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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 3
TO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One) | |
ý | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2002 | |
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission File Number 0-24320
NaPro BioTherapeutics, Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) | 84-1187753 (I.R.S. Employer Identification No.) | |
4840 Pearl East Circle, Suite 300W Boulder, CO 80301 (303) 516-8500 (Address, including zip code, and telephone number, including area code of registrant's principal executive offices) |
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0075 par value; Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o
The approximate aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $151,191,000 as of June 28, 2002 (the last business day of the registrant's second fiscal quarter in 2002). For purposes of determining this number, 6,697,884 shares of common stock held by affiliates are excluded. For purposes of making this calculation, the registrant has defined affiliates as including all directors, executive officers and beneficial owners of more than ten percent of the common stock of the Company.
As of October 20, 2003, the Registrant had 30,756,384 shares of Common Stock outstanding.
NaPro BioTherapeutics, Inc. hereby amends its Form 10-K for the period from January 1, 2002 to December 31, 2002, as amended (the "Form 10-K"), as set forth in this Form 10-K/A (the "Form 10-K/A"). This Form 10-K/A is being amended to revise Item 1 of Part I, Item 5 of Part II and Item 15 of Part IV. This Form 10-K/A does not reflect events occurring after the filing of the original Form 10-K, as previously amended, or modify or update the disclosures therein in any way other than as required to reflect the amendment set forth below.
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Part I
General
NaPro BioTherapeutics, Inc. (NaPro) is a pharmaceutical company focused in three distinct areas:
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- the production and sale of paclitaxel, an approved cancer drug;
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- the development of novel, targeted anti-cancer agents (which we refer to as Targeted Oncology), and
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- the development of novel genomic technologies, primarily in the area of gene editing for applications in human therapeutics, diagnostics, agribiotechnology and pharmacogenomics (which we refer to as Gene Editing).
Historically, the primary focus of our business has been the production and sale of paclitaxel, a naturally occurring chemotherapeutic anti-cancer agent found in certain species of yew, orTaxus, trees, and a majority of the NaPro's resources have been devoted to this endeavor. We have entered into marketing agreements with established pharmaceutical companies to assist us in gaining regulatory approvals, formulating, and marketing our paclitaxel. Our paclitaxel is currently approved for commercial sale in the U.S., Australia, Israel and more than 25 other countries in the Middle East, Asia and Latin America.
In the field of genomics, we are engaged in the discovery, patenting, development and commercialization of a broad range of products using our proprietary Gene Editing technology. Employing this technology, we are developing products that specifically and precisely edit genes. By making small, highly controlled modifications to genes, we believe we can contribute to the prevention and treatment of many different types of disease. In the area of therapeutics, our efforts to date have been directed primarily to treatments for Sickle Cell Disease and Huntington's Disease. Both projects are currently in the pre-clinical stages of development. In addition, we are developing gene alteration strategies for animals, plants, viruses and other microbes. Our proprietary Gene Editing technology also has application in the research reagent, genomics service and molecular diagnostic fields. We are currently assembling a portfolio of products and services, which we intend to offer to potential customers in these market segments.
In December 2002, we acquired the genomics business of Pangene Corporation. The acquisition consisted primarily of patents and intellectual property relating to Pangene's homologous recombination technology and gene isolation and service business, physical assets, instrumentation, software, customer relationships and third-party licenses. In connection with this agreement, we acquired additional patents in January 2003.
In the field of Targeted Oncology, we are developing several compounds that we believe have potential as new anti-cancer agents. Generally, these compounds consist of conjugates of a cytotoxic agent coupled to a peptide, which selectively and specifically targets certain types of tumor cells. We are testing these conjugates in various in-vitro and animal models, and are currently undertaking the development work necessary to introduce these agents into human clinical trials. It is our belief that coupled cytotoxic agents with a targeting agent will lead to greater safety and efficacy when compared with the cytotoxic chemotherapy agents currently available on the market.
In addition to Gene Editing and Targeted Oncology research and development activities, we are also actively engaged in evaluating the in-licensing or purchase of potential new products and/or technologies, whether or not those products or technologies are derived from natural products, are chemotherapeutic agents, or complement our Gene Editing technology. Our evaluation of new products
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and technologies may involve the examination of individual molecules, classes of compounds, or platform technologies, in both cancer and other therapeutic areas. Acquisitions of new products or technologies may involve the purchase of such products or technologies, or the acquisition of, or merger with, other companies. In the event we enter into any such relationships or transactions, we may consider using available cash, issuing equity securities or increasing our debt. Such transactions could materially affect our capital structure.
NaPro Products: Commercial or under Development
The following chart identifies our therapeutic products, both commercial and under development.
Product | Indication(s) | Development Status | ||
---|---|---|---|---|
Commercial Oncology Products | ||||
ANZATAX™ (Mayne Pharma) | Breast, Ovarian and Non-Small Cell Lung Cancer | Commercialized in Australia, Asia, South America and the Mideast; in development in Europe | ||
Biotax® (Tzamal Pharma) | Breast, Ovarian and Non-Small Cell Lung Cancer | Commercialized in Israel | ||
NaPro Paclitaxel for injection (Abbott Laboratories) | Breast and Ovarian Cancer | Commercialized in the U.S. | ||
Targeted Oncology Products | ||||
Targeted cancer therapeutic | Small Cell Lung, Prostate, Pancreatic and Colorectal Cancers | Pre-clinical research | ||
Targeted cancer therapeutic | Head and Neck Cancer | Pre-clinical research | ||
Gene Editing Products | ||||
Ex-vivo cell therapy | Sickle Cell Disease | Pre-clinical research | ||
Oligonucleotide therapeutic | Huntington's Disease | Pre-clinical research |
Paclitaxel
To date, the majority of our resources have been directed toward the development and manufacture of paclitaxel. The market for paclitaxel is dominated by Bristol-Myers Squibb Company (Bristol). Bristol's paclitaxel is widely used in the treatment of breast and ovarian cancers, Kaposi's sarcoma, and non-small cell lung cancer when used in combination with cisplatin. Our proprietary manufacturing technology includes the extraction, isolation, and purification of paclitaxel, as well as the semisynthesis of the drug substance. We continue to develop renewable sources of paclitaxel biomass. We have alliances with established pharmaceutical companies who assist us in marketing these products. We believe the combination of our proprietary manufacturing technology, biomass capability, and pharmaceutical alliances has allowed us to participate significantly in the broad paclitaxel market.
Scientific Background. In 1963, the National Cancer Institute (NCI) recognized that the natural product paclitaxel killed leukemia cells and inhibited the development of a variety of tumors. Over the next two decades, researchers working under grants from the NCI conducted studies to determine paclitaxel's structure and its mechanism of action. The NCI studies indicated that paclitaxel inhibits the normal action of microtubules in cancer cell division. Microtubules, located in the cytoplasm of cells, play a vital role in cellular division. Paclitaxel promotes microtubule assembly and blocks normal microtubule disassembly in cells, which stops cell division and causes the cancer cell to die. This cytoplasmic mechanism of action contrasts with the nuclear mechanism of action of the majority of cell-killing drugs that kill the cell by attacking nuclear components such as DNA.
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In June 1991, the NCI formalized a Collaborative Research and Development Agreement (CRADA) for development of paclitaxel with Bristol. Bristol assumed development of paclitaxel, including completion of the necessary clinical trials and manufacturing scale-up. Bristol submitted a New Drug Application (NDA) to the United States Food and Drug Administration (FDA) in June 1992, and received approval for the sale of paclitaxel as a treatment for refractory ovarian cancer in December 1992. Since then, Bristol has received approval for the sale of paclitaxel as a treatment for other cancers.
Paclitaxel is one of a family of compounds, commonly referred to as taxanes, that share a specific chemical structure. Taxanes are found naturally in many parts of various species of yew trees. The concentration of individual taxanes in yew trees is very small, generally less than 0.1%, and accordingly, the process of extracting taxanes from yew biomass is complicated and challenging. Several production approaches can be used to produce paclitaxel. We believe the two most prevalent processes used today are conventional biomass extraction and semisynthesis.
With conventional biomass extraction, the manufacturing process is designed to extract, isolate and purify paclitaxel from yew biomass leaving behind other components, including non-paclitaxel taxanes. However, the extraction, isolation and purification processes are complicated because there are more than 100 different taxanes present in yew biomass. In a semisynthesis process, the initial extraction, isolation and purification is similar to that of the conventional biomass extraction process, except that the process not only isolates paclitaxel, but also other taxanes (which would otherwise be waste byproducts) and converts these other taxanes into paclitaxel. By converting other taxanes into paclitaxel, the semisynthesis process increases the yield of paclitaxel from the same quantity of biomass. Regardless of which process is used, the final product must meet acceptable purity and drug substance criteria.
Other companies have developed taxane products that are similar, but not identical, to paclitaxel. For example, Aventis S.A., a large international pharmaceutical company, has developed docetaxel which is being marketed in various parts of the world under the trademark Taxotere®. Taxotere® has a different toxicity profile than paclitaxel and has side effects not observed with paclitaxel. The FDA approved Taxotere® for treatment of anthracycline-resistant breast cancer in patients without impaired liver function, and for non-small cell lung cancer after failure of a prior platinum-based chemotherapy.
Paclitaxel Strategic Alliances. Our strategy for advancing the development and commercialization of paclitaxel has been to form strategic alliances through long-term exclusive agreements with established pharmaceutical companies.
Abbott Laboratories. In July 1999, we entered into a 20-year exclusive collaborative agreement with Abbott Laboratories (Abbott) for the development and commercialization in the U.S. and Canada of one or more formulations of paclitaxel for treatment of a variety of cancer indications. Abbott is a large, multinational, diversified health care company. Pursuant to the agreement, we are responsible for supplying bulk drug. Clinical trials are conducted jointly with Abbott. We are not currently conducting any clinical trials with Abbott. Abbott is responsible for finishing, regulatory filings, marketing and sale of the finished drug product. Most primary decisions related to the paclitaxel development program are made by a joint Abbott-NaPro development committee. In May 2002, we and Abbott received FDA approval to market and sell paclitaxel in the U.S. Pursuant to the agreement, we receive a fixed price payment of $500 per gram, upon delivery of paclitaxel to Abbott, plus a quarterly royalty payment, if any. The royalty payment is a percentage of sales recorded by Abbott less any product payment already paid to NaPro. The percentage of sales varies each year based upon total sales in that year recorded by Abbott. We do not anticipate receiving significant royalty payments given the current price of the drug.
In connection with the Abbott agreement, we may receive total funding of up to $118.0 million in the form of up to $30.0 million in development milestones, up to $57.0 million in marketing milestones, $20.0 million in secured debt, and $11.0 million in equity investments. Marketing milestones are based
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upon certain annual sales levels, the majority of which are unlikely to be achieved given the current pricing of paclitaxel. Through December 31, 2002, and excluding product sales, we have received $40.0 million under the agreement, including $11.0 million in equity investments in exchange for 2,000,000 shares of our common stock, $9.0 million in development milestones, and $20.0 million in secured debt.
Of the $30.0 million of potential development-related milestone payments, we received $1.0 million upon execution of its agreement with Abbott in July 1999. With the approval of NaPro's ANDA, and upon commencement of commercial sales, we received an $8.0 million payment in May 2002. Thus, $21.0 million in possible development milestones remain. Additional development milestones will only be available should NaPro or Abbott undertake and successfully complete new development work, which is not currently anticipated.
Our indebtedness to Abbott bears a primary interest rate of 6.5% and is due in full on the earlier of: (i) the second anniversary of the first sale of finished product by Abbott to a wholesaler or end-user customer following approval of finished product by the FDA (May 8, 2004); (ii) the termination of the Abbott agreement; or (iii) January 1, 2007. The debt is limited to a borrowing base of collateralized assets, recomputed monthly. The majority of our paclitaxel inventories, and specific assets, which relate to the manufacture of paclitaxel, are collateralized as security for the debt. Abbott's only recourse in the event of our default on the debt is to these specific assets.
Contingent upon receiving regulatory approval and achieving certain commercial sales thresholds over several years, we may receive additional milestone payments from Abbott of up to $57.0 million. We cannot assure that regulatory approval or sales thresholds necessary to trigger any of the future milestone payments will be achieved. Given current market conditions, we believe it is unlikely that any such milestones will be triggered. In addition, Abbott may terminate the agreement at any time with or without cause. Should Abbott terminate without cause, it is obligated to make certain payments to us and to give us twelve months prior written notice.
The Abbott agreement grants Abbott the exclusive right to develop and market our paclitaxel in the U.S. and Canada. Abbott is required to purchase all of its requirements for paclitaxel from us, except in certain circumstances if we become unable to supply Abbott's requirements. Except for limited instances where termination is due to specific breaches of the agreement by us, we retain exclusive rights following termination to any clinical data generated during the course of the agreement. We are required to indemnify Abbott for defects in our paclitaxel that is shipped to Abbott, breaches of our warranties or obligations under the agreement, harm caused by inappropriate co-marketing activities, and some intellectual property and product liability claims. Abbott is required to indemnify us for defects in a finished product containing our paclitaxel manufactured by Abbott, breaches of Abbott's representations and warranties, harm caused by inappropriate marketing activities, and some intellectual property and product liability claims. We have granted an exclusive license to Abbott for our paclitaxel-related patents for intravenous and oral paclitaxel formulations.
In November 2001, we and Abbott entered into a non-exclusive cross license with Bristol relating to paclitaxel which grants us a license under Bristol patents to market injectable paclitaxel, pursuant to an Abbreviated New Drug Application (ANDA) approval. We have the right under the agreement to sublicense to Abbott. The agreement grants Bristol a license to our patents relating to stable paclitaxel formulations. The scope of both licenses is limited to the polyethoxylated caster oil and ethanol formulation currently approved by the FDA.
Mayne Pharma. In 1992, we entered into a 20-year exclusive agreement with F.H. Faulding & Co., Ltd. (Faulding), a large Australian pharmaceutical company, for the clinical development, sale, marketing and distribution of our paclitaxel. In October 2001, Faulding was acquired by Mayne-Nickless Limited, an Australian based health care provider and logistics operator. As a result, Faulding is now known as Mayne Pharma. Mayne Pharma actively markets anti-cancer pharmaceuticals and other
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health care products in Europe, Australia, Asia, South America, and other regions throughout the world. In 2000, we amended the Mayne Pharma agreement to, among other things, add additional countries to Mayne Pharma's exclusive territory. In 2001, we entered into a separate 12-year agreement with Mayne Pharma covering development and sale of our paclitaxel in Europe. With the new agreement, the Mayne Pharma territory now includes substantially all of the world other than the U.S., Canada, Japan, Israel, the nations of the former Soviet Union and parts of Africa. Mayne Pharma has received marketing approval for, and is selling our paclitaxel under the tradename ANZATAX™ in Australia and more than 25 other countries in the Middle East, Latin America and Asia.
In Europe, we are responsible for regulatory filings and for funding development. We are also responsible for supplying paclitaxel raw material exclusively to Mayne Pharma to formulate and finish the product. Although Bristol's European exclusivity period ends in 2003, we cannot assure that we will receive regulatory approval in the major markets in Europe. Should we receive approval, Mayne Pharma will then market and sell the final proprietary paclitaxel formulation in Europe. Under the agreement, Mayne Pharma paid an up-front licensing fee to us of $7.5 million. We will share equally the net sales of the product in Europe.
For the Mayne Pharma territories outside of Europe, Mayne Pharma is responsible for funding and, with our input, undertaking the development work required to obtain any necessary regulatory approvals for the commercialization of paclitaxel in such territories. We are responsible for supplying Mayne Pharma with our paclitaxel and Mayne Pharma is required to purchase all of its paclitaxel requirements from us. Once received, Mayne Pharma is responsible for formulating the paclitaxel into its commercial drug product, ANZATAX™. Mayne Pharma pays us a substantial share of its gross proceeds from sales of paclitaxel. We cannot assure, however, that Mayne Pharma will succeed in obtaining further regulatory approvals to market our paclitaxel within its territory. Furthermore, if such approvals are received, we cannot assure that Mayne Pharma will market our paclitaxel successfully in these additional countries.
Mayne Pharma may terminate the agreements: (i) upon our reorganization or insolvency; (ii) if Mayne Pharma becomes controlled by a pharmaceutical company that sells paclitaxel in the Mayne Pharma territory; (iii) if we are controlled by Ivax Corporation or Bristol; (iv) if we are purchased by a pharmaceutical company that sells paclitaxel in the Mayne Pharma territory and that company refuses to be bound by the terms of the Mayne Pharma agreement; (v) if we are unable to meet the paclitaxel supply requirements of Mayne Pharma; or (vi) for material, uncured breach. We may terminate the agreement: (i) upon the reorganization or insolvency of Mayne Pharma; (ii) in certain circumstances, upon a change in control of Mayne Pharma; or (iii) for material, uncured breach.
We are required to indemnify Mayne Pharma for any defect in our paclitaxel that is shipped to Mayne Pharma and for uncured breaches of our warranties or obligations. Mayne Pharma is required to indemnify us against all losses (i) resulting from a defect in a product manufactured by Mayne Pharma containing our paclitaxel except if the defect is our fault, (ii) resulting from a product containing our paclitaxel formulated, stored, handled, promoted, distributed, registered or sold by Mayne Pharma and (iii) for uncured breaches of Mayne Pharma's representations and warranties under the Mayne Pharma agreement.
Tzamal Pharma. We have established an exclusive supply and distribution agreement with Tzamal Pharma (Tzamal) for the development and distribution of paclitaxel in Israel. Tzamal is an Israeli pharmaceutical company, active and well established in the Israeli pharmaceutical market and specializing, among other areas, in ethical products for the treatment of cancer, metabolic diseases, neurological disorders and gynecology/fertility. In January 2001, we received approval in Israel to sell paclitaxel under the trade name Biotax®. The Israeli Ministry of Health has approved Biotax® for use in a variety of cancers and Tzamal is currently selling Biotax® in Israel.
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JCR Pharmaceuticals Co., Ltd. In June 2001, we entered into a mutually exclusive agreement with JCR Pharmaceuticals Co., Ltd. (JCR) for the development, supply and distribution of paclitaxel in Japan. JCR, headquartered in Ashiya, Japan, is a research and development oriented pharmaceutical manufacturer, focusing on the research of bioactive substances such as enzymes, hormones, enzyme inhibitors, growth factors and stimulating factors. It is also engaged in the development and research of bioengineered products such as recombinant human growth hormone. Under the agreement, we will be responsible for manufacturing and supplying the finished drug. Both companies will jointly be responsible for the clinical and regulatory program which will be necessary for seeking approval to market paclitaxel in Japan. JCR will fund this clinical and regulatory program. JCR will also be responsible for the sales and distribution of the product in Japan upon its approval. We cannot assure, however, that we will receive regulatory approval of paclitaxel in Japan, or that we and our strategic partner will successfully market it.
Biomass. Paclitaxel and other taxanes we use in the production of paclitaxel are present in many parts of various species of yew trees. Our technology is designed to allow extraction and purification of paclitaxel and extraction of other taxanes from renewable sources of biomass such as needles and limbstock harvested from yew trees. Taxanes other than paclitaxel can be chemically converted into paclitaxel.
We believe we may be able to reduce our raw material cost while increasing our yield of paclitaxel by growing a reliable and renewable biomass source. In order to have a supply of biomass for use in the production of paclitaxel, we have agreements with various North American commercial nurseries. In 2002, substantially all of our production for Abbott was extracted from cultivated biomass. We regularly conduct other research related to enhancing paclitaxel production in yew trees.
Paclitaxel Manufacturing. The manufacture of paclitaxel occurs in three steps. First, a crude paclitaxel is extracted from yew trees. Second, the extracted crude paclitaxel mixture is isolated and purified. In the final step, the resulting active drug substance is formulated for final packaging. Mayne Pharma and Abbott are each responsible for formulating and final packaging of paclitaxel that they market.
The first step in the manufacture of paclitaxel requires the extraction of crude paclitaxel from the raw biomass materials we cultivate from our yew trees or purchase from others. We currently have contracts with third party manufacturers to process crude paclitaxel from raw biomass materials. While we own and have operated large-scale extraction facilities in Boulder, Colorado, we believe that our manufacturing partners increase our operating flexibility and lower our cost of manufacturing. As a result, we have suspended our extraction operations and rely upon our manufacturing partners to supply all of our requirements for crude paclitaxel extract. Any failure by our manufacturing partners to supply our requirements on a cost-effective basis would jeopardize our ability to supply our strategic partners' commercial needs on a timely and competitive basis. In addition, only a limited number of contract manufacturers are both capable of processing crude paclitaxel extract from raw biomass materials and complying with current federal and state good manufacturing practice regulations. Accordingly, if our manufacturing partners fail to supply our requirements, we may not be able to enter into manufacturing agreements with alternative suppliers of crude paclitaxel extract on commercially acceptable terms and, even if we do, any manufacturer with which we contract may not be able to deliver crude paclitaxel extract in appropriate quantity.
We perform the second manufacturing step, isolation and purification, in our facilities in Boulder, Colorado. Our manufacturing facilities are subject to inspection by the regulatory agencies in the countries in which our paclitaxel is sold. In the past, our manufacturing facilities have been inspected by the FDA, the Australian Therapeutic Goods Administration (TGA) and the European Medicines Evaluation Agency (EMEA). Those agencies have found our facilities to be acceptable for the manufacture of bulk paclitaxel. In 2001 and 2002, we expanded the manufacturing capacity of our
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Boulder, Colorado facilities in anticipation of U.S. approval, which we received in May 2002. We believe that our Boulder, Colorado facilities have adequate capacity to meet commercial requirements for the near future, but we cannot assure such capacity. We also cannot assure that we will have the sales volume to utilize our current capacity.
In order to diversify our supply options and increase our manufacturing capacity, we are developing, and have applied for patent protection for, a semisynthesis process for manufacturing paclitaxel from other taxanes contained in renewable biomass sources. We own, or have licensed, several patents relating to this process and have applied for others. We have manufactured crude paclitaxel with the semisynthesis process in a pilot-scale contracted facility. This crude paclitaxel is then purified at our manufacturing facility in Boulder, Colorado. We continue additional development and testing with a contract manufacturer. The use of semisynthetic paclitaxel will require regulatory approvals, which cannot be assured. Furthermore, we cannot assure our semisynthesis process will perform as expected or that we will be able to effectively adapt the process to commercial-scale manufacturing.
Targeted Oncology Development
We are currently selecting lead compounds from two series of constructs designed to treat either small cell lung, prostate, pancreatic and colorectal cancers or squamous cell head and neck carcinomas. Both potential products have emerged from our targeted oncology program. The lead compounds use specific peptide ligands to deliver a cytotoxic agent to the tumor. Targeted delivery is designed to lower toxicity in normal tissue while increasing efficacy in tumor tissue by taking advantage of specific receptors on the tumor cells. We believe that this approach will result in increased effective concentrations of the cytotoxic agent at the site of the cancer. These programs are being performed in collaboration with academic researchers under the direction of NaPro's Drug Development Team. Despite the generation of positive results in animal and tissue studies, we cannot determine when, if ever, any of these prospects will be successful.
Genomics
In November 2000, we in-licensed Gene Editing technology from the University of Delaware and Thomas Jefferson University. The license agreement grants us exclusive, worldwide rights to intellectual property including patent applications relating to the use of proprietary molecules designed to precisely alter genes in humans, animals, plants, viruses and microbes. We have agreed to provide research and patent funding, as well as an ongoing license fee paid in our common stock. As of December 31, 2002, we have issued 300,000 shares under the license to the University of Delaware, Thomas Jefferson University and The Samuel Roberts Noble Foundation, Inc., which have an ownership interest in the licensed intellectual property. Assuming we do not cancel the license, we will issue an additional 900,000 shares in 100,000 share-per-year increments on the license anniversaries. We may, at our option, accelerate the issuance dates. Certain milestones may also accelerate the issuance dates. The license is terminable at our option. If terminated, no further shares will be issued. We have committed to fund at least $300,000 in research at the University of Delaware during 2003.
In December 2002, we acquired the genomics business of Pangene Corporation for $1.3 million in cash and assumption of debt obligations totaling approximately $65,000. The acquisition consisted primarily of patents and intellectual property relating to Pangene's homologous recombination technology and gene isolation and service business, physical assets, instrumentation, software, customer relationships and third-party licenses. In connection with this agreement, we acquired additional patents in January 2003 in the amount of $400,000.
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One of the technologies licensed to us allows us to use proprietary oligonucleotides to make small, specifically targeted modifications in the chromosomes of a target animal or plant. With this technology, we are attempting to develop products and processes that may allow us to:
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- Effectively treat certain human genetic disorders;
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- Improve plant traits without inserting foreign DNA into those plants; and/or
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- Develop processes to detect genetic variations in a patient's genes that may indicate which patients will better respond to specific medication or experience fewer, or less severe side effects.
We may also be able to manufacture diagnostics, reagents, cell lines and animal models that can be used by the scientific and medical research community to further their own research. This technology may permit specific control over changes in any genome under examination. Such control should help determine the function of genes and the consequences of natural variations in chromosomes in research, therapeutic, and agricultural applications.
Among the disorders we are researching are Sickle Cell Disease and Huntington's Disease. Sickle Cell Disease is a hereditary blood disorder caused by a single point mutation of the betaglobin gene. It is characterized by a defined change in the composition of hemoglobin, the protein used to carry oxygen in the blood. The sickle hemoglobin molecules polymerize into long fibers within red blood cells when deoxygenated, causing the cell to become deformed (sickled), rigid and adhesive. The sickled red blood cells block oxygen flow to the tissues leading to organ damage, stroke and joint pain. The majority of current treatments for Sickle Cell Disease address only the symptoms of the disease. These treatments include the use of pain medications and blood transfusions. While all of these treatments are used to manage the disease, breakthrough crises occur in most patients. We are developing anex-vivo technique aimed at treating this disorder. We are in the early stages of this development and our prospects for success, if any, cannot be measured at this time.
Huntington's Disease is a progressive, neurological disorder, resulting in degeneration of nerve cells in the brain. It is specifically characterized by lethal aggregate formation in neural tissue. Eventually, the patient suffers dementia, uncontrolled movements, and death. There is no known cure for this rare disease. Symptoms usually appear between the ages of 35 and 50, although younger people can also develop the disease. The disease affects five in every one million people. We are developing an oligonucleotide, which may potentially allow the cells to survive. We are in the early stages of this program and we can provide no assurance that we will be successful in this development effort.
We have formed a business around the sale of genomics related reagents, molecular diagnostic tools and services using our Gene Editing technology. This market may include the provision of reagents, tools and diagnostics that can predict predisposition, disease identification, disease progression and dose effectiveness, as well as toxicity.
Patents and Proprietary Technology
Our success depends in part on our ability to obtain and enforce patent protection for our products, both in the U.S. and other countries, and operate without infringing the proprietary rights of third parties. The scope and extent of patent protection for paclitaxel and our genomics and Targeted Oncology product candidates involves complex legal and factual questions and as a consequence is always uncertain. We cannot predict the breadth of claims that will be allowed and issued to us for patents related to biotechnology or pharmaceutical applications. Once patents have been issued, we cannot predict how the claims will be construed or enforced. In addition, statutory differences between countries may limit the protection we can obtain on some of our inventions outside of the U.S. For example, methods of treating humans are not patentable in many countries outside of the U.S.
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We rely on patent and other intellectual property protection to prevent our competitors from developing, manufacturing and marketing products related to our technology. Our patents may not be enforceable and they may not afford us protection against competitors, especially since there is a lengthy time between when a patent application is filed and when it is actually issued. Additionally, there are hundreds of genomics, pharmaceutical and chemical patents being issued every week throughout the world. Many of these have patent claims that are difficult to categorize and interpret. Because of this, we may infringe on intellectual property rights of others without being aware of the infringement. If a patent holder believes that one of our product candidates infringes on their patent, they may sue us even if we have received patent protection for our technology. If another person claims we are infringing their technology, we could face a number of issues, including the following:
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- defending a lawsuit, which is very expensive and time consuming;
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- paying a large sum for damages if we are found to be infringing;
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- being prohibited from selling or licensing our products or product candidates until we obtain a license from the patent holder, who may refuse to grant us a license or will only agree to do so on unfavorable terms. Even if we are granted a license, we may have to pay substantial royalties or grant cross-licenses to our patents; and
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- redesigning our products or product candidates so they do not infringe on the patent holder's technology if we are unable to obtain a license. This may not be possible and, even if possible, it could require substantial additional capital and could delay commercialization.
The coverage claimed in a patent application can be significantly narrowed before a patent is issued, either in the U.S. or abroad. We do not know whether any of our pending or future patent applications will result in the issuance of patents. To the extent patents have been issued or will be issued, some of these patents are subject to further proceedings that may limit their scope. It is not possible to determine which patents may provide significant proprietary protection or competitive advantage, or which patents may be circumvented or invalidated. Furthermore, patents already issued to us, or patents that may issue on our pending applications, may become subject to dispute, including interference proceedings in the U.S. to determine priority of invention. We are currently involved in opposition proceedings in Europe and other countries contesting the validity of issued patents. If our currently issued patents are invalidated or if the claims of those patents are narrowed, our ability to prevent competitors from marketing products that are currently protected by those patents could be reduced or eliminated. We could then face increased competition resulting in reduced market share, prices and profit.
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We own issued patents and have applied for patents relating to our genomics, Targeted Oncology and non-Targeted Oncology activities. As of December 31, 2002, we (either alone or with Bryn Mawr College) have 5 issued patents related to non-targeted oncology and 2 related to our genomics business. The following lists the U.S. patents the Company holds:
Patent Number | Subject Matter | Issued | Nominal Expiration* | |||
---|---|---|---|---|---|---|
Genomics | ||||||
5,929,043 | Recombinase mediated DNA therapies | July 27, 1999 | January 31, 2015 | |||
6,245,565 | Recombinase Medicated DNA modifications | June 12, 2001 | January 31, 2015 | |||
Non-Targeted Oncology | ||||||
5,696,153 | Therapeutic Regimen for Treating Patients with Taxol | December 9, 1997 | May 16, 2014 | |||
5,688,517 | Method for Assessing Sensitivity of Tumor Cells to Cephalomannine & 10-Deacetyl Taxol | November 18, 1997 | November 18, 2014 | |||
5,688,977 | Method for Docetaxel Synthesis (NaPro and Bryn Mawr College) | November 18, 1997 | February 29, 2016 | |||
6,107,497 | Intermediate for Use in Docetaxel Synthesis and Production Method Therefor (NaPro and Bryn Mawr College) | August 22, 2000 | February 29, 2016 | |||
6,358,996 | Stable Isotope Labeling of Paclitaxel | March 19, 2002 | June 9, 2020 |
- *
- The actual expiration date could be affected by certain factors including terminal disclaimers, extensions or abandonment before expiration, among other things.
In addition, we (either alone or with the University of Illinois, Chicago) have applied for 1 U.S. patent in relation to our Targeted Oncology business, 3 U.S. patents in relation to our non-Targeted Oncology business and 10 related to our genomics business.
We (along with Bryn Mawr) have 3 issued foreign patents in relation to our non-targeted oncology business and we in-license 19 issued foreign patents in relation to our non-targeted oncology business. Although we have aggressively worked to protect our proprietary technologies through the patenting process, there is no assurance that we will have freedom to operate in the fields where we are developing commercial products.
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The following lists the U.S. patents and applications we have in-licensed that are owned by third parties:
Number (Issued or Patent Publication Number) | Subject Matter | Issued or Filed Date | Nominal Expiration* | |||
---|---|---|---|---|---|---|
Genomics | ||||||
4,888,274 | Rec A Nucleoprotein Filament and Methods (Licensed from Yale) | Issued December 19, 1989 | December 19, 2006 | |||
5,763,240 | In Vivo Homologous Sequence Targeting In Eukaryotic Cells (Licensed from SRI International) | Issued June 9, 1998 | June 9, 2015 | |||
5,948,653 | Sequence Alterations Using Homologous Recombination (Licensed from SRI International) | Issued September 7, 1999 | August 13, 2017 | |||
6,074,853 | Sequence Alterations Using Homologous Recombination (Licensed from SRI International) | Issued June 13, 2000 | August 13, 2017 | |||
6,200,812 | Sequence Alterations Using Homologous Recombination (Licensed from SRI International) | Issued March 13, 2001 | August 13, 2017 | |||
6,255,113 | Homologous Sequence Targeting in Eukaryotic Cells (Licensed from SRI International) | Issued July 3, 2001 | July 3, 2018 | |||
WO 02/079495 | Genomics Applications for Modified Oligonucleotides (Licensed from University of Delaware) | Filed March 27, 2001 | N/A | |||
WO 01/14531 | Cell-free Extract Assay for Plant Genomic Genetic Repair (Licensed from University of Delaware) | Filed August 21, 2000 | N/A | |||
WO 01/73002 | Targeted Chromosomal Genomic Alterations With Modified Single-Stranded Oligonucleotides (Licensed from University of Delaware) | Filed March 27, 2001 | N/A | |||
WO 01/87914 | Plant Gene Targeting Using Oligonucleotides (Licensed from University of Delaware) | Filed May 17, 2001 | N/A | |||
WO 01/92512 | Targeted Chromosomal Genomic Alterations In Plants Using Modified Single Stranded Oligonucleotides (Licensed from University of Delaware) | Filed March 27, 2001 | N/A | |||
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WO 02/10364 | Methods for Enhancing Targeted Gene Alteration Using Oligonucleotides (Licensed from University of Delaware) | Filed July 27, 2001 | N/A | |||
WO 03/13437 | Compositions And Methods For The Prevention And Treatment Of Huntington's Disease (Licensed from University of Delaware) | Filed August 7, 2002 | N/A | |||
WO 03/27264 | Coisogenic Eukaryotic Cell Collections (Licensed from University of Delaware) | Filed September 27, 2002 | N/A | |||
WO 03/27265 | Composition And Methods For Enhancing Oligonucleotide—Directed Nucleic Acid Sequence Alteration (Licensed from University of Delaware) | Filed September 27, 2002 | N/A | |||
Targeted Oncology | ||||||
6,191,290 | Taxane Derivatives for Targeted Therapy of Cancer (Licensed from UAB Research Foundation) | Issued February 20, 2001 | February 23, 2020 | |||
20020102265 | Isolation of a Cell-Specific Internalizing Peptide that Infiltrates Tumor Tissue for Targeted Drug Delivery (Licensed from the University of Texas M.D. Anderson Cancer Center) | Filed July 2, 2001 | N/A | |||
Non-Targeted Oncology | ||||||
6,573,296 | Therapeutic Quassinoid Preparations with Antineoplastic, Antiviral, and Herbistatic Activity (Licensed from Advanced Research and Technology Institute, Inc.) | Issued June 3, 2003 | November 3, 2015 | |||
5,965,493 | Therapeutic Quassinoid Preparations with Antineoplastic, Antiviral, and Herbistatic Activity (Licensed from Advanced Research and Technology Institute, Inc.) | Issued October 12, 1999 | November 3, 2015 | |||
5,849,748 | Therapeutic Quassinoid Preparations with Antineoplastic, Antiviral, and Herbistatic Activity (Licensed from Advanced Research and Technology Institute, Inc.) | Issued December 15, 1998 | November 4, 2014 | |||
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5,639,712 | Therapeutic Quassinoid Preparations with Antineoplastic, Antiviral, and Herbistatic Activity (Licensed from Advanced Research and Technology Institute, Inc.) | Issued June 17, 1997 | November 4, 2014 | |||
20020091269 | Synthesis of Epothilones and Related Analogs, (Licensed from University Of Mississippi) | Filed October 15, 2001 | N/A | |||
20030158088 | Therapeutic Quassinoid Preparations with Antineoplastic, Antiviral, and Herbistatic Activity (Licensed from Advanced Research and Technology Institute, Inc.) | Filed December 17, 2002 | N/A |
- *
- The actual expiration date could be affected by certain factors including terminal disclaimers, extensions or abandonment before expiration, among other things.
Paclitaxel is an unpatentable, naturally-occurring compound. Various compositions containing paclitaxel, and also various processes and other technologies, including those relating to extracting paclitaxel and preparing the drug for finished formulation, are or may be patented. In addition, some methods of administering paclitaxel are or may be patented.
In September 2000, we and Abbott filed a patent infringement suit in the U.S. District Court for the District of Colorado against Bristol alleging infringement by Bristol of two patents we own: U.S. Patent numbers 5,972,992 and 5,977,164 which relate to paclitaxel formulation. In November 2001, we and Abbott settled this suit with Bristol. In connection with this settlement, the parties entered into a non-exclusive cross license agreement relating to paclitaxel. The agreement grants us a license under Bristol patents to market injectable paclitaxel, pursuant to an ANDA approval. We have the right under the agreement to sublicense to Abbott. The settlement agreement grants Bristol a license to NaPro's patents relating to stable paclitaxel formulations. The scope of both licenses is limited to the polyethoxylated castor oil and ethanol formulation currently approved by the FDA.
We are aware of competitors and potential competitors who are pursuing patent protection in various areas of genomics, Targeted Oncology, and for the extraction, preparation, formulation, administration and production of natural and semisynthetic paclitaxel. If our technology, products or activities are deemed to infringe the other companies' rights, we could be subject to damages or prevented from using the technology that is infringing other companies' rights, or we could be required to obtain licenses to use that technology. We cannot be sure that we would be able to obtain those licenses on terms acceptable to us, or at all. If we were unable to obtain those licenses or were prevented from using our technology, we could encounter significant delays in product market introductions while we attempt to design around the patents or rights infringed, or we could find the development, manufacture or sale of products to be impossible, any of which would have a material adverse effect on us. In addition, we could experience a loss of sales and incur substantial cost in defending ourselves and indemnifying our partners and collaborators in patent infringement or proprietary rights violation actions brought against them. We could also incur substantial cost if we find it necessary to assert claims against third parties to prevent the infringement of our patents and proprietary rights by others. Participation in such infringement proceedings could have a material adverse effect on us, even if the eventual outcome was favorable.
We also rely on trade secrets, know-how and continuing technological advancement to maintain our competitive position with our technology, some of which is not patented. In addition, our success
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will depend in part on our ability to protect our trade secrets related to extracting, isolating and purifying paclitaxel, as well as our Gene Editing and Targeted Oncology programs. Although we have entered into confidentiality agreements with employees, consultants and collaborators, which contain assignment of invention provisions, we cannot assure that others will not gain access to these trade secrets, that such agreements will be honored or that we will be able to effectively protect our rights to unpatented trade secrets. Moreover, we cannot assure that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.
In June 2001, we and Abbott filed a patent infringement suit in the United States District Court for the Western District of Pennsylvania against Mylan Laboratories, Inc. The suit alleges infringement of U.S. Patent numbers 5,733,888, 5,972,992, 5,977,164, 6,140,359, and 6,306,894 which relate to paclitaxel. Mylan has asserted defenses that if successful, would result in the invalidity or unenforceability of the patents. A finding of invalidity or unenforceability of the patents could have a material adverse affect on us.
Government Regulation and Product Approvals
Our paclitaxel is currently approved for commercial sale in the U.S., Australia, Israel and more than 25 other countries in the Middle East, Asia and Latin America. We are currently working to obtain clearance to market our paclitaxel in Europe. Although we initially received approval to market our product in Finland in 2002, that approval has been contested by Bristol on the grounds of data exclusivity, and is currently not enforceable. We believe that we will be approved to sell in the major European markets in 2004. Together with JCR, we are also planning to obtain approval to sell our paclitaxel in Japan.
Even in those countries where we have already obtained approval for a pharmaceutical product, we must also comply with numerous government regulations. For example, our manufacturing systems must conform to the FDA's regulations on current Good Manufacturing Practices. In complying with these regulations, manufacturers must continue to expend time and resources in order to ensure compliance. Thus, even though we have regulatory approval for paclitaxel, our current and any future facilities are subject to periodic review and inspections by the FDA or other regulatory authorities. The FDA, the Australian TGA and the European EMEA have inspected our paclitaxel manufacturing facilities and have found them to be in compliance with applicable regulations and to be acceptable for the manufacture of bulk paclitaxel. Subsequent discovery of previously unknown problems with a product or our manufacturing facilities may result in restrictions, including withdrawal of the product from the market.
We have filed Drug Master Files (DMFs) and other documents describing portions of our proprietary manufacturing processes with regulatory agencies in the U.S., Australia and Europe, relating to the manufacture of our paclitaxel. Abbott and Mayne Pharma, referring to our DMFs, have received marketing approval for paclitaxel in the United States, Australia and other countries.
In addition to regulations regarding manufacture, we are subject to U.S. statutes and regulations applicable to exporting drugs. Those laws authorize the export of a drug without marketing approval in the U.S. to any country only if certain conditions are met.
The adoption by federal, state or local governments of significant new laws or regulations or a change in the interpretation or implementation of existing laws or regulations relating to environmental or other regulatory matters could increase the cost of producing products, delay regulatory approval or otherwise adversely affect our ability to produce or sell our paclitaxel or other products.
In addition to regulations enforced by the FDA, we are also subject to, among others, the regulations of the European Union, the U.S. Environmental Protection Agency, the Department of Interior (U.S. Fish and Wildlife Services and the Bureau of Land Management), the Department of
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Agriculture (U.S. Forest Service) and other countries and regulatory agencies. We are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and future federal, state or local regulations. Our research and development activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds.
Our manufacturing partners are also subject to such laws and regulations, both in the U.S. and in any other countries in which they operate. Failure by our manufacturing partners to comply with such laws and regulations could lead to an interruption in our supply of necessary raw materials.
Paclitaxel is our only therapeutic product which has been approved for commercial sale. All of our other product candidates, including our Sickle Cell Disease, Huntington's Disease, and Targeted Oncology drugs will need to undergo extensive regulatory review prior to commercial approvals. We are in the early stages of these programs and we can provide no assurance that we will be successful in our development efforts, nor can we provide assurance that we will be successful in obtaining regulatory approvals for these products.
Research, preclinical development, clinical trials, manufacturing and marketing activities are subject to regulation for safety, efficacy and quality by governmental authorities in the U.S. and other countries. Regulations govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of our products and product candidates. Product development and approval within this regulatory framework take a number of years and involve the expenditure of substantial resources.
The steps required before a pharmaceutical agent may be marketed in the U.S. include preclinical laboratory tests, animal pharmacology and toxicology studies and formulation studies, the submission of an Investigational New Drug Application (IND) to the FDA for human clinical testing, the carrying out of adequate and well-controlled human clinical trials to establish the safety and efficacy, the submission of an NDA to the FDA, and FDA approval of the NDA. In addition to obtaining FDA approval for each product, each domestic drug manufacturing establishment must be registered with the FDA. Domestic drug manufacturing establishments are subject to regular inspections by the FDA and must comply with FDA regulations.
Preclinical studies include the laboratory evaluation ofin vitro pharmacology, product chemistry and formulation, as well as animal studies to assess safety. Preclinical safety tests must be conducted by laboratories that comply with FDA regulations. The results of some of the preclinical tests form a part of an IND along with the proposed clinical study, and chemistry and manufacturing information. The IND process may be costly.
Clinical trials are typically conducted in three sequential phases. In Phase I, the initial introduction of the drug into a small number of healthy volunteers is undertaken. The drug is evaluated for safety. The Phase I trial must also provide pharmacological data that is sufficient to design the Phase II trials. For certain drugs such as cancer drugs Phase I trials may be conducted in patients rather than in healthy volunteers. Clinical trials must be sponsored and conducted in accordance with good clinical practice.
Phase II trials involve studies in a limited patient population in order to obtain initial indications of the efficacy of the drug for specific, targeted indications, determine dosage tolerance and optimal dosage, and identify possible adverse affects and safety risks. When a compound is determined preliminarily to be effective and to have an acceptable safety profile in Phase II evaluation, Phase III trials can be undertaken to evaluate safety and efficacy further in expanded patient populations at geographically diverse clinical trial sites. Positive results in Phase II are no guarantee of positive results in Phase III.
The results of the clinical trials and manufacturing, toxicology and pharmacology information are submitted to the FDA in the form of an NDA. The approval of an NDA permits commercial-scale
16
manufacturing, marketing, distribution, and sale of the drug in the U.S. The FDA may deny a new drug application filed by us or our collaborators if the applicable scientific and regulatory criteria are not satisfied. The FDA may require additional testing or information, and may require post-approval testing, surveillance and reporting to monitor the products. The FDA may ultimately decide that an NDA filed by us or our collaborators does not meet the applicable agency standards, and even if approval is granted, it can be limited or revoked.
The regulatory pathway for our therapeutic products, including our therapy for Sickle Cell Disease and any other therapeutic products and processes involving our Gene Editing technology, may involve additional regulatory review and requirements not outlined above.
Outside the U.S., our ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authority. This foreign regulatory approval process includes many of the same steps and uncertainties associated with FDA approval described above.
Marketing and Sales
Paclitaxel
Currently, paclitaxel is our only pharmaceutical product approved for commercial sale. Marketing and sales of paclitaxel in the U.S. are handled by Abbott, which will also conduct marketing and sales of paclitaxel in Canada, if approved. Marketing and sales in territories covered by our agreements with Mayne Pharma are conducted by Mayne Pharma and in Israel by Tzamal. Anticipated marketing and sales, if any, in Japan will be conducted by JCR. Currently, we have no sales force and have only limited marketing capabilities. Sales to Mayne Pharma and Abbott account for a substantial portion of our revenue. As a result, the loss of Mayne Pharma or Abbott as a customer or the failure of Mayne Pharma or Abbott to successfully market our paclitaxel could have a material adverse effect on us in the absence of a comparable alternative strategic alliance arrangement.
Competition
The biopharmaceutical industry is an expanding and rapidly changing industry characterized by intense competition for product sales, financing, executive talent and intellectual property. We compete with all entities developing and producing therapeutic agents, including those for cancer treatment, many of whom have much greater capital resources and research and development capabilities.
Within the paclitaxel segment of the cancer treatment industry, competitors' success in entering the paclitaxel market may reduce our market share and reduce the price we can charge for our paclitaxel, which could have a material adverse effect upon us. In addition, marketing is being handled exclusively by Abbott, Mayne Pharma and Tzamal within their territories. Regulatory approvals are being handled by Abbott in its territory and by Mayne Pharma in its non-European territory. Although we believe Abbott and Mayne Pharma have capable drug development and marketing abilities, we cannot assure that they will be capable or effective in gaining additional regulatory approvals on a timely basis, if at all, or be able to compete effectively with existing or new competitors within their territories.
Bristol is marketing paclitaxel commercially in the U.S., Australia, Canada, Europe and other territories. In addition, Aventis has developed a proprietary analog of paclitaxel, docetaxel, which is marketed under the trademark Taxotere®. Taxotere® is approved in the U.S., the European Union, Australia, Canada and other countries. Taxotere® is approved in the U.S. for treatment of patients with locally advanced or metastatic breast cancer after failure of prior chemotherapy, and patients with locally advanced or metastatic non-small cell lung cancer after failure of prior platinum-based chemotherapy. While treatment with Taxotere® may cause certain side effects not observed with paclitaxel, Taxotere® competes with paclitaxel, and thereby may reduce overall paclitaxel sales.
The FDA has approved several generic versions of paclitaxel. Currently Ivax Corporation, Mylan Laboratories, Inc. and Bedford Laboratories have approval to sell generic paclitaxel in the U.S. Other
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generic manufacturers may enter the U.S. market. In most cases, a European exclusivity period will end in 2003, ten years after Bristol's initial approval. However, Ivax is marketing paclitaxel for Kaposi's Sarcoma in Europe. We are aware of several other pharmaceutical companies that are in the process of developing generic paclitaxel in the U.S., Europe and elsewhere. Finally, academic and research organizations and pharmaceutical and biotechnology companies are pursuing, among other things, genetically engineered drugs, chemical synthesis and cell-tissue culture that may compete with our products or technology. In addition, certain companies are pursuing the production of paclitaxel and other taxanes from natural product extraction techniques.
Our competitors, most notably Bristol and Aventis, have substantially greater capital resources, research and development capabilities, manufacturing and marketing resources and experience than we do. We expect Bristol to compete intensely to maintain its dominance of the paclitaxel market. Generic competition has already caused a decline in the average price of paclitaxel, and if more competitors enter the market, the price of paclitaxel may erode even further. Our competitors may succeed in developing products that are more effective or less costly than any that may be developed by us and may receive regulatory approval before we do. Many companies and research institutions are also seeking means to obtain paclitaxel and taxanes from renewable biomass components of yew trees and other sources in order to increase paclitaxel yields, avoid environmental concerns and reduce the cost of biomass. In addition, we are aware of several potential competitors that have developed and patented or are developing various processes for producing paclitaxel and paclitaxel-related substances semisynthetically, which may allow such competitors to produce a lower-cost paclitaxel. The development by a third party of a cost-effective means to fully synthesize paclitaxel in commercial quantities or the manufacture of taxane derivatives or analogs that are more effective than paclitaxel in treating cancer could have a material adverse effect on us.
Research and Development
During the years ended December 31, 2002, 2001 and 2000, we spent approximately $16.1 million, $12.3 million, and $8.4 million respectively, on research and development activity for both paclitaxel and other product candidates. Research and development is expected to remain a significant expense of our business. Our research and development is expected to concentrate on the development of novel, targeted anti-cancer agents, and the development of novel genomic technologies, primarily in the area of Gene Editing, for applications in human therapeutics, diagnostics, agribiotechnology and pharmacogenomics. We anticipate bringing our Targeted Oncology program to the clinic during the first half of 2004. Our Sickle Cell Disease and Huntington's Disease programs are expected to go into the clinic during 2004 or the beginning of 2005. However, there can be no assurance that we will be able to achieve the timing of these programs. We also cannot estimate the cost of the effort necessary to complete the programs or the timing of commencement of material net cash inflows from these programs.
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Foreign and Domestic Operations; Export Sales
The following table sets forth, for the past three years, sales, profitability (operating income (loss)), and identifiable assets attributable to our U.S. and foreign operations (in thousands):
| Year Ended December 31, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 2001 | 2000 | ||||||||
U.S. Sales to Unaffiliated Customers(1) | $ | 34,193 | $ | 15,711 | $ | 8,148 | |||||
Operating Income (Loss) | |||||||||||
U.S. | $ | (15,784 | ) | $ | (26,444 | ) | $ | (16,168 | ) | ||
Canada | 13 | (73 | ) | (79 | ) | ||||||
Identifiable Assets | |||||||||||
U.S. | $ | 42,435 | $ | 34,161 | $ | 34,959 | |||||
Canada | 2,893 | 2,900 | 3,042 |
- (1)
- Includes export sales into Australia of $7,330,000 in 2002, $7,576,000 in 2001 and $7,720,000 in 2000, as well as sales into Israel of $1,881,000 in 2002, $1,954,000 in 2001 and $288,000 in 2000.
Sales of our paclitaxel into foreign markets accounted for approximately 27% of our 2002 revenue, 60% of our 2001 revenue and 98% of our 2000 revenue.
A substantial portion of our sales and operations will continue to be subject to the risks associated with foreign business, including economic or political instability, shipping delays, fluctuations in foreign currency exchange rates and various trade restrictions, all of which could have a significant impact on our ability to deliver products on a competitive and timely basis. Future imposition of, or significant increases in, the level of customs duties, export quotas, drug regulatory restrictions or other regulatory or trade restrictions could have a material adverse effect on us.
Employees
As of February 28, 2003, we had 151 full-time equivalent employees. 21 of these employees hold Ph.D. or M.D. degrees. 52 employees were engaged in drug development, 10 in quality assurance, 35 in manufacturing, 46 in administration and finance, 5 in regulatory affairs, and 3 in legal. We believe that our relations with our employees are good.
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Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
During 2002 and prior, our common stock was traded in the Nasdaq National Market under the symbol "NPRO." The following table sets forth, for the periods indicated, the high and low closing sale prices for our common stock.
| High | Low | |||||
---|---|---|---|---|---|---|---|
2002 | |||||||
Fourth Quarter | $ | 2.09 | $ | 0.61 | |||
Third Quarter | 6.18 | 1.12 | |||||
Second Quarter | 9.23 | 5.04 | |||||
First Quarter | 12.10 | 8.48 | |||||
2001 | |||||||
Fourth Quarter | $ | 13.00 | $ | 6.11 | |||
Third Quarter | 10.62 | 6.00 | |||||
Second Quarter | 11.88 | 6.44 | |||||
First Quarter | 8.25 | 5.53 |
On February 12, 2003, we announced that we had applied to transfer our common stock listing to the Nasdaq SmallCap Market. The reason for this action is that we received on February 6, 2003 a determination letter from Nasdaq Staff that we no longer met the $10.0 million shareholders' equity requirements for continued listing on the Nasdaq National Market. On February 28, 2003, the Nasdaq staff notified us that our SmallCap Market application was approved. Our common stock continues to trade under the current symbol, NPRO.
In addition, on January 28, 2003, the Nasdaq Staff notified us that the bid price of our common stock had closed below the required $1.00 per share for 30 consecutive trading days, and, accordingly, that we did not comply with Marketplace Rule 4450(a)(5). We will be provided until July 28, 2003, to regain compliance with this requirement.
Stockholders
As of December 31, 2002, we had 264 stockholders of record.
Dividends
To date, we have not paid any dividends on our common stock. We intend to retain future earnings, if any, to finance the operation and expansion of our business and, therefore, we do not anticipate paying any cash dividends on our common stock in the foreseeable future, if at all.
Sales of Unregistered Securities
During 2002, we issued 150,600 shares of common stock to the University of Delaware, 25,650 shares of common stock to Thomas Jefferson University and 23,750 shares of common stock to The Samuel Robert Noble Foundation, Inc., all in connection with a 20-year Gene Editing technology license. The shares were issued in reliance upon the exemption provided by Section 4(2), of the Securities Act of 1933, as amended, and Regulation D thereunder. The license provides for research and patent funding commitments and payments in common stock. To date, we have issued 300,000 shares under the license agreement. Assuming we do not cancel the license, we will issue an additional
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900,000 shares in 100,000 share-per-year increments on the license anniversaries. We may, at our option, accelerate the issuance dates. Certain milestones may also accelerate the issuance dates. The license is terminable at NaPro's option. If terminated, no further shares would be issued.
In February 2002, we sold 888,889 shares of common stock and $8.0 million principal amount of five-year 4% debentures convertible into common stock at $15 per share. As issuances to accredited investors not involving any public offering, the sales were exempt from registration under Section 4(2) of the Securities Act and Regulation D thereunder. In August 2002, we issued 47,973 shares of common stock in lieu of cash interest payments.
In 2001, we issued 24,618 shares of common stock upon exercise of stock options held by consultants, which included one of our former directors. As issuances to sophisticated investors not involving any public offering, the sales were exempt from registration under Section 4(2) of the Securities Act.
In April 2001, we sold 888,889 shares of common stock to Abbott upon achievement of a development milestone. As an issuance to an accredited investor not involving any public offering, the sale of common stock to Abbott was exempt from registration under Section 4(2) of the Securities Act and Regulation D thereunder.
Part IV
Item 15 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements
The Financial Statement Index is on Page F-1.
Financial Statement Schedules
All schedules are omitted because they are not applicable or not required or because the information is included in the consolidated financial statements or the notes thereto.
Exhibits and Reports on Form 8-K
We filed a Current Report on Form 8-K dated January 24, 2003 reporting the change in our fiscal year.
We filed a Current Report on Form 8-K dated February 13, 2003 reporting the application for the transfer of our common stock to the Nasdaq SmallCap Market.
Exhibit Number | Description of Exhibit | |
---|---|---|
3.1 | Amended and Restated Certificate of Incorporation of the Company, as amended August 2, 1996(1) | |
3.2 | Certificate of Amendment dated September 29, 1998 to the Amended and Restated Certificate of Incorporation of the Company(2) | |
3.3 | Certificate of Amendment dated October 31, 2000 to the Amended and Restated Certificate of Incorporation of the Company(3) | |
3.4 | Bylaws of the Company as amended through December 2000(4) | |
3.5 | Certificate of Designation for Convertible Preferred Stock, Series A(5) | |
3.6 | Certificate of Designation for Series B Junior Participating Preferred Stock(6) | |
3.7 | Certificate of Designation for Series C Senior Convertible Preferred Stock(7) | |
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3.8 | Certificate of Amendment dated March 3, 2003 to the Amended and Restated Certificate of Incorporation of the Company** | |
4.1 | Common Stock Certificate(8) | |
4.2 | Amended and Restated Rights Agreement dated September 25, 2001 between the Company and American Stock Transfer and Trust Company, as Rights Agent(9) | |
4.3 | Form of 4% Convertible Subordinated Debenture due 2007(10) | |
10.1* | Company's 1993 Stock Option Plan(8) | |
10.2* | Amendment dated December 11, 2000 to the Company's 1993 Stock Option Plan(4) | |
10.3* | Company's 1994 Long-Term Performance Incentive Plan, as amended and restated effective June 21, 2001(11) | |
10.4 | Company's 1998 Stock Incentive Plan as amended and restated effective September 25, 2001(11) | |
10.5* | Employment Agreement effective October 1, 2001 between the Company and Leonard Shaykin(16) | |
10.6* | Employment Agreement effective October 1, 2001 between the Company and Sterling Ainsworth(16) | |
10.7* | Employment Agreement effective October 1, 2001 between the Company and Patricia Pilia(16) | |
10.8* | Employment Agreement effective October 1, 2001 between the Company and Gordon Link(16) | |
10.9* | Employment Agreement effective October 1, 2001 between the Company and Kai Larson(16) | |
10.10* | Employment Agreement effective October 1, 2001 between the Company and David Denny(16) | |
10.11* | Employment Agreement effective October 1, 2001 between the Company and James McChesney(16) | |
10.12* | Employment Agreement effective October 1, 2001 between the Company and Steve Bannister(16) | |
10.13* | Employment Agreement effective October 1, 2001 between the Company and Brenda Fielding(16) | |
10.14 | Second Amended and Restated Master Agreement dated June 5, 2000 between the Company and F.H. Faulding & Co., Ltd.(12) | |
10.15 | European Agreement dated March 2, 2001 between the Company and F.H. Faulding & Co., Ltd.(4) | |
10.16 | Development, License and Supply Agreement dated July 23, 1999 by and between the Company and Abbott Laboratories(14) | |
10.17 | Loan and Security Agreement dated July 23, 1999 by and between the Company and Abbott Laboratories(14) | |
10.18 | Stock Purchase Agreement dated July 23, 1999 by and between the Company and Abbott Laboratories(14) | |
22
10.19 | Amendment dated June 23, 2000 to Development, License and Supply Agreement by and between the Company and Abbott Laboratories(15) | |
10.20 | Amendment dated June 23, 2000 to Stock Purchase Agreement by and between the Company and Abbott Laboratories(15) | |
10.21 | Amendment dated November 28, 2001 to Development, License and Supply Agreement by and between the Company and Abbott Laboratories(16) | |
10.22 | License Agreement dated November 21, 2000 by and between the Company and The University of Delaware and Thomas Jefferson University(4) | |
10.23+ | Release and License Agreement dated November 28, 2001 by and between Bristol-Meyers Squibb Co. and the Company(16) | |
10.24 | Lease dated October 16, 1995 between the Company and Gunbarrel Facility L.L.C.(13) | |
10.25 | First Amendment to Lease November 27, 1995 between the Company and Gunbarrel Facility L.L.C.(13) | |
10.26 | Form of Subscription Agreement including Registration Rights(4) | |
10.27 | Securities Purchase Agreement dated February 13, 2002 between T/L Ventures, Inc. and the Company(10) | |
10.28 | Registration Rights Agreement dated February 13, 2002 between T/L Ventures, Inc. and the Company(10) | |
10.29 | Agreement dated November 7, 2001 between R. J. Reynolds Tobacco Company and the Company(16) | |
10.30 | Agreement dated December 31, 2002 between Pangene Corporation and the Company** | |
10.31 | Fourth Amendment to lease between the Company and Gunbarrel Facility L.L.C.** | |
10.32 | Culture Agreement dated March 1, 1996 between Zelenka Nursery, Inc. and the Company(17) | |
10.33 | Agreement for Sale, Harvest and Storage of Nursery Stock dated May 1, 1996 between Zelenka Nursery, Inc. and the Company(17) | |
10.34 | Culture Agreement dated March 1, 1997 between Zelenka Nursery, Inc. and the Company(1) | |
10.35 | Lease Agreement dated March 1, 1997 between Zelenka Nursery, Inc. and the Company(1) | |
10.36 | Agreement for Sale, Harvest and Storage of Nursery Stock dated March 1, 1997 between Zelenka Nursery, Inc. and the Company(1) | |
10.37 | Culture Agreement dated July 26, 1997 between Cass-Mill, Inc. and the Company(18) | |
10.38 | Lease Agreement dated April 28, 2000 between Cass-Mill, Inc. and the Company(4) | |
10.39* | Form of Director and Officer Indemnification Agreement (together with Schedule required by Instruction 2 to Item 601 Regulation S-K)** | |
21.1 | List of Subsidiaries(16) | |
23.1 | Consent of Ernst & Young LLP** | |
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended | |
23
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended | |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
- *
- A management compensation plan.
- **
- Previously filed.
- +
- Portions have been omitted pursuant to a request for confidential treatment.
- (1)
- Incorporated herein by reference to the Company's Annual Report on Form 10-K filed with the Commission for the year ended December 31, 1996 (File No. 0-24320).
- (2)
- Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 0-24320).
- (3)
- Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ending September 30, 2000 (File No. 0-24320).
- (4)
- Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 0-24320).
- (5)
- Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the quarter ending June 20, 1995 (File No. 0-24320).
- (6)
- Incorporated herein by reference to the Company's Current Report on Form 8-K dated November 8, 1996 (File No. 0-24320).
- (7)
- Incorporated herein by reference to the Company's Registration Statement on Form S-3 filed on December 16, 1997 (File No. 333-42419).
- (8)
- Incorporated herein by reference to the Registration Statement on Form S-1 of the Company, filed with the Commission on July 24, 1994 (File No. 33-78016).
- (9)
- Incorporated herein by reference to the Registration Statement on Form 8-A12G/A of the Company, filed with the Commission on October 23, 2001 (File No. 0-24320).
- (10)
- Incorporated herein by reference to the Company's Current Report on Form 8-K, dated February 13, 2002 (File No. 0-24320).
- (11)
- Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ending September 30, 2001 (File No. 0-24320).
- (12)
- Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ending June 30, 2000 (File No. 0-24320).
- (13)
- Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (File No. 0-24320).
- (14)
- Incorporated herein by reference to the Company's Current Report on Form 8-K, dated July 23, 1999 (File No. 0-24320).
- (15)
- Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for the period ending June 30, 2000 (File No. 0-24320).
- (16)
- Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 2001 (File No. 0-24320).
- (17)
- Incorporated herein by reference to the Company's Registration Statement on Form S-1 of the Company, filed with the Commission on August 1, 1996 (333-3051).
- (18)
- Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 0-24320).
24
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NAPRO BIOTHERAPEUTICS, INC. | ||
/s/ GORDON H. LINK, JR. Gordon H. Link, Jr. Senior Vice President and Chief Financial Officer (Principal Financial Officer) | Date: October 24, 2003 |
25
- Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
Item 15 Exhibits, Financial Statement Schedules, and Reports on Form 8-K