
The agreement imposes on us an obligation to indemnify Catholic University
of Louvain against claims arising from our, or our sublicensee's, development,
manufacture or sale of any products that are developed through the use of the
patented technology licensed from Catholic University of Louvain. The agreement
also imposes on us an obligation to use reasonable efforts and diligence to
research, develop and commercialize products based upon the licensed technology.
If we fail to meet
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these obligations, Catholic University of Louvain may reduce the license to a
non-exclusive one. Moreover, if we fail to meet our payment obligations and fail
to remedy our breach within 30 days, Catholic University of Louvain may
terminate the agreement at any time on written notice to us. The license
agreement expires when the last patent within the patent rights licensed to us
by Catholic University has expired.
MANUFACTURING AND SUPPLY
We currently have no manufacturing facilities or staff for clinical or
commercial production of any products or systems under development. We plan to
rely initially on third parties to manufacture our product candidates for
research, preclinical testing, clinical trials and commercialization, if any,
with a long-term objective to develop internal manufacturing capability where
appropriate.
MedImmune is manufacturing supplies of MEDI-507 required for preclinical
studies, clinical trials and commercial products using its own manufacturing
facilities. We have the option to continue to use MedImmune as a supplier or to
use an alternative manufacturer or supplier.
Novartis has exclusive worldwide rights to manufacture xenotransplantation
products arising from the research program conducted by our joint venture with
Novartis.
SALES AND MARKETING
Due to the early stage of our development efforts, we presently have no
marketing or sales personnel.
MedImmune has exclusive worldwide marketing rights to the BTI-322 monoclonal
antibody, MEDI-507 and future generations of these products, if any, other than
the use of the BTI-322 monoclonal antibody and MEDI-507 for kits or systems for
xenotransplantation and allotransplantation.
We currently hold all marketing rights to the AlloMune System, although we
may seek a corporate partner to support the development and commercialization of
the AlloMune System. In the United States, we currently intend to market the
AlloMune System for solid organ transplantation and cancer related products and
systems to the approximately 250 transplant centers, which we believe will allow
significant market coverage with relatively few sales personnel. To implement
this marketing strategy, we intend to hire a limited number of sales and
marketing personnel. In foreign markets, we expect to use local pharmaceutical
companies to market our products and systems due to the complexities of foreign
regulations and medical practices.
Novartis has exclusive worldwide rights to market and sell
xenotransplantation products arising from the research program conducted by our
joint venture with Novartis.
RESEARCH AND DEVELOPMENT
We estimate that our total Company-sponsored research and development
expenses were approximately $14.7 million, $15.7 million and $15.0 million for
1998, 1999 and 2000, respectively. We estimate that collaborator-sponsored
research and development expenses were approximately $6.7 million, $5.2 million
and $4.6 million for 1998, 1999 and 2000, respectively.
PATENTS AND PROPRIETARY RIGHTS
As of February 28, 2001, we owned or had been licensed 37 issued United
States patents and 39 allowed or pending United States patent applications, as
well as applications for foreign patents. These patents, which expire at various
times between 2005 and 2017, and patent applications are directed to, among
other things, MEDI-507, our AlloMune Systems and our xenotransplantation
technologies.
14
Our policy is to aggressively prosecute and enforce our patents and
proprietary technology. We intend to continue to file United States and foreign
patent applications to protect technology, inventions and improvements that are
considered important to the development of our business. We also rely upon trade
secrets, know how, continuing technological innovation and licensing
opportunities to develop and maintain our competitive position.
We are aware of granted patents that claim monoclonal antibodies that bind
to T cells. Johnson & Johnson, which manufactures and sells OKT3, a
T cell-binding monoclonal antibody, owns these patents. We believe that the
BTI-322 monoclonal antibody is distinguishable from other monoclonal antibodies
claimed in Johnson & Johnson's patents, and does not infringe these patents
either literally or under the doctrine of equivalents.
We have reviewed issued patents which include claims relating to humanized
monoclonal antibodies. These patents are held by biotechnology companies and an
academic institution. We, together with MedImmune, have obtained a license for
MEDI-507 from Protein Design Laboratories Inc. under its humanized antibody
patents.
We are also aware of a granted United States patent directed to the
production of transgenic animals by the use of a microinjection technique which
is licensed to a competitor. This patent could have an adverse impact on our, or
our licensees and collaborators, ability to produce transgenic animals by
microinjection. In addition, we are aware of a United States patent that is
directed to embryonic stem cells. This patent may have an adverse impact on our,
or our licensees' or collaborators', programs for producing transgenic swine by
the use of embryonic stem cells.
Some of our know-how and technology is not patentable. To protect our
rights, we require all of our employees, consultants, advisors and collaborators
to enter into confidentiality agreements with us.
COMPETITION
We face intense competition from a wide range of pharmaceutical,
biopharmaceutical and medical device companies, as well as academic and research
institutions and government agencies. Our competitors include organizations that
are pursuing the same or similar technologies as those that constitute our
technology platform and organizations that are pursuing products that are
competitive with our potential products. For example, the development of
superior immunosuppressant therapeutics, mechanical organ systems and other
improvements in therapies for end-stage organ disease could adversely affect the
size of our available markets. We are aware that Chimeric Therapies, Inc. plans
to develop mixed bone marrow chimerism to include tolerance for allogeneic solid
organ and bone marrow transplants. In addition, we are aware of other companies
that are pursuing research and development of alternative products or
technologies addressing the same disease categories as our development programs.
In particular, there are several commercially available anti-rejection drugs
that may compete with the MEDI-507 product under development, including:
- OKT3 (marketed by Ortho Biotech, Inc, a subsidiary of Johnson & Johnson);
- ATGAM (marketed by Pharmacia Upjohn);
- ThymoGlobulin-Registered Trademark- (marketed by SangStat Medical
Corporation);
- Zenapax-Registered Trademark- (marketed by Roche Laboratories); and
- Simulect-Registered Trademark- (marketed by Novartis).
To the extent that these therapeutics address the problems associated with
transplantation on which we have focused, they may represent significant
competition.
Many of the organizations competing against us have financial and other
resources substantially greater than our own. In addition, many of our
competitors have significantly greater experience in
15
testing pharmaceutical and other therapeutic products and obtaining FDA and
other regulatory approvals of products for use in health care. Accordingly, our
competitors may succeed more rapidly than we will in obtaining FDA approval for
products. If we commence significant commercial sales of our products, we will
also be competing with respect to manufacturing efficiency and marketing
capabilities, areas in which we have limited or no experience.
Principal competitive factors in our industry include:
- efficacy;
- safety;
- reliability;
- price;
- availability of reimbursement; and
- intellectual property position.
We believe that the quality and breadth of our technology platform, the
skill of our employees, our intellectual property platform and our capabilities
for research and development are competitive strengths. However, many of our
competitors have significantly larger technology and intellectual property
platforms than we do and greater capabilities in research and development.
GOVERNMENT REGULATION
The development and commercialization of our products will be subject to
regulation in the United States by numerous regulatory authorities including the
Federal Food and Drug Administration and Federal Trade Commission and by
comparable regulatory authorities in foreign countries. These regulatory
authorities and other federal, state and local entities will regulate, among
other things, the preclinical and clinical testing, safety, effectiveness,
approval, clearance, manufacturing, labeling, packaging, export, storage,
recordkeeping, adverse event reporting, and promotion and advertising of our
products.
We will require FDA approval or clearance of our products, including a
review of the manufacturing processes and facilities used to produce our
products, before we may market the products in the United States. Based upon
initial discussions with the FDA, we believe that the BTI-322 monoclonal
antibody and MEDI-507 will be classified as biological products by the FDA.
Biological products are subject to dual regulation. Their approval for
marketing, among other things, is regulated under the Public Health Service Act
through a biologics license application. However, biological products are also
drugs and must meet drug standards under the Federal Food, Drug and Cosmetics
Act. These federal drug standards include good manufacturing practices
regulations and regulations governing clinical trials.
The manufacture of xenograft products for human transplantation can be
expected to raise issues concerning both the safety and effectiveness of the
products and compliance with and further development of standards for good
manufacturing practices of these products. The Public Health Service published
draft guidance in 1996 on infectious disease issues related to
xenotransplantation and in 1999 on the infectious disease implication of blood
donation from recipients of xenotransplants. In January 1998, PHS held a public
meeting on emerging policy issues, but final guidance and/or regulations do not
yet exist. We cannot predict the content of future policy or regulations
relating to xenotransplantation products, or the effect any future policy or
regulation may have on our, or our licensees' or collaborators', ability to
research, develop, manufacture and market xenotransplantation products.
16
Development of a therapeutic product for human use under applicable laws and
regulations is a multi-step process. First, in vitro and/or animal testing must
be conducted in a manner consistent with good laboratory practices to establish
the potential safety and effectiveness of the experimental product in a given
disease. If a product is found to be reasonably safe and potentially effective
in preclinical trials, the next step in the process is human clinical trials. An
investigational new drug application containing, among other things, the
preclinical data, chemistry, manufacturing and control information, and an
investigative plan, must be submitted to the FDA and allowed to become effective
by the agency before clinical trials may begin. There can be no assurance that
submission of an investigational new drug application will result in the ability
to commence clinical trials. In addition, the FDA may place a clinical trial on
hold or terminate it if, among other reasons, it concludes that clinical
subjects are being exposed to an unacceptable health risk.
Clinical trials typically involve three phases, although those phases can
overlap:
PHASE I. Phase I is conducted to evaluate the safety and
pharmacokinetics of the experimental product in humans, and if possible, to
gain early indications of effectiveness. Phase I studies may also evaluate
various routes, dosages and schedules of product administration.
PHASE II. If acceptable product safety is demonstrated in Phase I,
Phase II studies are initiated. In Phase II, clinical trials are conducted
in groups of patients afflicted with a specific disease or condition for
which the product is intended for use in order to further test safety, begin
evaluating effectiveness, optimize dosage amounts and determine dose
schedules and routes of administration.
PHASE III. If Phase II studies yield satisfactory results and no hold
is placed on further studies by the FDA, Phase III studies begin. Phase III
studies are usually randomized, double blind studies testing for product
safety and effectiveness in an expanded patient population in order to
evaluate the overall risk/benefit relationship of the product and to provide
an adequate basis for product labeling. These studies also may compare the
safety and effectiveness of the product with currently available products.
It is not possible to estimate the time in which Phase I, II and III studies
will be completed with respect to a given product, if at all, and the time
period may last as long as several years.
Following completion of clinical investigations, the preclinical and
clinical data that have been accumulated, together with chemistry, manufacturing
and controls specifications and information, are submitted to the FDA in a
biologics license application. To approve a product regulated under a biologics
license application, the agency must determine, among other things, that the
product is safe, pure and potent, and that any facility in which it is
manufactured, processed, packed or held, meets standards designed to assure the
product's continued safety, purity and potency. There can be no assurance that
the FDA will approve a product in a timely manner, if at all. The approval
process can be very lengthy and depends, among other things, upon the time it
takes to review the submitted data, the FDA's comments on the application and
the time required for us to provide satisfactory answers or additional clinical
data if requested.
If the FDA approves a biologics license application, we will need to
continue to be compliant with strict FDA requirements concerning good
manufacturing practices, enforced by periodic inspections and adverse event
reporting, as well as with any special requirements imposed as a part of the
biologics license application approval. Changes to approved biological products
that affect safety or effectiveness require approved supplemental applications,
as do changes in manufacturing that have a substantial potential to adversely
affect product safety or effectiveness. These supplemental applications may
require the submission of clinical or comparability data and must be approved
before the product may be marketed as modified.
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In addition, the nature of marketing claims that the FDA will permit us to
make in the labeling and advertising of our products will be limited to those
specified in an FDA clearance or approval, and claims exceeding those that are
cleared or approved will constitute a violation of the FDA's Food, Drug and
Cosmetics Act. Violations of the Food, Drug and Cosmetics Act or regulatory
requirements at any time during the product development process, approval
process or after approval may result in agency enforcement actions, including
recall, license suspension or revocation, seizure of products, fines,
injunctions and/or civil or criminal penalties. Any agency enforcement action
could have a material adverse effect on us.
The advertising of our products will also be subject to regulation by the
Federal Trade Commission, under the FTC Act. The FTC Act prohibits unfair
methods of competition and unfair or deceptive acts in or affecting commerce.
Violations of the FTC Act, such as failure to have substantiation for product
claims, would subject us to a variety of enforcement actions, including
compulsory process, cease and desist orders and injunctions. FTC enforcement can
result in orders requiring, among other things, limits on advertising,
corrective advertising, consumer redress and recision of contracts. Violations
of FTC enforcement orders can result in substantial fines or other penalties.
The Orphan Drug Act of 1983 generally provides incentives to manufacturers
to undertake development and marketing of products to treat relatively rare
diseases, those where fewer than 200,000 persons in the United States at the
time of application for orphan drug designation would be likely to receive the
treatment. A product that receives orphan drug designation by the FDA and is the
first product to receive FDA marketing approval for its indication is entitled
to a seven-year exclusive marketing period in the United States for that
indication. We intend to pursue this designation with respect to any of our
products intended for patient populations in the United States of less than
200,000. MEDI-507 has received orphan drug designation, both as a stand-alone
product, and as a component of our AlloMune System. In addition, orphan drug
exclusivity can be terminated for a number of reasons, including that the
manufacturer cannot provide an adequate supply of the drug.
We also face several regulatory obstacles in the European Union. Although
there are minor orphan drug provisions in some European countries, there is, as
yet, no overall process equivalent to that followed in the United States. The
results of all preclinical, development/manufacturing and Phase I, II and III
clinical study data generated in Europe or the United States may also be
submitted to the European Medicines Evaluation Agency, the counterpart of the
FDA, for approval as a Marketing Approval Application, or MAA, which is the
equivalent of a biologics license application. Approval of the MAA permits
product marketing within all countries of the European Union. This MAA procedure
can take a year or more to complete. Approval procedures for marketing of
products in countries that are not European Union member states vary from
country to country and the time required for approval may be longer or shorter
than that required for FDA approval. In addition, for products exported from the
United States to any foreign country or territory, applicable FDA export
requirements must be met.
EMPLOYEES
As of December 31, 2000, we had 62 full-time employees, 50 of whom were
engaged in research, development, clinical and quality assurance/quality control
activities. Of our full time employees, we expect that approximately 20 will
devote substantially all of their time to research for the joint venture with
Novartis under a research agreement with Immerge BioTherapeutics, Inc. None of
our employees are represented by a labor union or covered by a collective
bargaining agreement.
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INFORMATION CONCERNING ELIGIX
On December 8, 2000, we entered into a definitive agreement to acquire
Eligix. The merger is expected to close in the second quarter of 2001, subject
to the satisfaction of closing conditions, including BioTransplant and Eligix
stockholder approval.
Eligix is a biomedical company engaged in the research and development of
cellular therapies to enhance human immune response to cancers, autoimmune
disorders and solid organ transplants and to reduce the risk of infection and
hypersensitivity reactions in blood transfusions. Eligix' technology is the
result of research at Coulter Corporation, in collaboration with physicians at
Harvard University's Dana-Farber Cancer Institute.
Eligix' patented High Density Microparticles, or HDM, technology, in
conjunction with its portfolio of blood and immune cell-specific and tumor
cell-specific monoclonal antibodies is designed to enable the highly efficient
selection and/or immune activation of specific populations of human cells from
blood and bone marrow. Eligix is pursuing research and development of high
density microparticle products for:
- the removal of malignant cells from stem cell transplants;
- the removal of immune rejection-causing cells from stem cell transplants
and immune cell infusions;
- the removal of potentially infectious cells from blood transfusions; and
- the selection and activation of disease-specific immune cells to enhance a
patient's immune response to disease.
Eligix' lead product candidates, BCell-HDM and TCell-HDM, will target bone
marrow and stem cell transplant procedures. Sources estimate that there are
approximately 44,000 bone marrow and stem cell transplant procedures performed
annually in Europe and the U.S. Eligix is targeting these products for the
purging of stem cell transplants and related blood products to reduce the risk
of relapse or graft-versus-host disease following bone marrow stem cell
transplantation or donor leukocyte infusion therapy for cancer and other
diseases, including autoimmine and genetic disorders. Eligix' BCell-HDM product
received CE mark approval in February 2001, and Eligix is currently preparing
its TCell-HDM product for CE marking. CE mark approval indicates compliance with
European standards for safety and allows certified products to be marketed and
sold in Europe. Eligix expects to receive the CE mark for its TCell-HDM product
by December 31, 2001, permitting near-term introduction of the products into the
European market. In the U.S., both products are poised to enter pivotal trials.
Eligix is pursuing research and development of other product candidates,
including PanT-HDM, BrCa-HDM, Neu/RBC-HDM, ReacT-HDM, AcTCell-HDM, AcT-IV and
Leuko-HDM, that will target the bone marrow and stem cell transplant market as
well as solid organ transplants and blood collection procedures. Sources
estimate that there are approximately 30,000 solid organ transplants performed
annually in the United States and Western Europe and 70 million blood collection
procedures performed annually worldwide. Eligix is also targeting what it
believes to be significant long-term opportunities in ex vivo and in vivo immune
therapies for cancer, autoimmune disorders and infectious disease. These
products are targeted for the following:
- removal of potential relapse-causing cancer or autoimmune cells from
autologous bone marrow stem cell transplants;
- the removal of T cells and T cell subsets which cause graft-versus-host
disease in mismatched transplants;
- the removal of disease-causing cells and pathogens from blood
transfusions;
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- the selective activation of immune response against cancers and infectious
diseases; and
- the removal of cells that interfere with the ability to achieve immune
system tolerization to prevent chronic immune injection and resultant
organ failure in solid organ and tissue transplants.
Eligix believes that its focus on approaches to providing the patient with a
normal immune system to mount an effective attack against malignancies is likely
to improve patient outcomes and reduce disease relapse rates, while enhancing
overall cost effectiveness. Eligix expects its technology under development to
facilitate new approaches in transplantation with minimal toxicity, including
"mini" transplants to eliminate the risks of myeloablative therapy, donor
leukocyte infusions following allogeneic transplants to enhance immune response
against cancer, and the enablement of successful transplants between tissue
mismatched donors and patients.
Eligix intends to build value by product development and timely
commercialization to meet significant, unmet clinical needs representing high
therapeutic value in established areas of medicine, focusing on promising
technologies to improve human immune response. To advance its products, Eligix
has recruited and trained a qualified technical and management team with
expertise in biochemistry, cell biology, immunology, protein chemistry,
microbiology, cell culture, protein purification, analytical chemistry and
mechanical engineering, including medical device as well as pharmaceutical
product development. Eligix also employs persons that it believes have
significant expertise in marketing, manufacturing, clinical development, quality
assurance, regulatory affairs, finance, administration and business development.
As of December 31, 2000, Eligix had 30 full-time employees, five of whom hold
Ph.D.s, at its facility in Medford, Massachusetts.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained in this Report that are not statements of
historical fact may be deemed to be forward-looking statements. We use words
such as "believes," "anticipates," "plans," "expects," "intends," and similar
expressions to identify forward-looking statements. There are a number of
important factors that could cause our actual results to differ materially from
those indicated by such forward-looking statements. These factors include,
without limitation, those set forth below and elsewhere in this Annual Report on
Form 10-K. We caution investors that we may not update any or all of the
forward-looking statements we have provided in this Annual Report on Form 10-K.
20
FACTORS THAT MAY AFFECT RESULTS
RISKS RELATING TO BIOTRANSPLANT'S FINANCIAL RESULTS AND NEED FOR FINANCING
WE WILL REQUIRE SUBSTANTIAL ADDITIONAL FINANCING IN THE NEAR TERM, WHICH MAY
BE DIFFICULT TO OBTAIN AND MAY DILUTE YOUR OWNERSHIP INTEREST IN US.
We anticipate that our existing funds, including the $17.9 million of funds
raised in our June 2001 private equity offering, will be sufficient to fund our
operating and capital requirements as currently planned through the second
quarter of 2002. We expect to use rather than generate funds from operations for
the foreseeable future. In particular, we will require substantial funds to
conduct research and development, including preclinical testing and clinical
trials of our AlloMune System, and to manufacture and market any products that
are approved for commercial sale. If we cannot raise more funds, we could be
required to reduce our capital expenditures, scale back our research and product
developments, reduce our workforce and/or license to others products or
technologies we would otherwise seek to commercialize ourselves.
We may seek additional funding through collaborative arrangements, borrowing
money and by the sale of additional equity securities. Any sales of additional
equity securities are likely to result in further dilution to our then existing
stockholders. Further, if we issue additional equity securities, the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our common stock. We may also borrow money from conventional
lenders, possibly at high interest rates, which will increase the risk of your
holdings. Despite our efforts, additional funding may not be available to us at
all or only on terms that are unacceptable to us. We also could be required to
seek funds through arrangements with collaborative partners or others that may
require us to relinquish rights to our technologies, product candidates or
products which we would otherwise pursue on our own.
Even if we are able to raise additional funds in a timely manner, our future
capital requirements will vary depending on many factors, including the
following:
- continued progress in our research and development programs, as well as
the magnitude of these programs;
- the resources required to successfully complete our clinical trials;
- the time and costs involved in obtaining regulatory approvals;
- the cost of manufacturing and commercialization activities;
- the cost of any additional facilities requirements;
- the timing, receipt and amount of milestone and other payments from
collaborative partners;
- the timing, receipt and amount of sales and royalties from our potential
products in the market; and
- the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims and other patent-related costs, including
litigation costs and the costs of obtaining any required licenses to
technologies.
WE HAVE INCURRED SUBSTANTIAL LOSSES, EXPECT TO CONTINUE TO INCUR ADDITIONAL
LOSSES AND WILL NOT BE SUCCESSFUL UNTIL WE REVERSE THIS TREND.
We have incurred losses in each year since our date of organization. We
expect to incur operating losses for the foreseeable future.
To date, we have not successfully commercialized and sold the types of
products we are currently developing. The products that we are developing will
require additional research and development, extensive preclinical studies and
clinical trials and regulatory approval before they can be sold commercially. In
particular, we may need to successfully develop several new technologies in
order to
21
complete development of our AlloMune System. If we do not successfully develop
and commercialize any products, we will never become profitable.
To date, we have generated substantially all of our revenues from payments
from our collaborative partners. In 2000, we generated $4,563,475, or 100% of
our total revenue, from our collaboration with Novartis, which was terminated in
October 2000 in connection with the formation of our joint venture with
Novartis. We have not received any revenues from the sale of products. We
anticipate that it may be a number of years, if ever, before we will receive
significant revenues from product sales or royalties.
RISKS RELATED TO OUR BUSINESS, INDUSTRY AND STRATEGY
THERE ARE UNCERTAINTIES AS TO THE EFFECTIVENESS OF OUR TECHNOLOGICAL
APPROACHES AND, AS A RESULT, WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND
COMMERCIALIZE ANY PRODUCTS.
Our future success depends on the successful development of our
ImmunoCognance technology. The MEDI-507 antibody product under development and
the prototype AlloMune System have been tested in relatively few patients and we
may not be able to demonstrate the clinical benefits of these products in a
larger patient population. Furthermore, the technology that we have exclusively
licensed to our joint venture with Novartis Pharma AG is based upon the
transplantation of organs from swine into humans. To our knowledge,
transplantation of swine organs has never been tested in humans. As a
consequence, we are not sure whether any of our or our collaborators' potential
products will be effective in treating any of the disorders we have targeted. In
addition, these products may prove to have undesirable or unintended side
effects, toxicities or other characteristics that may prevent or limit their
commercial use. If our technological approach is not successful or accepted,
then neither we nor our collaborators will be able to develop or commercialize
these products.
WE ARE DEPENDENT ON MEDIMMUNE AND NOVARTIS TO DEVELOP, MANUFACTURE AND SELL
TECHNOLOGIES EXCLUSIVELY LICENSED BY US, AND IF THESE PARTIES ARE NOT
SUCCESSFUL, THEN WE WILL NOT ACHIEVE SIGNIFICANT REVENUES BASED ON THESE
TECHNOLOGIES.
We have a collaborative agreement with MedImmune under which we have
provided MedImmune with the exclusive worldwide right to develop and
commercialize products derived from the BTI-322 and MEDI-507 antibodies. In
addition, our joint venture, Immerge BioTherapeutics, has exclusively licensed
to Novartis the right to develop and commercialize any products derived from
Immerge's research program in xenotransplantation, which refers to the
transplantation of cells, tissues and organs from one species to another. Under
each of these collaborative agreements, we have the right to receive royalties
on product sales. Our ability to achieve royalty revenue under these
arrangements is heavily dependent on the efforts and activities of MedImmune and
Novartis. Our arrangements with MedImmune and, through our joint venture, with
Novartis allow them significant discretion in determining the efforts and
resources that they will apply to the development and commercialization of
products based upon our technologies. Accordingly, we are unable to control
whether or not products based upon our technologies will be scientifically or
commercially successful.
The risks that we face in connection with our agreements with MedImmune and
Novartis include the following:
- These agreements are subject to termination on short notice. Specifically,
MedImmune may terminate the agreement with us, and Novartis has the right
to terminate the agreement with the joint venture, on 60 days' notice as a
result of an uncured material breach by us or the joint venture, as the
case may be. If either MedImmune or Novartis terminates its collaboration
with us, or the joint venture, in the case of Novartis, it may be
difficult for us to attract a new partner to develop and commercialize
products based on our technologies and may adversely affect the perception
of us in the business and financial communities.
22
- If MedImmune or Novartis were to breach or terminate its agreement with
us, or the joint venture, in the case of Novartis, reduce its funding or
otherwise fail to conduct the collaboration successfully, we could be
required to devote additional internal resources to the program that is
the subject of the collaboration, scale back or terminate the program or
seek an alternative partner.
- MedImmune and Novartis may pursue higher priority programs or change the
focus of their research and/or development programs, which could affect
either party's commitment to us.
- After a product has been approved for marketing, any reductions in
marketing or sales efforts or a discontinuation of marketing or sales of
that product by MedImmune or Novartis would reduce our revenues, which
will be based on a percentage of net sales.
THE MARKET MAY NOT BE RECEPTIVE TO OUR PRODUCTS UPON THEIR INTRODUCTION,
WHICH WILL PREVENT US FROM BEING PROFITABLE.
The commercial success of our products when and if they are approved for
marketing will depend upon their acceptance by the medical community and
third-party payors as clinically useful, cost effective and safe. All of the
products that we are developing are based upon new technologies or therapeutic
approaches. As a result, it may be more difficult for us to convince the medical
community and third-party payors to accept and use our products.
Other factors that we believe will materially affect market acceptance of
our products include:
- the timing of our receipt of marketing approvals and the countries in
which approvals are obtained;
- the safety, efficacy and ease of administration of our products;
- the success of our physician education programs; and
- the availability of government and third-party payor reimbursement of our
products.
THE PROGRESS OF THE XENOTRANSPLANTATION RESEARCH PROGRAM OF OUR JOINT
VENTURE COULD BE DELAYED BY DISRUPTIONS IN ITS SUPPLY OF MINIATURE SWINE.
Our joint venture's xenotransplantation research program is based upon the
transplantation of tissues and organs from swine into humans. Charles River
Laboratories has been supplying miniature swine for our research programs since
our inception in 1991 and is currently the only supplier of the miniature swine
organs that the joint venture uses in its research. Although the miniature swine
from which the joint venture with Novartis will receive organs are located at
several different facilities, a disease epidemic or other catastrophe could
destroy all or a portion of the miniature swine herd, which would interrupt or
significantly delay the joint venture's research. We believe there is presently
only one other suitable supplier of miniature swine for research purposes such
as ours. If Charles River Laboratories terminates or breaches its agreement with
the joint venture, the joint venture may not have the resources or capabilities
to maintain the miniature swine herds itself and may experience difficulties in
establishing a supply arrangement with an alternative source of miniature swine
on acceptable terms, if at all. If the joint venture fails to procure a
third-party source of miniature swine or is unable to maintain its own herd, the
joint venture could be required to delay or curtail its research efforts with
respect to the xenotransplantation program.
XENOTRANSPLANTATION INVOLVES RISKS WHICH HAVE RESULTED IN ADDITIONAL FDA
OVERSIGHT AND WHICH IN THE FUTURE MAY RESULT IN ADDITIONAL REGULATION.
Xenotransplantation poses a risk that viruses or other animal pathogens may
be unintentionally transmitted to a human patient. The United States Food and
Drug Administration will require testing to determine whether infectious agents,
including specific viruses referred to as porcine endogenous retroviruses, also
known as PERV, are present in patients who have received cells, tissues or
organs from miniature swine. While porcine endogenous retroviruses have not been
shown to cause any disease in pigs, it is not known what effect, if any, these
retroviruses may have on humans.
23
Other companies are currently conducting clinical trials involving the
transplantation of pig cells into humans. The FDA requires lifelong monitoring
of these transplant recipients. If porcine endogenous retroviruses or any other
virus or infectious agent is detected in tests or samples from these transplant
recipients, the FDA may require Novartis to halt its clinical trials and perform
additional tests to assess the risk of infection to potential patients. This
could result in delays in the successful development and commercialization of
any xenotransplantation products.
The FDA has proposed, but not yet established, definitive regulatory
guidelines for xenotransplantation. We and Novartis may not be able to comply
with any final guidelines the FDA may issue.
RISKS RELATING TO CLINICAL AND REGULATORY MATTERS
IF OUR CLINICAL TRIALS ARE NOT SUCCESSFUL OR ARE NOT COMPLETED ON A TIMELY
BASIS, WE WILL NOT BE ABLE TO DEVELOP AND COMMERCIALIZE ANY RELATED PRODUCTS
AND, THEREFORE, WE WILL NOT ACHIEVE PROFITABILITY.
To obtain regulatory approvals for the commercial sale of our future
products, we and our collaborative partners will need to complete extensive
clinical trials in humans to demonstrate the safety and efficacy of the
products. We have had limited experience in conducting clinical trials.
Prior to commencing new clinical trials, we must submit investigational new
drug and/or investigational device exemption applications to the FDA. Even if we
receive authorization from the FDA to commence clinical trials, we or our
collaborative partners may not be able to successfully complete these trials
within an acceptable timeframe, if at all. How quickly we and our collaborative
partners complete clinical trials is dependent in part upon the rate of
enrollment of patients. Patient enrollment is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites, the eligibility criteria for the study and the existence of
competitive clinical trials. In particular, the patient population for a number
of our potential products is small. If we experience delays in patient
enrollment, we may incur additional costs and delay our research and development
programs.
Furthermore, we, our collaborative partners or the FDA may suspend our
clinical trials at any time on various grounds, including a finding that the
patients in the trials are being exposed to unacceptable health risks. Finally,
our clinical trials, if completed, may not show the potential product to be safe
or effective, thereby preventing regulatory approval.
WE ARE DEPENDENT ON OUR COLLABORATIVE PARTNERS TO CONDUCT CLINICAL TRIALS ON
OUR MEDI-507 AND XENOTRANSPLANTATION PRODUCTS AND, THEREFORE, WE ARE NOT IN
CONTROL OF THE TIMING OF THESE CLINICAL TRIALS.
We are dependent upon MedImmune to conduct clinical trials with respect to
MEDI-507 and will be dependent upon Novartis to conduct clinical trials for the
development of xenotransplantation products, if any, that arise out of our joint
venture's research program. We may become dependent upon other third parties to
conduct future clinical trials of our AlloMune System. As a result, we will have
less control over these clinical trials than if we were conducting the trials
directly. Consequently, these trials may not begin or be completed on a schedule
that is acceptable to us.
THE APPROVAL PROCESS IS COSTLY AND LENGTHY AND WE MAY NOT OBTAIN AND
MAINTAIN THE REGULATORY APPROVALS REQUIRED TO SUCCESSFULLY MARKET AND SELL OUR
PRODUCTS.
We must obtain regulatory approval for our ongoing development activities
and before marketing or selling any of our products. We may not receive
regulatory approvals to conduct clinical trials of our products or to
manufacture or market our products. In addition, regulatory agencies may not
grant such approvals on a timely basis or may revoke previously granted
approvals or impose fines, suspensions, product recalls and other sanctions if
we fail to comply with applicable regulatory requirements.
The process of obtaining FDA and other required regulatory approvals is
expensive and typically takes a number of years, depending on the complexity and
novelty of the product. Any delay in
24
obtaining or failure to obtain required clearance or approval of a product by
the appropriate regulatory authorities, would materially adversely affect our
ability to generate revenues from the affected product. We have limited
experience in filing and prosecuting the applications required to gain
regulatory approval.
There is limited regulatory precedent for the approval of products based
upon the technologies that we are employing to develop products. The AlloMune
System is based on new technologies and/or new therapeutic approaches that have
not been extensively tested in humans. Accordingly, the regulatory requirements
governing this product may be more rigorous than for conventional products. In
addition, the FDA has not yet established final or comprehensive guidelines for
xenotransplantation. As a result, we may experience a longer regulatory process
in connection with any products that we or our collaborators seek to develop
based on these new technologies and/or new therapeutic approaches.
We also are subject to numerous foreign regulatory requirements governing
the design and conduct of the clinical trials and the manufacturing and
marketing of our future products. The approval procedure varies among countries.
The time required to obtain foreign approvals often differs from that required
to obtain FDA approvals. Moreover, approval by the FDA does not ensure approval
by regulatory authorities in other countries.
All of these regulatory risks also are applicable to development,
manufacturing and marketing undertaken by our key collaborators, MedImmune and
Novartis, and any other future collaborators who may seek to develop, market and
sell products based upon our technologies.
RISKS RELATING TO INTELLECTUAL PROPERTY
WE MAY NOT BE ABLE TO OBTAIN PATENT PROTECTION FOR OUR DISCOVERIES AND WE
MAY INFRINGE PATENT RIGHTS OF THIRD PARTIES.
Our success depends in significant part on our ability to:
- obtain patents;
- protect trade secrets;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing on our proprietary rights.
The validity and permissible scope of claims covered in patents relating to
our technology involve important unresolved legal principles. Furthermore, there
is substantial uncertainty as to whether human clinical data will be required
for issuance of patents for human therapeutics. If human clinical data are
required, our ability to obtain patent protection could be delayed or otherwise
adversely affected.
Patents may not issue from any patent applications that we own or license.
If patents do issue, the claims allowed may not be sufficiently broad to protect
our technology. In addition, issued patents that we own or license may be
challenged, invalidated or circumvented. Our patents also may not afford us
protection against competitors with similar technology. Because patent
applications in the United States are maintained in secrecy until patents issue,
third parties may have filed or maintained patent applications for technology
used by us or covered by our pending patent applications without our being aware
of these applications.
We may not hold proprietary rights to all of the patents related to our
proposed products or services. These patents may be owned or controlled by third
parties. As a result, we or our collaborative partners may be required to obtain
licenses under third-party patents to market our proposed products or services.
If licenses are not available on acceptable terms, we or our collaborative
partners will not be able to market these products or services.
25
IF WE LOSE IMPORTANT LICENSE RIGHTS, WE MAY BE UNABLE TO SUCCESSFULLY
DEVELOP AND COMMERCIALIZE OUR PRODUCTS AND ACHIEVE PROFITABILITY.
We are a party to technology in-licenses with the Catholic University of
Louvain and the Alberta Research Council. We expect to enter into additional
licenses in the future. These in-licenses relate to important technologies that
may be necessary for the development and commercialization of our products.
These licenses impose various commercialization, indemnification, royalty,
insurance and other obligations on us. Although we currently meet the
requirements imposed by the licenses, if we fail to comply with these
requirements in the future, the licensors will have the right to terminate these
licenses or make the licenses non-exclusive, which could affect our ability to
exploit important technologies that are required for successful development of
our products.
RISKS RELATING TO PRODUCT MANUFACTURING, MARKETING AND SALES
WE HAVE NO SALES AND MARKETING EXPERIENCE AND MAY DEPEND SIGNIFICANTLY ON
THIRD PARTIES WHO MAY NOT SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS.
We have no sales, marketing and distribution experience. We plan to rely
significantly on sales, marketing and distribution arrangements with third
parties, including our collaborative partners. For example, we have granted
MedImmune exclusive marketing rights to the MEDI-507 product under development
and have granted Novartis exclusive worldwide rights to develop and market
products based upon our xenotransplantation technologies. We may have to enter
into additional marketing arrangements in the future and we may not be able to
enter into these additional arrangements on terms which are favorable to us, if
at all. In addition, we may have limited or no control over the sales, marketing
and distribution activities of these third parties. Our future revenues will be
materially dependent upon the success of the efforts of these third parties.
We may seek to independently market products that are not already subject to
marketing agreements with other parties, including our high density
microparticle products, which are our nearest-term products under development.
If we determine to perform sales, marketing and distribution functions
ourselves, we could face a number of additional risks, including:
- we may not be able to attract and build a significant marketing staff or
sales force;
- the cost of establishing a marketing staff or sales force may not be
justifiable in light of the revenues generated by any particular product;
and
- our direct sales and marketing efforts may not be successful.
WE HAVE LIMITED MANUFACTURING CAPABILITIES AND WILL DEPEND ON THIRD-PARTY
MANUFACTURERS WHO MAY NOT SUCCESSFULLY MANUFACTURE OUR PRODUCTS.
We have limited manufacturing experience. To continue to develop products,
apply for regulatory approvals and, ultimately, commercialize any products, we
will need to develop, contract for or otherwise arrange for the necessary
manufacturing capabilities.
We currently rely upon MedImmune to produce material for preclinical and
clinical testing purposes and expect to continue to do so in the future. In
addition, if we receive the necessary regulatory approvals for our products, we
also expect to rely upon third parties, including our collaborative partners, to
produce materials required for commercial production. There are a limited number
of manufacturers capable of manufacturing these products that are able to comply
with the FDA's regulations for good manufacturing practices. If we are unable to
manufacture our own products or arrange for third-party manufacturing of our
products, or unable to do so on commercially reasonable terms, we may not be
able to complete development of or market our products.
To the extent that we enter into manufacturing arrangements with third
parties, we will be dependent upon these third parties to perform their
obligations in a timely manner. If third-party
26
manufacturers with whom we contract fail to perform their obligations, we may be
adversely affected in a number of ways, including:
- we may not be able to initiate or continue clinical trials of products
that are under development;
- we may be delayed in submitting applications for regulatory approvals for
its products; and
- ultimately, we may not be able to meet commercial demands for its
products.
RISKS RELATING TO THE ELIGIX MERGER
THE MERGER WITH ELIGIX MAY NOT BE SUCCESSFULLY COMPLETED AND, EVEN IF IT IS
COMPLETED, WE MAY FACE CHALLENGES IN INTEGRATING ELIGIX INTO BIOTRANSPLANT AND,
AS A RESULT, MAY NOT REALIZE THE EXPECTED BENEFITS OF THE ANTICIPATED MERGER.
In December 2000, we entered into a definitive agreement to acquire Eligix
through a merger. The merger is subject to the satisfaction of closing
conditions, including approval by BioTransplant's and Eligix' stockholders, and
may not be successfully completed. The merger involves the integration of two
different companies that have previously operated independently. Even if
successfully completed, integrating Eligix' operations, technologies and
personnel with those of BioTransplant will be a complex process. We may not be
able to complete the integration rapidly. After the integration, the combined
company may not achieve the expected benefits of the merger. The diversion of
the attention of our management and any difficulties encountered in the process
of combining our companies could lead to unanticipated liabilities and costs and
cause the disruption of, or a loss of momentum in, the business activities of
the combined company. Further, the process of combining our companies could
negatively affect employee morale and the ability of the combined company to
retain some of its key employees after the merger. As a consequence, we may not
successfully integrate Eligix or profitably manage the combined company. In
addition, following the transaction, the combined company may not achieve
revenues, net income or loss levels, efficiencies or synergies that justify the
merger, and the merger may not result in increased earnings for the combined
company in any future period.
SIGNIFICANT MERGER-RELATED CHARGES AGAINST EARNINGS WILL INCREASE OUR LOSSES
IN THE QUARTER IN WHICH WE CONSUMMATE THE MERGER AND DURING THE POST-MERGER
INTEGRATION PERIOD AND, ADDITIONALLY, WE MAY ALSO INCUR SIGNIFICANT CHARGES IF
THE MERGER IS NOT CONSUMMATED.
We expect to incur charges of approximately $3.7 million in connection with
the consummation of the merger, including charges of approximately
$1.375 million expected to be incurred by Eligix. The charges include legal,
accounting and financial advisory fees and other integration costs. These costs
may be higher than we anticipate. In addition, we may incur other additional
unanticipated merger costs. For example, if the merger agreement is terminated
by Eligix as a result of our failure to perform or comply in all material
respects with the agreements and covenants under the merger agreement, we will
be required to pay Eligix $2.0 million in cash. Some of these nonrecurring costs
will be charged to operations in the fiscal quarter in which the merger is
consummated or terminated, as the case may be, while others will be expensed as
incurred during the post-merger integration period.
THE LOSS OF KEY ELIGIX OR BIOTRANSPLANT PERSONNEL COULD MAKE IT DIFFICULT TO
COMPLETE EXISTING PROJECTS AND UNDERTAKE NEW PROJECTS.
The success of the combined company depends on our ability to identify, hire
and retain our employees, and a significant component of the value of the merger
is in the know-how and experience of the Eligix and BioTransplant employees that
we expect to employ following the merger. None of the employees of Eligix or
BioTransplant will be bound by a long-term agreement with the combined company
or be covered by key-man life insurance after the merger. If key Eligix or
BioTransplant employees were to leave after the merger, we may be unable to
integrate Eligix' delivery systems into our product offerings, complete existing
Eligix projects or undertake new projects.
27
Under the terms of Eligix' stock incentive plan, the vesting of stock
options to purchase an aggregate of approximately 864,999 shares of Eligix stock
held by Eligix employees automatically accelerates as a result of the merger. In
addition, options to purchase an aggregate of 2,749,100 shares of Eligix common
stock issued on May 25, 2000, which were exercisable in full on the date of
issuance but subject to a right of repurchase by Eligix, will no longer be
subject to the repurchase right in the event of a merger. These options have
substantial value to the Eligix employees. Because a substantial number of
options will vest in full and be immediately exercisable after the merger,
Eligix employees will not be incentivized through these stock options to remain
employed after the merger as a condition to the continued vesting of their
options. Consequently, we face the risk that Eligix employees will leave
following the merger. In addition, BioTransplant employees had vested options as
of February 28, 2001 to purchase an aggregate of approximately 923,000 shares of
BioTransplant common stock and, thus, may not be incentivized through stock
options to remain employed following the merger.
WE MAY INCUR SIGNIFICANT SEVERANCE-RELATED COSTS AFTER THE MERGER IF ELIGIX
MANAGEMENT MEMBERS LEAVE FOR GOOD REASON OR WE TERMINATE THEM WITHOUT CAUSE.
Each of the twelve management members of Eligix will be entitled to receive
severance-related payments if he or she leaves for good reason or is terminated
without cause after the merger. Consequently, we may incur significant
severance-related costs, including:
- cash severance payments of up to an aggregate of approximately $1,173,000
if all twelve Eligix management members leave; and
- the acceleration in full of the vesting of the 990,000 shares of
BioTransplant common stock to be issued under the Eligix management equity
incentive plan, which shares had a value of $5,445,000 based on the
closing price of BioTransplant's common stock on February 28, 2001.
RISKS RELATING TO OUR COMMON STOCK
OUR STOCK PRICE IS HIGHLY VOLATILE, WHICH COULD CAUSE YOU TO LOSE PART OR
ALL OF YOUR INVESTMENT.
The market price of our common stock is highly volatile. For example, during
the past three years, our stock price fluctuated from a low sale price of $1.00
in the quarter ended December 31, 1998 to a high sale price of $23.00 in the
quarter ended March 31, 2000. Prices for our common stock will be determined in
the market place and may be influenced by many factors, including variations in
our financial results and investors' perceptions of us, as well as their
perceptions of general economic, industry and market conditions. Broad market
fluctuations may adversely affect the market price of our common stock and may
cause a rapid and substantial decline in the value of your investment in our
common stock.
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since commencement of BioTransplant's operations in 1990, we have been
engaged primarily in the research and development of pharmaceutical products and
systems to enable the body's immune system to better tolerate the
transplantation of foreign cells, tissues and organs. The major sources of our
working capital have been the proceeds from sales of equity securities,
sponsored research funding and license fees, capital lease financings and
borrowings under a term loan. We have not generated any revenues from the sale
of products to date, and do not expect to receive any product revenues for
several years, if ever. We will be required to conduct significant additional
research, development, testing and regulatory compliance activities that,
together with general and administrative expenses, are expected to result in
significant and increasing operating losses for at least the next several years.
From 1993 through October 2000, we were a party to two collaboration
agreements with Novartis to research, develop and commercialize
xenotransplantation products. During the collaboration, we received an aggregate
of $33.5 million in research funding and $16.5 million in license fees and
milestone payments from Novartis. In September 2000, we entered into an
arrangement with Novartis to combine our respective expertise in the field of
xenotransplantation into a newly-formed, independently-run Swiss company,
Immerge BioTherapeutics AG, which began operations in January 2001, and
terminated our prior collaborations in xenotransplantation.
Novartis has committed to provide an aggregate of $30.0 million in research
funding over three years to the joint venture. Both we and Novartis have
exclusively licensed to the joint venture patent rights and technology in the
field of xenotransplantation. The joint venture has granted to Novartis an
exclusive, worldwide royalty-bearing license to develop and commercialize any
xenotransplantation products resulting from the joint venture's research. We
will receive royalties from the sale of xenotransplantation products by
Novartis, if any.
In December 2000, Immerge BioTherapeutics AG formed a wholly-owned Delaware
subsidiary, Immerge BioTherapeutics, Inc. We expect to enter into a contract
research agreement with the Delaware subsidiary, under which we will commit
approximately 20 full-time employees to perform research and will agree to
provide administrative services, all at a rate to be agreed upon.
Novartis holds 67% of the shares of the joint venture and we hold the
remaining 33%. All income, gain, profit or loss of the joint venture will be
allocated to us and Novartis pro rata based upon our respective equity ownership
of the joint venture in effect in the period in which these items accrue.
Initially, the board of directors of Immerge BioTherapeutics, Inc. will consist
of four directors: one selected by BioTransplant, one selected by Novartis and
two additional directors, one each designated by BioTransplant and Novartis, who
are experts in the field of xenotransplantation. Immerge BioTherapeutics AG has
agreed not to undertake, or permit its subsidiaries to undertake, specified
fundamental corporate actions without the consent of both shareholders.
In October 1995, we entered into a collaborative research agreement with
MedImmune for the development of products to treat and prevent organ rejection.
MedImmune paid us a $2.0 million license fee at the time of execution of the
agreement, and agreed to fund and assume responsibility for clinical testing and
commercialization of the BTI-322 monoclonal antibody and other related products.
MedImmune has provided $2.0 million of non-refundable research support and has
agreed to make milestone payments which could total up to an additional
$11.0 million. Any milestone payments which are received are repayable from
royalties on the BTI-322 monoclonal antibody and other related products.
29
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000 AND 1999
Revenues decreased to $4.6 million in 2000 from $8.7 million in 1999. The
decrease in revenues was primarily due to $4.6 million in sponsored research
payments received under the Novartis agreement in 2000, compared to
$8.7 million in sponsored research payments, milestone payments and license
revenue received under the Novartis agreement during 1999.
Research and development expenses decreased to $15.0 million in 2000 from
$15.7 million in 1999. This decrease was primarily due to decreased levels of
external research support.
General and administrative expenses increased to $2.5 million in 2000 from
$2.4 million in 1999. This increase was primarily due to increases in our
general corporate expenditures in 2000 compared to 1999.
Interest income increased to $1.3 million in 2000 from $782,000 in 1999. The
increase was due primarily to higher cash balances available for investment
purposes as well as rising interest rates.
As a result of the above factors, we generated a net loss in 2000 of
$11.7 million, or $1.01 per share, compared to a net loss of $8.7 million, or
$1.01 per share, in 1999.
YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues increased to $8.7 million in 1999 from $6.7 million in 1998. The
increase in revenues was primarily due to $8.7 million in sponsored research,
milestone payments and license revenue from the Novartis agreements in 1999,
compared to $6.7 million in sponsored research and license revenue from Novartis
during 1998.
Research and development expenses increased to $15.7 million in 1999 from
$14.7 million in 1998. This increase was primarily due to additional external
research support combined with increases in research and development staff and
associated increases in supplies and support services.
General and administrative expenses decreased slightly to $2.4 million in
1999 from $2.5 million in 1998. This decrease was primarily due to decreased
outside professional services rendered in connection with market research and
business development.
Interest income decreased to $0.8 million in 1999 compared to $1.3 million
in 1998. The decrease was due to lower average cash balances available for
investment during 1999.
As a result of the above factors, we incurred a net loss in 1999 of
$8.7 million, or $1.01 per share, compared to a net loss of $9.2 million, or
$1.07 per share, in 1998.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited selected operating results for each
of the eight fiscal quarters in the two years ended December 31, 2000. We
believe that the following selected quarterly information includes all
adjustments, consisting only of normal, recurring adjustments, that we consider
necessary to present this information fairly. You should read this financial
information in conjunction with the financial statements and related notes
appearing elsewhere in this Annual Report on Form 10-K. Our results of
operations have fluctuated in the past and are likely to continue to fluctuate
30
greatly from quarter to quarter in the future. Therefore, results of operations
for any previous periods are not necessarily indicative of results of operations
to be recorded in the future.
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999 2000 2000 2000 2000
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenue....................... $ 1,239 $ 1,238 $ 3,735 $ 2,477 $ 1,488 $ 1,488 $ 1,476 $ 106
Operating expenses............ 4,355 4,379 4,497 4,896 4,302 4,251 4,310 4,654
Net loss...................... (2,892) (2,968) (602) (2,213) (2,499) (2,408) (2,501) (4,271)
Basic and diluted net loss per
common share................ $ (0.34) $ (0.35) $ (0.07) $ (0.26) $ (0.23) $ (0.21) $ (0.21) $ (0.36)
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, our operations have been funded principally through the
net proceeds of an aggregate of $81.9 million from sales of equity securities.
We have also received $50.0 million from research and development and
collaboration agreements with Novartis, $4.0 million from an alliance agreement
with MedImmune and $2.9 million in equipment financing. The proceeds of the
sales of equity securities, equipment financing and cash generated from the
corporate collaborations with Novartis and MedImmune have been used to fund
operating losses of approximately $68.8 million and the investment of
approximately $5.6 million in equipment and leasehold improvements through
December 31, 2000. During 1999, we extended and increased our term note with a
bank from $500,000 to $1.0 million for certain equipment and fixtures borrowing.
There were $486,000 in borrowings outstanding under this term note at
December 31, 2000. We had no significant commitments as of December 31, 2000 for
capital expenditures.
On February 11, 2000, we issued and sold to a group of investors an
aggregate of 1,215,000 shares of our common stock, at a purchase price of $8.00
per share, for net proceeds of approximately $9.0 million.
On June 8, 2001, we sold to a group of investors an aggregate of 3,022,457
shares of our common stock, at a purchase price of $6.30 per share, for net
proceeds of approximately $17.9 million.
We have entered into sponsored research and consulting agreements with
certain hospitals, academic institutions and consultants, requiring periodic
payments by us. Aggregate minimum funding obligations under these agreements,
each of which includes cancellation provisions, total approximately
$4.9 million, which includes approximately $3.4 million in 2001.
We had cash, cash equivalents and short-term investments of $14.9 million as
of December 31, 2000 as compared to $21.4 million as of December 31, 1999.
We anticipate that our existing cash, cash equivalents and short-term
investments and the $17.9 million of funds we received in our June 2001 private
equity financing will be sufficient to fund our operating and capital
requirements as currently planned through the second quarter of 2002. We will
need to raise substantial additional funds in the near term, and may seek to
raise these funds through additional financings, including public or private
equity offerings, collaborative arrangements with corporate partners or a
combination of any of the foregoing. There can be no assurance that funds will
be available on terms acceptable to us, if at all. If adequate funds are not
available, we may be required to delay, scale back or eliminate some or all of
our product development programs or to license to others the right to
commercialize products or technologies that we would otherwise seek to develop
and commercialize ourselves, any of which would have a material and adverse
effect on us.
31
Even if we are able to raise the substantial additional funds required to
finance our operations, our cash requirements may vary materially from those now
planned. Factors that may affect this variability include, without limitation:
- the progress of our research and development programs;
- the scope and results of preclinical and clinical testing;
- changes in existing and potential relationships with corporate
collaborators;
- the time and cost in obtaining regulatory approvals;
- the costs involved in obtaining and enforcing patents, proprietary rights
and any necessary licenses;
- our ability to establish development and commercialization capacities or
relationships; and
- the costs of manufacturing.
We expect to incur substantial additional costs, including costs related to
research and development activities, preclinical studies, clinical trials,
obtaining regulatory approvals, manufacturing and the expansion of our
facilities.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To BioTransplant Incorporated:
We have audited the accompanying consolidated balance sheets of
BioTransplant Incorporated (a Delaware corporation in the development stage) and
subsidiary as of December 31, 1999 and 2000, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 2000, and for the period
from inception (March 20, 1990) to December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BioTransplant Incorporated
and subsidiary as of December 31, 1999 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, and for the period from inception (March 20, 1990) to
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 15, 2001 (except with respect to the matter discussed in Note 15, as to
which the date is June 8, 2001)
33
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------
1999 2000
----------- -----------
Assets
Current assets:
Cash and cash equivalents................................. $17,648,789 $11,481,297
Short-term investments.................................... 3,718,033 3,391,568
Other receivables......................................... 400,500 18,995
Prepaid expenses and other current assets................. 169,733 823,899
----------- -----------
Total current assets.................................. 21,937,055 15,715,759
----------- -----------
Property and equipment, at cost:
Equipment under capital leases............................ -- 119,772
Laboratory equipment...................................... 3,707,833 3,726,821
Leasehold improvements.................................... 795,017 795,017
Office equipment.......................................... 792,605 932,706
----------- -----------
5,295,455 5,574,316
Less -- Accumulated depreciation.......................... 3,813,455 4,237,110
----------- -----------
1,482,000 1,337,206
----------- -----------
Investment in Stem Cell Sciences Ltd........................ -- 105,000
----------- -----------
$23,419,055 $17,157,965
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt......................... $ 233,333 $ 233,333
Current obligation under capital leases................... -- 37,486
Accounts payable.......................................... 433,067 408,115
Accrued expenses.......................................... 2,516,173 1,721,745
Deferred revenue.......................................... 4,125,000 --
----------- -----------
Total current liabilities............................. 7,307,573 2,400,679
----------- -----------
Long-term debt, net of current portion...................... 466,667 252,778
Long-term obligation under capital leases, net of current
portion................................................... -- 82,285
----------- -----------
Total long-term liabilities........................... 466,667 335,063
----------- -----------
Commitments (Notes 9 and 13)
Stockholders' equity:
Preferred stock, $.01 par value --
Authorized -- 2,000,000 shares
Issued and outstanding -- no shares..................... -- --
Common stock, $.01 par value --
Authorized -- 25,000,000 and 50,000,000 shares at
December 31, 1999 and December 31, 2000, respectively
Issued and outstanding -- 10,300,890 and 11,796,120
shares at December 31, 1999 and 2000, respectively...... 103,010 117,962
Additional paid-in capital.................................. 72,688,036 83,129,855
Deficit accumulated during the development stage............ (57,146,231) (68,825,594)
----------- -----------
Total stockholders' equity............................ 15,644,815 14,422,223
----------- -----------
$23,419,055 $17,157,965
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
34
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, CUMULATIVE
---------------------------------------- SINCE
1998 1999 2000 INCEPTION
----------- ----------- ------------ ------------
Operating revenues:
License fees........................... $ 1,000,000 $ 3,500,000 $ -- $ 18,500,000
Research and development............... 5,688,500 5,188,475 4,563,475 36,815,450
----------- ----------- ------------ ------------
Total revenues..................... 6,688,500 8,688,475 4,563,475 55,315,450
Operating Expenses:
Research and development............... 14,729,825 15,680,281 14,973,719 107,915,277
General and administrative............. 2,477,460 2,445,912 2,543,624 21,375,619
----------- ----------- ------------ ------------
Total expenses..................... 17,207,285 18,126,193 17,517,343 129,290,896
----------- ----------- ------------ ------------
Operating loss..................... (10,518,785) (9,437,718) (12,953,868) (73,975,446)
Interest income........................ 1,317,780 782,182 1,334,486 6,987,325
Interest expense....................... (9,602) (17,914) (59,981) (1,837,473)
----------- ----------- ------------ ------------
Net loss................................. $(9,210,607) $(8,673,450) $(11,679,363) $(68,825,594)
=========== =========== ============ ============
Net loss per common share:
Basic and diluted...................... $ (1.07) $ (1.01) $ (1.01)
=========== =========== ============
Weighted average common shares
outstanding:
Basic and diluted...................... 8,578,941 8,598,085 11,547,262
=========== =========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
35
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
---------------------- ADDITIONAL DURING THE STOCKHOLDERS'
NUMBER $.01 PAID-IN DEVELOPMENT EQUITY
OF SHARES PAR VALUE CAPITAL STAGE (DEFICIT)
---------- --------- ----------- ------------- -------------
Inception, March 20, 1990....................... -- $ -- $ -- $ -- $ --
Net loss...................................... -- -- -- (142,353) (142,353)
---------- -------- ----------- ------------- ------------
Balance, December 31, 1990.................... -- -- -- (142,353) (142,353)
Sale of common stock.......................... 102,572 1,026 3,077 -- 4,103
Issuance of warrants.......................... -- -- 22,000 -- 22,000
Net loss...................................... -- -- -- (2,637,206) (2,637,206)
---------- -------- ----------- ------------- ------------
Balance, December 31, 1991...................... 102,572 1,026 25,077 (2,779,559) (2,753,456)
Net loss...................................... -- -- -- (6,188,344) (6,188,344)
---------- -------- ----------- ------------- ------------
Balance, December 31, 1992...................... 102,572 1,026 25,077 (8,967,903) (8,941,800)
Issuance of warrants.......................... -- -- 476,800 -- 476,800
Exercise of stock options..................... 63 1 46 -- 47
Deferred compensation on stock options........ -- -- 105,546 -- 105,546
Net loss...................................... -- -- -- (7,748,627) (7,748,627)
---------- -------- ----------- ------------- ------------
Balance, December 31, 1993...................... 102,635 1,027 607,469 (16,716,530) (16,108,034)
Exercise of stock options..................... 17,406 174 1,448 -- 1,622
Restricted stock sold to Directors............ 1,250 12 8,738 -- 8,750
Issuance of warrants.......................... -- -- 165,937 -- 165,937
Deferred compensation on stock options........ -- -- 170,225 -- 170,225
Net loss...................................... -- -- -- (11,268,042) (11,268,042)
---------- -------- ----------- ------------- ------------
Balance, December 31, 1994...................... 121,291 1,213 953,817 (27,984,572) (27,029,542)
Issuance of warrants.......................... -- -- 99,000 -- 99,000
Exercise of stock options..................... 5,303 53 7,301 -- 7,354
Deferred compensation on stock options........ -- -- 170,225 -- 170,225
Net loss...................................... -- -- -- (2,087,239) (2,087,239)
---------- -------- ----------- ------------- ------------
Balance, December 31, 1995...................... 126,594 1,266 1,230,343 (30,071,811) (28,840,202)
Conversion of preferred stock into common
stock....................................... 4,770,430 47,704 36,154,586 -- 36,202,290
Issuance of common stock in initial public
offering, net of issuance costs of
$2,681,920.................................. 3,220,000 32,200 27,875,880 -- 27,908,080
Issuance of common stock pursuant to
antidilution rights......................... 431,724 4,317 (4,317) -- --
Exercise of stock options..................... 10,154 102 28,546 -- 28,648
Net loss...................................... -- -- -- (6,037,108) (6,037,108)
---------- -------- ----------- ------------- ------------
Balance, December 31, 1996...................... 8,558,902 85,589 65,285,038 (36,108,919) 29,261,708
Exercise of stock options..................... 15,238 153 45,407 -- 45,560
Restricted stock sold to directors............ 1,250 12 38 -- 50
Net loss...................................... -- -- -- (3,153,254) (3,153,254)
---------- -------- ----------- ------------- ------------
Balance, December 31, 1997...................... 8,575,390 85,754 65,330,483 (39,262,173) 26,154,064
Exercise of stock options..................... 6,073 61 14,745 -- 14,806
Net loss...................................... -- -- -- (9,210,607) (9,210,607)
---------- -------- ----------- ------------- ------------
Balance, December 31, 1998...................... 8,581,463 85,815 65,345,228 (48,472,780) 16,958,263
Exercise of stock options..................... 11,265 113 24,803 -- 24,916
Restricted stock sold to directors............ 1,875 19 4,433 -- 4,452
Issuance of common stock in private placement,
net of issuance costs of $517,215........... 1,706,287 17,063 7,313,571 -- 7,330,634
Net loss...................................... -- -- -- (8,673,450) (8,673,450)
---------- -------- ----------- ------------- ------------
Balance, December 31, 1999...................... 10,300,890 103,010 72,688,036 (57,146,231) 15,644,815
Exercise of stock options..................... 221,514 2,215 902,307 -- 904,522
Exercise of warrants.......................... 58,716 587 392,512 -- 393,099
Net gain on investment in Stem Cell Sciences
Ltd. ....................................... -- -- 160,000 -- 160,000
Issuance of common stock in private placement,
net of issuance costs of $720,150........... 1,215,000 12,150 8,987,000 -- 8,999,150
Net loss...................................... -- -- -- (11,679,363) (11,679,363)
---------- -------- ----------- ------------- ------------
Balance, December 31, 2000...................... 11,796,120 $117,962 $83,129,855 $ (68,825,594) $ 14,422,223
========== ======== =========== ============= ============
The accompanying notes are an integral part of these consolidated financial
statements.
36
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------- CUMULATIVE
1998 1999 2000 SINCE INCEPTION
----------- ----------- ------------ ---------------
Cash flows from operating activities:
Net loss................................................. $(9,210,607) $(8,673,450) $(11,679,363) $(68,825,594)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization.......................... 358,052 392,865 430,970 4,308,116
Noncash interest expense on convertible notes payable
to stockholders...................................... -- -- -- 465,477
Noncash expenses related to options and warrants....... 33,186 1,541 -- 1,186,785
Changes in current assets and liabilities-
Accounts receivable.................................. -- (400,500) 381,505 (18,995)
Prepaid expenses and other current assets............ 26,206 1,042,561 (654,166) (823,899)
Accounts payable..................................... (62,179) 205,711 (24,952) 408,115
Accrued expenses..................................... (69,558) 403,514 (794,428) 1,721,745
Deferred revenue..................................... (750,000) 750,000 (4,125,000) --
----------- ----------- ------------ ------------
Net cash used in operating activities.............. (9,674,900) (6,277,758) (16,465,434) (61,578,250)
----------- ----------- ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment...................... (812,828) (416,839) (299,114) (5,035,062)
Disposal of property and equipment, net.................. -- -- 12,940 40,980
Purchases of investments................................. (8,887,022) (4,086,657) (6,508,538) (76,732,935)
Proceeds from sale of investments........................ 22,921,877 7,211,587 6,835,000 73,341,363
(Increase) decrease in investment in Stem Cell Sciences
Ltd.................................................... -- -- 55,000 55,000
----------- ----------- ------------ ------------
Net cash provided by (used in) investing
activities....................................... 13,222,027 2,708,091 95,288 (8,330,654)
----------- ----------- ------------ ------------
Cash flows from financing activities:
Proceeds from convertible notes payable to
stockholders........................................... -- -- -- 9,400,000
Payments of obligations under capital leases............. (177,666) (10,042) -- (2,194,210)
Proceeds from sale/leaseback of equipment................ -- -- -- 771,968
Payments on long-term debt............................... (213,889) (213,889)
Proceeds from equipment leases........................... -- -- 119,771 1,542,010
Proceeds from long-term debt............................. -- 700,000 -- 700,000
Net proceeds from sale of redeemable convertible
preferred stock........................................ -- -- -- 25,661,526
Net proceeds from sale of common stock................... 14,806 7,360,002 10,296,772 45,722,796
----------- ----------- ------------ ------------
Net cash provided by (used in) financing
activities....................................... (162,860) 8,049,960 10,202,654 81,390,201
----------- ----------- ------------ ------------
Net increase in cash and cash equivalents.................. 3,384,267 4,480,293 (6,167,492) 11,481,297
Cash and cash equivalents, beginning of period............. 9,784,229 13,168,496 17,648,789 --
----------- ----------- ------------ ------------
Cash and cash equivalents, end of period................... $13,168,496 $17,648,789 $ 11,481,297 $ 11,481,297
=========== =========== ============ ============
Supplemental disclosure of noncash investing and financing
transactions:
Equipment acquired under capital leases.................. $ -- $ -- $ -- $ (2,329,941)
=========== =========== ============ ============
Net gain related to investment in Stem Cell Sciences
Ltd.................................................... $ -- $ -- $ 160,000 $ 160,000
=========== =========== ============ ============
Conversion of convertible notes payable to stockholders
and accrued interest into redeemable convertible
preferred stock........................................ $ -- $ -- $ -- $ 9,905,710
=========== =========== ============ ============
Conversion of preferred stock into common stock.......... $ -- $ -- $ -- $ 36,202,290
=========== =========== ============ ============
Issuance of warrants..................................... $ -- $ -- $ -- $ 741,737
=========== =========== ============ ============
Leasehold improvements acquired through issuance of
redeemable convertible preferred stock................. $ -- $ -- $ -- $ 619,584
=========== =========== ============ ============
Supplemental disclosure of cash flow information:
=========== =========== ============ ============
Interest paid during the period.......................... $ 6,975 $ 16,159 $ 54,922 $ 1,465,427
=========== =========== ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
37
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OPERATIONS
BioTransplant Incorporated (the "Company") was incorporated on March 20,
1990. The Company is developing pharmaceutical products and systems to enable
the body's immune system to better tolerate the transplantation of foreign
cells, tissues and organs. Based on BioTransplant's proprietary technology, both
alone and in collaboration with others, BioTransplant is seeking to develop a
portfolio of products designed to improve therapies associated with organ and
bone marrow transplantation as well as to improve the treatment of cancer,
autoimmune disease and blood disorders.
The Company is in the development stage and is devoting substantially all of
its efforts toward product research and development and raising capital. The
Company is subject to a number of risks similar to those of other development
stage companies, including risks related to: its dependence on key individuals
and collaborative research partners, competition from substitute products and
larger companies, its ability to develop and market commercially usable products
and obtain regulatory approval for its products under development, and its
ability to obtain the substantial additional financing necessary to adequately
fund the development of its products.
The Company incurred a net loss of approximately $11.7 million for the year
ended December 31, 2000, and had an accumulated deficit of approximately
$68.8 million as of December 31, 2000. The Company has funded these losses
principally through equity financing. Additionally, the Company has entered into
an agreement to purchase Eligix, Inc. (See Note 13). In June 2001, the Company
received approximately $17.9 million in net proceeds from the sale of common
stock. Management believes that these proceeds, along with existing resources,
will be adequate to fund operations through the second quarter of 2002.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of certain accounting policies described below and elsewhere in the notes to
consolidated financial statements.
(A) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary. All material intercompany accounts
and transactions have been eliminated in consolidation.
(B) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(C) CASH AND CASH EQUIVALENTS AND INVESTMENTS
Cash and cash equivalents include short-term, highly liquid investments with
original maturities of ninety days or less from the date of purchase. Short-term
investments consist primarily of corporate notes with maturities of less than
one year. In accordance with Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity Securities", the
38
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company's investments are classified as held-to-maturity and are stated at
amortized cost, which approximates market value.
The Company held the following cash equivalents and investments at
December 31, 1999 and 2000:
1999 2000
----------- -----------
Cash and cash equivalents.......................... $17,648,789 $11,481,297
----------- -----------
Short-term investments:
Corporate Bonds (average maturity of 2 months at
December 31, 2000)............................. -- 1,897,640
Commercial Paper (average maturity of 2 months
and 1 month at December 31, 1999 and 2000,
respectively).................................. 3,718,033 1,493,928
----------- -----------
3,718,033 3,391,568
----------- -----------
Total cash, cash equivalents and investments....... $21,366,822 $14,872,866
=========== ===========
There were no realized gains or losses in the years ended December 31, 1998,
1999 and 2000.
(D) DEPRECIATION AND AMORTIZATION
The Company provides for depreciation using the straight-line method by
charges to operations in amounts estimated to allocate the cost of these assets
over a three to five-year life. Amortization of equipment under capital lease
and leasehold improvements is computed using the straight-line method over the
shorter of the estimated useful life of the asset or the lease term.
(E) REVENUE RECOGNITION
Substantially all of the Company's license and research and development
revenues have been derived from three collaborative research arrangements (see
Note 7). Annual research and development payments are recognized on a
straight-line basis over the period of the contract, which approximates when
work is performed and costs are incurred. License fee revenue represents
technology transfer fees received for rights to certain technology of the
Company. Prior to the adoption of SEC Staff Accounting Bulletin (SAB) No. 101
(SAB 101) "Revenue Recognition" during 2000, the Company recorded license fees
as revenue when all obligations as defined in the individual arrangements are
fulfilled by the Company and there is no risk of refund. Deferred revenue
represents amounts received in advance for research and development. Research
and development expenses in the accompanying consolidated statements of
operations include funded and unfunded expenses.
SAB 101 requires companies to recognize upfront non-refundable license fees
over the life of the related alliance when such fees are received in conjunction
with alliances which have multiple elements, such as the three collaborative
research agreements described in Note 7. The Company was required to adopt this
new accounting principle through a cumulative charge to the statement of
operations, in accordance with Accounting Principle Board Opinion (APB) No. 20,
"Accounting Changes," no later than the fourth quarter of 2000, effective
January 1, 2000. The adoption of this statement, consisting of
39
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the cumulative effect of the accounting change and the current year effect, did
not have a material impact on the Company's financial statements for the year
ended December 31, 2000. As required under SAB 101, the Company is required to
disclose the pro forma effect of applying the principles of SAB 101 for all
periods presented. The application of SAB 101 for the years ended December 31,
1999 and 2000 did not result in a material change in reported revenues. For the
year ended December 31, 1998, the application of SAB 101 would have resulted in
revenues of $5,833,000 as compared to the $4,750,000 of revenues reported.
(F) NET LOSS PER COMMON SHARE
The Company applies SFAS No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 establishes standards for computing and presenting earnings per share
and applies to entities with publicly held common stock or potential common
stock. Diluted weighted average shares is the same as basic weighted average
shares since the inclusion of shares issuable pursuant to the exercise of stock
options and warrants would have been antidilutive.
Calculations of basic and diluted net loss per common share are as follows:
1998 1999 2000
----------- ----------- ------------
Net loss.............................. $(9,210,607) $(8,673,450) $(11,679,363)
=========== =========== ============
Weighted average common shares
outstanding -- basic and diluted.... 8,578,941 8,598,085 11,547,262
=========== =========== ============
Basic and diluted net loss per common
share............................... $ (1.07) $ (1.01) $ (1.01)
=========== =========== ============
Antidilutive securities not included--
Common stock options................ 48,266 296,396 853,297
=========== =========== ============
Common stock warrants............... 133,007 151,998 282,471
=========== =========== ============
(G) COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," requires disclosure of all
components of comprehensive income. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. The Company does not have
any items of comprehensive net loss other than its net loss.
(H) SEGMENT REPORTING
The Company applies SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," ("SFAS 131") which establishes standards
for the way that public business enterprises report information about operating
segments in annual financial statements and requires that enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. In accordance with SFAS 131, the Company believes that
it operates in one operating segment.
40
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 "Accounting for Certain Transactions involving Stock
Compensation"--An Interpretation of APB Opinion No. 25. The interpretation
clarifies the application of APB Opinion No. 25 in specified events, as defined.
The interpretation is effective July 1, 2000 but covers certain events occurring
during the period after December 15, 1998, but before the effective date. To the
extent that events covered by this interpretation occur during the period after
December 31, 1998, but before the effective date, the effects of applying this
interpretation would be recognized on a prospective basis from the effective
date. Accordingly, upon initial application of the final interpretation, (i) no
adjustments would be made to the financial statements for periods before the
effective date and (ii) no expense would be recognized for any additional
compensation cost measured that is attributable to periods before the effective
date. The adoption of this statement did not have a material impact on the
Company's financial statements.
In June 1999, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS No. 133, as amended by
SFAS No. 137, is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. SFAS 133 establishes accounting and reporting standards for
derivative instruments including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. The Company does not expect that the adoption of this statement will
have a material impact on the Company's financial statements.
(3) TERM NOTE
In September 1997, the Company entered into a term note with a bank, whereby
the Company may borrow up to $500,000 for certain equipment and fixtures during
a specified drawdown period, after which time the outstanding balance will
become payable in 36 equal monthly principal installments plus interest. During
1999, the Company extended the drawdown period and increased its availability to
$1.0 million under the same conditions as this term note. Borrowings under the
term note bear annual floating interest at the bank's Prime Rate (9.25% at
December 31, 2000) during the drawdown period with an option to convert during
the repayment period to an annual fixed rate at the three-month London Interbank
Offered Rate ("LIBOR") (6.578% at December 31, 2000) plus 2.25%. Borrowings
under the term note are secured by equipment and fixtures purchased using the
proceeds of the note. There were $486,111 in borrowings outstanding under this
term note at December 31, 2000. The Company is required to maintain certain
financial covenants under the agreement. As of December 31, 2000, the Company
was in compliance with these covenants.
41
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1999 and 2000:
1999 2000
---------- ----------
Consulting and contract research..................... $1,067,988 $ 748,342
Payroll and payroll related.......................... 309,209 4,148
Professional fees.................................... 538,646 587,587
Other................................................ 600,330 381,668
---------- ----------
$2,516,173 $1,721,745
========== ==========
(5) COMMON STOCK
In December 1999, the Company completed a private placement of 1,706,287
shares of its common stock at $4.50 per share for net proceeds of approximately
$7.3 million.
In February 2000, the Company completed a private placement of 1,215,000
shares of its common stock at $8.00 per share for net proceeds of approximately
$9.0 million.
As of December 31, 1999 and 2000, the Company has reserved the following
shares of common stock for issuance:
1999 2000
--------- ----------
1991 Stock Option Plan................................ 688,364 552,382
1994 Directors' Equity Plan........................... 99,375 52,064
1997 Stock Option Plan................................ 1,496,757 1,417,350
Outstanding warrants.................................. 425,147 463,179
--------- ----------
2,709,643 2,484,975
========= ==========
(6) OPTIONS AND WARRANTS
(A) COMMON STOCK PLANS
In May 1997, the stockholders approved the 1997 Stock Incentive Plan (the
"1997 Plan"), which was intended to replace the Company's Amended 1991 Stock
Incentive Plan (the "1991 Plan"), under which it may grant incentive stock
options, nonqualified stock options and stock appreciation rights. In May 1999,
the stockholders approved an amendment to increase the number of shares of
common stock reserved for issuance under the 1997 Plan to 1,500,000 from
750,000. These options generally vest ratably over a four-to-five-year period.
In May 1997, the stockholders approved an amendment to the Company's 1994
Directors' Equity Plan (the "Directors' Plan"). The amendment increased from
50,000 to 100,000 the number of shares of common stock reserved for issuance
under the Directors' Plan. The Director's Plan was terminated on June 27, 2000.
Future grants to the the board of directors will be made under the 1997 Plan.
Currently, the board of directors grants each director, upon his or her initial
election to the board of directors, an option to purchase 15,000 shares of
BioTransplant common stock at an exercise price equal to the then fair market
value. In addition, each director is eligible to receive an option to
42
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) OPTIONS AND WARRANTS (CONTINUED)
purchase 6,000 shares of BioTransplant common stock, at an exercise price equal
to the then fair market value, upon his or her reelection to the board of
directors at each annual meeting of stockholders.
The following table summarizes the employee and director stock option
activity under the plans discussed above:
NUMBER WEIGHTED AVERAGE
OF OPTIONS EXERCISE PRICE
---------- ----------------
Outstanding, December 31, 1997.................... 1,014,425 $5.65
Granted........................................... 493,290 2.79
Exercised......................................... (6,073) 2.43
Canceled.......................................... (129,188) 6.98
---------- -----
Outstanding, December 31, 1998.................... 1,372,454 $4.51
Granted........................................... 329,745 4.46
Exercised......................................... (11,265) 2.21
Canceled.......................................... (69,326) 4.61
---------- -----
Outstanding, December 31, 1999.................... 1,621,608 $4.53
Granted........................................... 321,889 9.91
Exercised......................................... (221,514) 4.10
Canceled.......................................... (44,270) 4.57
---------- -----
Outstanding, December 31, 2000.................... 1,677,713 $5.59
========== =====
Exercisable, December 31, 1998.................... 472,608 $4.70
========== =====
Exercisable, December 31, 1999.................... 747,266 $4.70
========== =====
Exercisable, December 31, 2000.................... 862,733 $4.92
========== =====
The following tables summarize certain information about options outstanding
at December 31, 2000:
WEIGHTED AVERAGE
RANGE OF REMAINING
EXERCISE OPTIONS CONTRACTUAL WEIGHTED AVERAGE
PRICES OUTSTANDING LIFE IN YEARS EXERCISE PRICE
------------------ ----------- ---------------- ----------------
$0.04- 4.00 638,554 6.43 $2.72
4.13- 6.75 702,054 6.89 6.20
6.88-18.63 337,105 9.15 9.76
------------------ --------- ---- -----
$0.04-18.63 1,677,713 7.17 $5.59
================== ========= ==== =====
43
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) OPTIONS AND WARRANTS (CONTINUED)
The following tables summarize certain information about options exercisable at
December 31, 2000:
RANGE OF
EXERCISE OPTIONS WEIGHTED AVERAGE
PRICES EXERCISABLE EXERCISE PRICE
------------------ ----------- ----------------
$0.04- 4.00 365,722 $2.96
4.13- 6.75 460,452 6.22
6.88-18.63 36,559 8.18
------------------ ------- -----
$0.04-18.63 862,733 $4.92
================== ======= =====
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
requires the measurement of the fair value of stock options or warrants granted
to employees be included in the statement of operations or disclosed in the
notes to financial statements. The Company accounts for stock-based compensation
for employees under APB Opinion No. 25 and follows the pro forma disclosure-only
alternative under SFAS 123. The Company has computed the pro forma disclosures
required under SFAS 123 for options granted using the Black-Scholes option
pricing model prescribed by SFAS 123. The assumptions used for the years ended
December 31, 1998, 1999 and 2000 are as follows: risk-free interest rates of
4.73%, 6.72% and 4.93%; expected common stock volatility factors of 85%, 87% and
92%; and a weighted-average expected life of the stock options of seven years.
The Company does not currently pay any dividends, and it does not expect to pay
cash dividends in the foreseeable future; therefore, dividend yields for 1998,
1999 and 2000 are assumed to be 0%. The weighted average fair value of options
granted in 1998, 1999 and 2000 was $2.18, $3.57 and $8.14, respectively.
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option-pricing models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
The total fair value of the options granted during the years ended
December 31, 1998, 1999 and 2000 was computed as approximately $1,074,000,
$1,177,000 and $2,619,000, respectively. These amounts are assumed to be
amortized over the related vesting periods. The resulting pro forma compensation
expense may not be representative of the amount to be expected in future years,
as pro forma compensation expense may vary, based upon the number of options
granted and the assumptions used in valuing these options.
The pro forma net loss and pro forma net loss per common share presented
below have been computed assuming no tax benefit. The effect of a tax benefit
has not been considered since a substantial portion of the stock options granted
are incentive stock options and the Company does not
44
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) OPTIONS AND WARRANTS (CONTINUED)
anticipate a future deduction associated with the exercise of these stock
options. The pro forma effect of SFAS 123 for the years ended December 31, 1998,
1999 and 2000 is as follows:
1998 1999 2000
------------ ----------- ------------
Net loss
As reported...................................... $ (9,210,607) $(8,673,450) $(11,679,363)
Pro forma........................................ (10,123,353) (9,769,704) (13,032,181)
Basic and diluted net loss per common share
As reported...................................... $ (1.07) $ (1.01) $ (1.01)
Pro forma........................................ (1.18) (1.14) (1.13)
(B) WARRANTS
In connection with certain financing and facility leasing transactions that
occurred in 1991 through 1995, the Company issued warrants to purchase 377,133
shares of common stock at prices ranging from $.04 to $17.52. In December 1999,
the Company issued warrants to purchase 71,391 shares of common stock at a price
of $5.63 per share in connection with a private placement of the Company's
common stock. In February 2000, the Company issued warrants to purchase 97,200
shares of common stock at a price of $10.00 per share in connection with a
private placement of the Company's common stock. As of December 31, 2000,
warrants to purchase 23,829 shares of common stock had expired or been
cancelled. During 2000, warrants to purchase 58,716 shares of common stock were
exercised for net proceeds of approximately $393,000.
The following table summarizes certain information about warrants
outstanding at December 31, 2000:
WEIGHTED AVERAGE
REMAINING
RANGE OF WARRANTS CONTRACTUAL WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING LIFE IN YEARS EXERCISE PRICE
--------------- ----------- ---------------- ----------------
$ 0.04-10.00 451,350 3.53 $ 3.97
10.80-17.52....... 11,829 0.87 14.89
------------------- ------- ---- ------
$ 0.04-17.52....... 463,179 3.46 $ 4.24
=================== ======= ==== ======
(7) COLLABORATIVE RESEARCH AGREEMENTS
(A) NOVARTIS
In April 1993, as amended and restated in September 1995, the Company
entered into a five-year collaboration agreement with Novartis to develop and
commercialize xenotransplantation technology utilizing gene transduction.
Pursuant to this agreement, all committed research funding of $20.0 million and
all committed license fees of $10.0 million had been received as of
December 31, 1997. In October 1997, the Company and Novartis expanded their
relationship in xenotransplantation by entering into a collaboration and license
agreement for the development and commercialization of xenotransplantation
products utilizing the Company's proprietary mixed bone marrow chimerism
45
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) COLLABORATIVE RESEARCH AGREEMENTS (CONTINUED)
technology. Under this agreement, Novartis committed up to $36.0 million in
research funding, license fees and milestone payments, assuming the agreement
continues for its full term. As of December 31, 2000, $13.5 million of research
funding, $4.0 million of license fees and $2.5 million of milestone payments had
been received.
In September 2000, the Company entered into an agreement with Novartis to
combine their respective expertise in the field of xenotransplantation into a
newly-formed, independently-run company named Immerge BioTherapeutics AG
("Immerge"). The formation of Immerge supersedes and terminates the 1993 and
1997 Novartis agreements as amended and restated. Immerge began operations in
January 2001. In return for contributing its technology and an aggregate of
$30 million in funding over three years beginning January 1, 2001, Novartis
retains a 67% ownership share of Immerge and retains the exclusive worldwide,
royalty-bearing rights to the development and commercialization of any
xenotransplantation products resulting from Immerge's research. In return for
contributing its technology, BioTransplant retains a 33% share of Immerge and
will receive royalty payments from Novartis sales of xenotransplantation
products, if any.
In December 2000, Immerge BioTherapeutics AG formed a wholly-owned Delaware
subsidiary, Immerge BioTherapeutics, Inc. BioTransplant expects to enter into a
contract research agreement with the Delaware subsidiary, under which
BioTransplant will commit approximately 20 full-time employees to perform
research and will agree to provide administrative services, all at a rate to be
agreed upon.
In addition to these agreements, Novartis purchased $5.0 million of the
Company's Series B convertible preferred stock in 1992, which converted into
532,125 shares of common stock upon the Company's initial public offering in
1996.
(B) MEDIMMUNE, INC.
In October 1995, the Company and MedImmune, Inc. ("MedImmune") formed a
collaborative agreement for the development and commercialization of products to
treat and prevent organ transplant rejection. The collaboration is based upon
the development of products derived from BTI-322, MEDI-500 and future
generations of products derived from these two molecules (including MEDI-507,
the humanized version of BTI-322). Pursuant to the collaboration, the Company
granted MedImmune an exclusive worldwide license to develop and commercialize
BTI-322 and any products based on BTI-322, other than the use of BTI-322 in kits
or systems for xenotransplantation or allotransplantation. MedImmune paid the
Company a $2.0 million license fee at the time of formation of the
collaboration, and agreed to fund and assume responsibility for clinical testing
and commercialization of any resulting products. MedImmune had provided
$2.0 million in non-refundable research support through December 31, 1997.
Additionally, MedImmune has agreed to make milestone payments that could total
up to an additional $11.0 million, all of which is repayable from royalties on
BTI-322/MEDI-507 or MEDI-500, as well as pay royalties on any sales of
BTI-322/MEDI-507, MEDI-500 and future generations of products, if any. The
Company has not received any milestone payments to date. MedImmune is entitled
to a credit against royalty payments for certain milestone payments that it
makes. In the event that the Company receives milestone payments from MedImmune
that are creditable against future royalties, the Company will defer recognition
of revenue upon receipt of the milestone payment and recognize royalty revenue
as it is earned.
46
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." At December 31, 2000 the Company had net
operating loss carryforwards for income tax purposes of approximately
$64,562,000. The Company also has available tax credit carryforwards of
$2,000,000 at December 31, 1999 to reduce future federal income taxes, if any.
The net operating loss carryforwards and tax credit carryforwards expire
commencing in the year 2006 through 2020, and are subject to review and possible
adjustment by the Internal Revenue Service. Net operating loss carryforwards and
tax credit carryforwards may be limited in the event of certain changes in the
ownership interests of significant stockholders.
The components of the deferred tax asset as of December 31, 1999 and 2000
are approximately as follows:
1999 2000
----------- -----------
Operating loss carryforwards....................... $19,350,000 $25,999,000
Tax credit carryforwards........................... 2,000,000 2,200,000
Other temporary differences........................ 1,550,000 607,000
----------- -----------
22,900,000 28,806,000
Less--Valuation allowance.......................... 22,900,000 28,806,000
----------- -----------
$ -- $ --
=========== ===========
Because of the history of operating losses, a valuation allowance has been
provided for the entire deferred tax asset since it is uncertain if the Company
will realize the benefit of the deferred tax asset.
(9) COMMITMENTS
(A) RESEARCH AND LICENSE AGREEMENTS
The Company has entered into several research and license agreements with a
hospital whereby the Company obtained the rights to the hospital's research
pertaining to the transplantation of organs and tissues and other related
technologies. The Company also obtained an exclusive license to commercially
develop, manufacture, use and distribute worldwide any products developed
pursuant to the agreements, in exchange for research funding and royalties on
any future sales. These agreements have initial terms of one to ten years;
however, either party may terminate the agreements at various times, as defined,
with written notice.
The Company has entered into research and license agreements with
universities whereby the Company funds research and development. The Company
also obtained exclusive worldwide licenses for certain patents, patent rights
and research information and rights to develop, manufacture, use and sell any
product developed pursuant to the licensed technology in exchange for royalties
on any future sales, as defined.
The Company has entered into a miniature swine transfer and maintenance
agreement with a breeding laboratory and was granted exclusive, worldwide rights
to the miniature swine. Pursuant to this agreement, the Company has agreed to
pay specified maintenance costs, as defined in the agreement.
47
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) COMMITMENTS (CONTINUED)
Commitments as of December 31, 2000, pursuant to these research and license
agreements are as follows:
TOTAL
----------
Year Ending December 31,
2001.................................................. $3,390,000
2002.................................................. 777,000
2003.................................................. 775,000
----------
$4,942,000
==========
(B) OPERATING LEASE COMMITMENTS
The Company leases its facility under an operating lease that expires in
2009. In addition, the Company is responsible for the real estate taxes and
operating expenses related to this facility. Minimum annual rental payments,
excluding taxes and operating costs, under this lease agreement are as follows:
2001.................................................... $1,025,000
2002.................................................... 1,025,000
2003.................................................... 1,025,000
2004.................................................... 1,025,000
2005.................................................... 1,025,000
Thereafter.............................................. 4,100,000
----------
$9,225,000
==========
Rental expense, which includes facility lease, ground lease and real estate
tax costs, for the years ended December 31, 1998, 1999 and 2000 was
approximately $1,219,000, $1,192,000 and $1,188,000, respectively.
(C) CAPITAL LEASE COMMITMENTS
The Company has capital lease commitments related to certain property and
equipment.
48
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) COMMITMENTS (CONTINUED)
Future minimum payments under these capital lease agreements as of
December 31, 2000 are as follows:
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------
2001........................................................ $ 50,396
2002........................................................ 50,396
2003........................................................ 37,797
Total minimum payments.................................... 138,589
Less--Amount representing interest.......................... 18,818
--------
Present value of minimum lease payments................... 119,771
Less--Current obligation under capital leases............... 37,486
--------
$ 82,285
========
Equipment under capital leases collateralize these lease obligations.
(10) INVESTMENT IN STEM CELL SCIENCES LTD.
In April 1994, the Company entered into a shareholders' agreement and a
research and license agreement (the "Agreements") with Stem Cell Sciences Ltd.
("Stem Cell"). Under the Agreements, the Company paid $1.0 million for 30% of
the outstanding common stock of Stem Cell, an exclusive license to certain
technology and other intellectual property and support of certain research in
the field of animal genetic engineering and an option to maintain its pro rata
equity ownership at 30% through December 31, 1998.
Subsequent to the initial $1.0 million investment, the Company made
additional capital contributions totaling $3,125,000 through 1999 to support all
of the activities at Stem Cell under the research and license agreement. The
Company is accounting for its investment in Stem Cell under the equity method of
accounting. Because the Company provided substantially all of the capital to
fund the activities of Stem Cell through 1999, the Company has recorded the
losses of Stem Cell as research and development expenses in its statements of
operations. The amount of research and development expense relating to Stem Cell
losses for 1998 and 1999 was $700,000 and $825,000, respectively.
During 2000, Stem Cell received approximately $1.8 million from the issuance
of convertible notes to parties other than the Company. Certain noteholders of
Stem Cell converted their interest into common stock during the year. This
conversion diluted the Company's ownership interest in Stem Cell to 25.5%.
Additionally, in connection with the conversion the Company recognized a gain in
stockholders' equity of $160,000 on its investment in accordance with SAB
No. 51, "Accounting for Sales of Stock by a Subsidiary." The Company also
recorded its equity in the loss of Stem Cell of $55,000 for the year ended
December 31, 2000 based on its ownership interest. This loss is included in
research and development expense.
(11) EMPLOYMENT RETIREMENT/SAVINGS PLAN
The Company maintains an employee retirement/savings plan (the "Plan") which
permits participants to make tax deferred contributions by salary reduction
pursuant to section 401(k) of the
49
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) EMPLOYMENT RETIREMENT/SAVINGS PLAN (CONTINUED)
Internal Revenue Code. All active employees, 21 years of age or older, who have
completed a calendar quarter of service are eligible to participate in the Plan.
The Company pays all administrative costs of the Plan. During 2000, the Company
began making matching contributions into the Plan and contributed a total of
approximately $82,000.
(12) RELATED PARTY TRANSACTIONS
In March 1991, the Company entered into a supply agreement with Charles
River Laboratories (CRL), which was amended in 1998. Under the terms of the
amended agreement, CRL provides the Company with miniature swine and miniature
swine organs for research and development purposes in exchange for payment of
the costs of maintaining the miniature swine herd. Upon commencement of
commercial sales of miniature swine organs, the Company and CRL may enter into a
definitive supply agreement for the ongoing supply of miniature swine. In the
years ended December 31, 1999 and 2000, the Company paid CRL approximately
$940,000 and $988,000, respectively, under this agreement. James C. Foster,
President and Chief Executive Officer of CRL, is a director of the Company.
(13) PENDING ACQUISITION
On December 8, 2000, the Company entered into a definitive agreement to
acquire Eligix, Inc. through a reverse triangular merger. Upon consummation of
the merger, Eligix will become a wholly-owned subsidiary of the Company. Under
the terms of the merger, the Company will issue up to 5,610,000 shares of common
stock in exchange for the fully diluted common stock of Eligix and 990,000
shares of common stock to members of Eligix management over a one-year period.
The Company will account for the merger as a purchase of Eligix. The merger is
expected to close in the second quarter of 2001, subject to BioTransplant and
Eligix stockholder approval. Based upon the Company's average trading price for
the period from two days before to two days after the date the merger was
announced, December 11, 2000, of $8.3565, the transaction is valued at
approximately $55,000,000. Additionally, the Company anticipates the closing
costs of the merger to total approximately $3.7 million.
If the Company or Eligix terminates the merger agreement in accordance with
its terms, all obligations of the parties under the merger agreement terminate
and there will be no liability, except that if the merger agreement is
terminated by either party as a result of the other party's failure to perform
or comply in all material respects with the agreements and covenants under the
merger agreement, the nonterminating party will pay the terminating party
$2.0 million.
Additionally, the Company has entered into a promissory note with Eligix
whereby Eligix may borrow up to $2.0 million to fund operations through the
closing date of the merger. The loan bears interest at the prime rate. Upon
consummation of the merger, the loan will be forgiven, provided that if the
merger does not close on or before June 30, 2001, the note will become
immediately due and payable in full.
50
BIOTRANSPLANT INCORPORATED AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following tables present a condensed summary of quarterly results of
operations for the years ended December 31, 2000 and 1999 (in thousands, except
per share data).
YEAR ENDED DECEMBER 31, 2000
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Total revenues........................................... $ 1,488 $ 1,488 $ 1,476 $ 106
Net loss................................................. $(2,499) $(2,408) $(2,501) $(4,271)
Basic and diluted net loss per share..................... $ (0.23) $ (0.21) $ (0.21) $ (0.36)
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Total revenues........................................... $ 1,239 $ 1,238 $ 3,735 $ 2,477
Net loss................................................. $(2,892) $(2,968) $ (602) $(2,213)
Basic and diluted net loss per share..................... $ (0.34) $ (0.35) $ (0.07) $ (0.26)
(15) SUBSEQUENT EVENT (UNAUDITED)
On June 8, 2001, the Company sold 3,022,457 shares of common stock at $6.30
per share, resulting in gross proceeds to the Company of approximately
$17.9 million.
51
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are included as part of this Annual Report on
Form 10-K.
1. Financial Statements:
PAGE
--------
Report of Independent Public Accountants.................... 33
Consolidated Balance Sheets as of December 31, 1999 and
2000...................................................... 34
Consolidated Statements of Operations for the years ended
December 31, 1998, 1999 and 2000, and for the period from
inception (March 20, 1990) through December 31, 2000...... 35
Consolidated Statements of Stockholders' Equity (Deficit)
since inception (March 20, 1990).......................... 36
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000 and for the period from
inception (March 20, 1990) through December 31, 2000...... 37
Notes to Consolidated Financial Statements.................. 38
2. The Exhibits listed in the Exhibit Index immediately preceding the
Exhibits are filed as part of this Annual Report on Form 10-K.
(b) The following Current Reports on Form 8-K were filed by the Company during
the last quarter covered by this report:
1. A Current Report on Form 8-K was filed on October 11, 2000 to report,
pursuant to Item 5, the issuance of a press release announcing an
agreement with Novartis Pharma AG.
2. A Current Report on Form 8-K was filed on December 11, 2000 to report,
pursuant to Item 5, the issuance of a press release announcing the
Company's plans to acquire Eligix, Inc. pursuant to an Agreement and Plan
of Merger dated December 8, 2000.
BIOTRANSPLANT-TM-, IMMUNOCOGNANCE-TM-, ALLOMUNE-TM- AND
BTI-322-REGISTERED TRADEMARK- ARE BIOTRANSPLANT'S TRADEMARKS. BCELL-HDM-TM-,
TCELL-HDM-TM-, PANT-HDM-TM-, BRCA-HDM-TM-, NEU/RBC-HDM-TM-, ACT-IV-TM-,
LEUKO-HDM-TM-, REACT-HDM-TM-, ACTCELL-HDM-TM- AND HDM-TM- ARE TRADEMARKS OF
ELIGIX. THIS ANNUAL REPORT ON FORM 10-K ALSO CONTAINS TRADEMARKS AND TRADE NAMES
OF OTHERS.
52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment No. 2 on
Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: June 29, 2001 BIOTRANSPLANT INCORPORATED
By: /s/ ELLIOT LEBOWITZ
-----------------------------------------
Elliot Lebowitz, Ph.D.
53
EXHIBIT INDEX
The following exhibits are filed as part of this Annual Report on
Form 10-K.
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
*2.1(1) Agreement and Plan of Merger, dated as of December 8, 2000,
by and among the Registrant, BT/EL Acquisition Co. and
Eligix, Inc.
3.1(2) Amended and Restated Certificate of Incorporation of the
Registrant, as amended to date.
3.2(3) Amended and Restated By-laws of the Registrant, as amended
to date.
4.1(3) Specimen certificate for shares of common stock, $.01 par
value per share, of the Registrant.
+10.1(3) Research and License Agreement between the Registrant and
The General Hospital Corporation, dated January 1, 1991 as
amended by Agreements dated November 10, 1993, June 28, 1995
and January 31, 1996 (the "1991 MGH Agreement").
+10.2(3) Research and License Agreement between the Registrant and
The General Hospital Corporation dated December 8, 1992.
+10.3(3) Research and License Agreement between the Registrant and
The General Hospital Corporation dated August 1, 1994.
+10.4(3) Alliance Agreement between the Registrant and MedImmune,
Inc. dated October 2, 1995.
+10.5(1) An extension to the Research and License Agreement between
The General Hospital Corporation and the Registrant, having
an effective date of January 1, 1991, as amended.
10.6(1) Shareholders' Agreement by and among the Registrant,
Castella Research, Secure Sciences and Stem Cell Sciences
Pty. Ltd. dated April 5, 1994, as amended.
10.7(1) Research and License Agreement between the Registrant and
Stem Cell Sciences Pty. Ltd. dated April 5, 1994.
10.8(3) Form of Common Stock Warrant issued to certain investors in
August 1994 and Schedule of Warrantholders.
10.9(3) Form of Common Stock Warrant issued to certain investors in
October 1994 and Schedule of Warrantholders.
10.10(3) Form of Common Stock Warrant issued to certain investors in
August 1995 and Schedule of Warrantholders.
10.11(3) Convertible Promissory Note and Warrant Purchase Agreement
by and among the Registrant, HealthCare Ventures II, L.P.
and Everest Trust dated December 20, 1991.
10.12(3) Convertible Promissory Note and Warrant Purchase Agreement
by and among the Registrant and the parties signatory
thereto dated October 31, 1994.
10.13(3) Third Amended and Restated Stockholders Agreement by and
among the Registrant and the parties signatory thereto, as
amended by a Consent, Waiver and Amendment dated January 23,
1996.
10.14(3) Form of Consent, Waiver and Amendment Agreement to the Third
Amended and Restated Stockholders' Agreement by and among
the Registrant and the parties signatory thereto.
**10.15(3) Amended 1991 Stock Option Plan.
**10.16(4) 1994 Directors' Equity Plan, as amended.
54
EXHIBIT NO. DESCRIPTION
--------------------- ------------------------------------------------------------
**10.17(1) 1997 Stock Incentive Plan, as amended
10.18(3) Consulting Agreement between the Registrant and Dr. David H.
Sachs dated January 1, 1991.
10.19(12) Amendments to Consulting Agreement between the Registrant
and Dr. David H. Sachs dated December 1, 1998, January 5,
2000 and January 8, 2001.
10.20(3) Lease between the Registrant and BioLease, Inc. dated March
17, 1994.
10.21(5) First Amendment to Lease between the Registrant and
BioLease, Inc. dated November 17, 1998.
+10.22(6) Development and Supply Agreement between the Registrant and
Dendreon Corporation (formerly, Activated Cell Therapy),
dated August 22, 1996.
10.23(1) Agreement to further vary Shareholders' Agreement among the
Registrant and Castella Research, Secure Sciences and Stem
Cell Sciences Pty., Ltd., dated December 20, 1996.
10.24(1) Agreement to further vary Shareholders' Agreement among the
Registrant and Castella Research, Secure Sciences and Stem
Cell Sciences Pty., Ltd., dated March 16, 1997, as amended.
10.25(8) Letter Agreement, Security Agreement and Promissory Note
between the Registrant and Fleet National Bank, dated August
10, 1999.
+10.26(7) Miniature Swine Transfer and Maintenance Agreement dated
January 1, 1998 by and between Charles River Laboratories,
Inc., Wilmington Partners, L.P. and the Registrant.
+10.27(9) Shareholder Agreement dated September 24, 2000 by and
between the Registrant, Novartis AG and Immerge
BioTherapeutics AG (formerly known as Loxo AG), together
with exhibits.
+10.28(10) Patent License Agreement (MEDI-507), dated July 17, 1997 by
and between Protein Design Labs and MedImmune, Inc.
10.29(11) Promissory Note made by Eligix, Inc. in favor of the
Registrant.
21(1) Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
------------------------
+ Confidential treatment granted as to certain portions.
* The Registrant agrees to furnish supplementally a copy of any omitted
schedules to this agreement to the Securities and Exchange Commission upon
its request.
** Management contract or compensatory plan or arrangement filed in response to
Item 14(a)(3) of the instructions to Form 10-K.
(1) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-4, as amended (File No. 333-53386).
(2) Incorporated herein by reference from the Registrant's Form 8-K dated
July 18, 2000.
(3) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1, as amended (File No. 333-02144).
(4) Incorporated herein by reference to the Registrant's Definitive Proxy
Statement for the 1999 Annual Meeting of Stockholders filed on
Schedule 14A.
(5) Incorporated herein by reference to the Registrant's Form 10-K for the year
ended December 31, 1999.
(6) Incorporated herein by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 1996.
(7) Incorporated herein by reference to the Registrant's Form 10-Q for the
quarter ended June 30, 1998.
55
(8) Incorporated herein by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 1999.
(9) Incorporated herein by reference to the Registrant's Form 10-Q for the
quarter ended September 30, 2000.
(10) Incorporated herein by reference to the exhibit filed with MedImmune,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30,
1997.
(11) Incorporated herein by reference to the Registrant's Current Report on
Form 8-K dated March 9, 2001.
(12) Previously filed.
56