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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission file number 00024889
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CELL PATHWAYS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 702 ELECTRONIC DRIVE 23-2969600
(State or other jurisdiction of HORSHAM, PA 19044 (I.R.S. Employer
incorporation or organization) (Address of principal executive offices) Identification No.)
(215) 706-3800
(Registrant's telephone number,
including area code)
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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 Per Share
Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __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 this Form 10. [X]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 1, 2000 was approximately $1,300,208,000, based
upon the last reported sales price of the Registrant's Common Stock on the
Nasdaq National Market.
As of March 1,2000 there were 27,439,497 shares of the Registrant's
Common Stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement relating to the Annual Meeting of
Stockholders to be held on May 31, 2000, are incorporated by reference into Part
III of this report. Other documents incorporated by reference are listed in the
Exhibit Index.
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CELL PATHWAYS, INC.
FORM 10-K
Part I
Item 1. Business..................................................................... 1
Overview.................................................................. 1
Business Strategy......................................................... 2
Carcinogenesis............................................................ 2
CPI Technology............................................................ 4
Products in Development................................................... 5
National Cancer Institute and Other Third-Party Arrangements.............. 14
Scientific Advisory Board................................................. 15
Patents, Trademarks and Proprietary Technology............................ 16
Competition............................................................... 18
Government Regulation..................................................... 19
Manufacturing............................................................. 23
Marketing and Sales....................................................... 23
Employees................................................................. 24
Executive Officers and Key Employees...................................... 24
Risk Factors.............................................................. 26
Item 2. Properties................................................................... 37
Item 3. Legal Proceedings............................................................ 38
Item 4. Submission of Matters to a Vote of Security Holders.......................... 38
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.......................................................... 39
Item 6. Selected Financial Data...................................................... 40
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................... 40
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................... 44
Item 8. Financial Statements and Supplementary Data.................................. 44
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures.................................................... 44
Part III
Item 10. Directors and Executive Officers of the Registrant........................... 45
Item 11. Executive Compensation....................................................... 45
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 45
Item 13. Certain Relationships and Related Transactions............................... 45
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............. 46
Signatures.............................................................................. 48
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PART I
ITEM 1. BUSINESS
Certain statements made in this report, and oral statements made in respect of
this report, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are those
which express plan, anticipation, intent, contingency or future development
and/or otherwise are not statements of historical fact. These statements are
subject to risks and uncertainties, known and unknown, which could cause actual
results and developments to differ materially from those expressed or implied in
such statements. Such risks and uncertainties relate to, among other factors,
the absence of approved products; history of operating losses; early stage of
development; the costs, delays and uncertainties inherent in basic
pharmaceutical research, drug development, clinical trials and the regulatory
approval process, with respect to both the Company's current product candidates
and its future product candidates, if any; dependence on development of
Aptosyn(TM) (exisulind); the limitations on, or absence of, the predictive value
of data obtained in laboratory tests, animal models and human clinical trials
when planning additional steps in product development; the uncertainty of
obtaining regulatory approval, including uncertainty of approval of the New Drug
Application submitted for Aptosyn(TM) (exisulind) for familial adenomatous
polyposis (a rare disease that puts those afflicted at high risk of developing
colon cancer), whether in connection with the adequacy of the data generated in
the clinical trials of Aptosyn(TM) (exisulind) or otherwise; the timing and
scope of any approval which might be received for any compound for any
indication in the future; acceptance by providers of healthcare reimbursement;
the validity, scope and enforceability of patents; the actions of competitors;
dependence upon third parties; product liability; and the need for further
financing. These and other risks are detailed in the Company's reports which
have been, and from time to time will be, filed under the Securities Act of 1933
and/or the Securities Exchange Act of 1934, including the sections entitled
"Business," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Other Events" as they may appear in
Forms 10-K, 10-Q, 8-K and S-3. Your attention is directed to the section under
Item 1 of this report entitled "Risk Factors" as well as to the discussion of
the related subject matters appearing in Item 1. Given these uncertainties,
current and prospective investors are cautioned not to place undue reliance on
any such forward-looking statements, any of which may turn out to be wrong due
to inaccurate assumptions, unknown risks, uncertainties or other factors. The
Company undertakes no obligation to update or revise the statements made herein
or the factors which may relate thereto.
OVERVIEW
Cell Pathways, Inc. ("CPI" or the "Company") is a pharmaceutical
company focused on the research, development and commercialization of products
to prevent cancer and to treat cancer. CPI's technology may prove to have
applicability beyond these fields. CPI will be considered to be in the
development stage until it receives approval and generates significant revenues
from the marketing of one of its pharmaceutical drug candidates.
The Company's technology is based upon its discovery of a novel
mechanism which the Company believes, based on its research, can be targeted to
induce selective apoptosis, or programmed cell death, in precancerous and
cancerous cells without affecting normal cells. CPI has created a new class of
selective apoptotic anti-neoplastic drugs ("SAANDs") and has synthesized over
500 new chemical compounds in this new class. In screening assays, over 200 of
these new compounds display significantly greater apoptotic potency than CPI's
lead drug candidate, Aptosyn(TM) (exisulind).
The Company's product development program focused initially on
compounds likely to be helpful in treating precancerous lesions such as colonic
polyps and cervical dysplasia. Attention next turned to the prevention of the
recurrence of prostate and breast cancer. Clinical trials subsequently expanded
into the direct treatment of prostate and lung cancer. Most recently, the
Company has made arrangements for
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clinical trials of its lead compound in combination with leading cancer
chemotherapeutic agents of major pharmaceutical companies in trials intended to
address cancers of the breast, lung, colon, prostate, bladder and pancreas.
CPI commenced clinical trials of its lead compound, Aptosyn(TM)
(exisulind) (previously known as FGN-1(TM) (exisulind) and Prevatac(TM)
(exisulind)), in 1994. By 1997, that clinical trial program had expanded to
include several cancer and precancer indications. In August 1999, the Company
filed with the Food and Drug Administration ("FDA") a New Drug Application
("NDA") seeking marketing approval for Aptosyn(TM) (exisulind) for the
indication of familial adenomatous polyposis ("FAP"). During the first quarter
of 2000, the Company has been interacting with the FDA in its review of the NDA.
CPI began the clinical trial program of its second compound, CP 461, in
1999. Descriptions of the clinical trial programs of Aptosyn(TM) (exisulind) and
CP 461 are set forth below under "Products in Development." Aptosyn(TM)
(exisulind) and CP 461 are the only product candidates which during 2000 the
Company expects to be studying in clinical trials. No pharmaceutical product may
be marketed without FDA approval. There can be no assurance that the FDA will
approve any Company product for marketing for any indication.
BUSINESS STRATEGY
CPI's objectives are to be a leader in the development of
pharmaceutical products to prevent cancer and to treat cancer, and to build an
integrated pharmaceutical company focused on the oncology market. To meet these
objectives CPI intends to:
- Pursue accelerated clinical development of Aptosyn(TM)
(exisulind), with emphasis on cancer and precancer indications
where small clinical trials with clear endpoints may yield
statistically significant results.
- Use CPI's proprietary technology to develop additional SAANDs
such as CP 461 for cancer therapy and for cancer
chemoprevention.
- Develop Aptosyn(TM) (exisulind) and other SAANDs as part of
combination therapy with leading chemotherapeutic agents of
major pharmaceutical companies to achieve enhanced anti-cancer
effects.
- Commercialize products directly to focused physician groups.
CPI is establishing its own focused sales force to promote
products in the U.S. targeted at diseases that are treated by
relatively small, well-defined groups of physicians.
- Develop strategic collaborations for research, development
and/or commercialization. CPI will seek to establish strategic
relationships for the development and commercialization of
potential products for indications that would require
significant development resources and/or significant marketing
and sales resources. CPI is seeking partners for international
development and commercialization of potential products.
- Selectively and opportunistically acquire technologies,
products and/or companies devoted to the prevention, diagnosis
and treatment of cancer.
CARCINOGENESIS
Cancer results from a sequence of changes involving the genes of cells.
This sequence eventually leads to abnormal and uncontrolled cell proliferation.
This multi-stage process is known as carcinogenesis and generally results from a
combination of factors which occur over a period of years. Certain factors, such
as inherited genetic defects, are present at birth. Other factors that may
contribute to carcinogenesis
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include environmental exposures and the aging process. Carcinogenesis is first
recognized clinically when abnormal cells become visible to a screening
procedure or reach a size or location sufficient to create clinical signs and
symptoms. The clinical emergence may occur many years following the events which
first initiated carcinogenesis. Generally, cells characterized by abnormal
growth that may lead to cancer but have not yet invaded surrounding tissue are
termed precancerous.
Precancerous Lesions. Many cancers are preceded by precancerous
lesions. These lesions are accumulations of abnormal cells. Because precancerous
lesions are usually asymptomatic, the ability to identify and monitor them and
to intervene clinically before the possible development of cancer is dependent
upon diagnostic screening tests. Recent years have seen broader applications of
screening tests which have varying degrees of reliability and predictability.
These screening tests include the Pap smear, flexible sigmoidoscopy and the
Prostate Specific Antigen ("PSA") test. In addition, there have been recent
advances in genetic screening, such as the BRCA1 and BRCA2 tests to detect
individuals with a higher risk of developing breast cancer in the future.
Precancerous lesions are most often diagnosed in epithelial tissues,
such as the skin or the inside surface of organs, including the intestine,
cervix, bladder and prostate. The following table lists examples of epithelial
precancerous lesions, the types of cancer to which such lesions can progress and
the diagnostic screening tests currently in use to detect such lesions.
EXAMPLES OF EPITHELIAL PRECANCEROUS LESIONS
CONVENTIONAL
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TYPE OF LESION RELATED CANCER METHOD OF DIAGNOSIS
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Actinic Keratosis Skin Visual examination
Adenomatous Colonic Polyp Colorectal Endoscopy (sigmoidoscopy
or colonoscopy)
Barrett's Esophagus Esophageal Endoscopy (esophagogastroscopy)
Bronchial or Lung Dysplasia Lung Sputum cytology
Cervical Intraepithelial Neoplasia Cervical Papanicolau (Pap) smear
Prostatic Intraepithelial Neoplasia Prostate Prostate Specific Antigen (PSA)
and digital rectal examination
Transitional Cell Carcinoma Bladder Cystoscopy
in situ (earliest stage)
Patients with precancerous lesions are advised to follow a program of
regular monitoring and removal of lesions where appropriate. However, existing
techniques for treating precancerous lesions are often expensive, have
undesirable side effects or are of limited effectiveness. Endoscopic or surgical
removal can be effective for single lesions. But risks and costs increase
significantly if lesions recur, if there are numerous lesions or if lesions
occur in less accessible tissues. Because of their significant side effects,
systemic administration of most existing chemotherapeutic drugs is not
appropriate for treating precancerous lesions. Reduction of environmental risks
or change in diet are generally more effective in preventing the early stages of
carcinogenesis than in arresting or reversing the changes that occur in the
later stages of carcinogenesis. As a result of the inadequacy of current
treatments, there is a significant need for the development of new therapeutics
to treat precancerous lesions. If left untreated and not reversed by natural
processes, precancerous lesions may progress to cancer.
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Cancer. The American Cancer Society estimates that over 1.2 million new
cases of cancer will be diagnosed and approximately 552,000 cancer deaths will
occurr in the U.S. in 2000. Cancer is the second leading cause of death in the
U.S. Approximately ten million people living in the U.S. have a history with
cancer. Due in part to the development of new diagnostic procedures, the highest
number of new cancer diagnoses are currently occurring in the prostate, breast,
lung and colon/rectum, representing approximately 50% of all new cancer cases.
Cancer is generally treated by attempting to remove the cancerous
cells, either by surgery or by chemical or radiation therapies. Most currently
available chemotherapies and radiation therapies target all rapidly dividing
cells, both cancerous and healthy. This results in serious side effects. The
limited efficacy and harmful side effects of existing cancer treatments and the
costs associated with managing these side effects continue to drive the search
for new therapies.
CPI TECHNOLOGY
To address the need for new therapies, CPI's technology focuses on the
selective induction of apoptosis only in cells that manifest abnormal growth
(neoplastic cells), such as precancerous and cancerous cells. Apoptosis is a
naturally occurring physiological process in which a number of components inside
the cell "program" the cell to die without causing harm to surrounding cells.
Apoptosis occurs in tissues that are continually renewing themselves, such as
the lining of the digestive system, or as a natural defense mechanism that
prevents the replication of cells that have undergone DNA damage. CPI's
technology is based upon its discovery of a novel mechanism which CPI believes,
based on its research, can be targeted to induce selective apoptosis in
neoplastic cells without affecting normal cells.
Many existing chemotherapeutic agents as well as radiation induce
apoptosis in rapidly proliferating cells without differentiating between
neoplastic cells and normal cells. This can result in toxicity, including
suppression of the immune system, hair loss and gastrointestinal disturbances.
As a result of this toxicity, most existing chemotherapeutic agents and
radiation therapy are not appropriate for treating precancerous lesions in
otherwise healthy individuals for whom safety and tolerability are essential for
chronic or extended therapeutic use.
Conventional Induction of Apoptosis in Cancer Therapy. Radiation
therapy and many existing chemotherapeutic agents act on proliferating cells by
disrupting cellular DNA synthesis to induce apoptosis. Once significant damage
occurs to the DNA, a process is initiated that is controlled by the gatekeeper
protein p53 and modulated by various proteins such as bax and bcl-2. This
process results in the activation of caspases, a family of enzymes that is
involved in the apoptotic process, which trigger a cascade of events resulting
in apoptosis. The end result of apoptosis is the dismantling of the cell into
apoptotic vesicles, which are naturally cleared by the body. The apoptotic
mechanism identified by CPI does not appear to involve p53, or the modulator
proteins, such as bax or bcl-2.
Discovery of Novel Apoptotic Mechanism. CPI believes it has discovered
a previously undefined mechanism for regulating apoptosis. Research suggests
that two key elements of this mechanism include cyclic GMP ("cGMP") which is
generated by enzymatic conversion of GTP to cGMP by guanyl cyclase initiated by
naturally-occurring triggers, and a novel form of cGMP phosphodiesterase ("PDE")
which plays a key role in controlling the intracellular levels of cGMP. CPI has
determined in a limited number of colon cancer patients that the neoplastic
tissue has a higher level of cGMP PDE activity than neighboring normal tissue,
which may prevent neoplastic cells from responding to normal signals that
trigger apoptosis. When the activity of this novel cGMP PDE configuration
increases, as in neoplastic cells, cGMP levels are reduced and activation of a
critical downstream protein, protein kinase G, is interrupted, subsequently
preventing the activation of the caspases and apoptosis.
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Selective Induction of Apoptosis by CPI Compounds. Research suggests
that CPI's compounds, including Aptosyn(TM) (exisulind) and CP 461, are targeted
at inhibiting the activity of the novel form of cGMP PDE in neoplastic cells.
CPI compounds reduce cGMP PDE activity, thereby preventing it from degrading
cGMP. Research suggests that cGMP is then available to trigger a critical
downstream protein which leads to the subsequent activation of caspases. As in
the case of conventional cancer treatment, caspases then trigger a cascade of
events leading to apoptosis.
Research and Development Activities. CPI's scientists have identified
intracellular proteins targeted by Aptosyn(TM) (exisulind) and have made
significant progress in characterizing the target protein. CPI has developed
pharmaceutical, immunological and molecular biologic probes that may be used to
identify additional indications to be targeted and to develop diagnostic tools.
CPI continues to identify additional elements involved in regulating the newly
identified apoptotic mechanism. CPI plans to investigate the potential
applicability of its novel apoptotic mechanism to hyperproliferative,
hypoproliferative and other disease conditions. CPI may not succeed in attaining
its research and development goals.
Using its understanding of chemical structure and biological activity,
CPI has created a new class of SAANDs (selective apoptotic anti-neoplastic
drugs). Within this new class of SAANDs, CPI has synthesized over 500 new
chemical compounds in five chemical families and over 27 chemical classes. CPI
tests its new compounds for inhibitory effects on the growth of cancer cells in
vitro for the induction of apoptosis and for activity against the intracellular
target, the novel cGMP PDE. Over 200 of the newly synthesized compounds display
significantly greater apoptotic potency than Aptosyn(TM) (exisulind) in these
tests.
A number of CPI compounds have shown activity against in vitro cultures
of immortalized cell lines of transplantable human cancers of the breast, colon,
lung and prostate. Preliminary results of studies with CPI's compounds in
short-lived primary cultures of human cancers obtained from individual patients
have shown activity against breast cancer. Using this data, CPI has evaluated
several new chemical entities ("NCEs"). CPI filed an IND in December 1998 with
respect to CP 461 as its second product development candidate. CPI is continuing
its evaluation of other compounds as potential product development candidates.
Significant additional preclinical and clinical trials are necessary to
determine the activity and utility of any product development candidate. Please
also read "Risk Factors - Early Stage of Development; Absence of Developed
Products; Uncertainty of Clinical Trials."
CPI plans to leverage its understanding of the structure-activity
relationship of CPI's compounds, and to expand its proprietary chemical library,
through combinatorial chemistry techniques and high-throughput screening
systems. CPI has contracted with outside firms to create or purchase targeted
chemical libraries including diverse chemical classes. CPI is screening these
compounds in order to identify additional potential lead compounds.
PRODUCTS IN DEVELOPMENT
CPI is developing a family of product candidates, SAANDs, targeted at
the treatment and management of precancerous lesions and cancer. CPI's lead
compound in this family of new drugs, Aptosyn(TM) (exisulind), is a sulfone
derivative of the nonsteroidal anti-inflammatory drug ("NSAID") sulindac.
Aptosyn(TM) (exisulind) is not an NSAID and lacks the anti-cyclooxygenase
activity that is associated with the serious gastrointestinal and renal side
effects observed with NSAID use.
CPI began clinical studies of Aptosyn(TM) (exisulind) in 1994. In
August 1999, the Company filed an NDA with the FDA seeking approval to market
Aptosyn(TM) (exisulind) for FAP.
CPI began clinical studies of CP 461 in 1999. Aptosyn(TM) (exisulind)
and CP 461 are the only two product candidates which the Company expects to have
in clinical studies during 2000.
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Although CPI will continue to conduct clinical trials of Aptosyn(TM)
(exisulind) for several cancer and precancer indications, CPI may not be able to
conduct sufficient clinical trials or to obtain favorable results in clinical
trials, to support the filing or approval of another NDA seeking marketing
approval for Aptosyn(TM) (exisulind) for any of these indications. The same
applies to CPI's development program for CP 461 and for any other product
candidate or compound for any disease condition, including those indications
discussed below. FDA approval is required for marketing. There can be no
assurance that the FDA will approve any Company product for marketing.
Despite the growing number of clinical trials, the clinical testing of
Aptosyn(TM) (exisulind) involved only a limited number of patients. The clinical
testing of CP 461 did not start until April of 1999. Results obtained from
studying a compound in any clinical trial are not necessarily predictive of the
results of the same compound (or of any other compound) in other clinical
trials, whether for the same indication or for other indications. Please also
read, "Risk Factors - Early Stage of Development; Absence of Developed Products;
Uncertainty of Clinical Trials."
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SAANDS CLINICAL DEVELOPMENT PROGRAM
INDICATION STATUS(1)
APTOSYN(TM) (EXISULIND)
PRECANCER
Familial Adenomatous Polyposis (FAP)..... Orphan Drug status obtained 1Q 1994. Fast Track Designation obtained 3Q 1998. NDA
for FAP filed August 1999. See description in text below.
Sporadic Adenomatous Colonic Polyps...... Phase 1 B trial completed 3Q 1997. Pivotal Phase II/III trial initiated in 1997;
treatment phase expected to complete in May 2000.
Barrett's Esophagus...................... Phase II trial recruitment closed 1Q 2000.
Bronchial Dysplasia...................... Phase II trial has been planned but not yet scheduled; see description in text below.
Cervical Dysplasia....................... Phase IB trial completed 3Q 1997. Next trial not yet scheduled.
CANCER
Prostate Cancer Recurrence............... Phase II/III trial completed 3Q 1999; see description in text below. Phase II trial in
patients resistant to hormone therapy commenced in 2Q 1999.
Prostate Cancer.......................... Phase II trial in patients scheduled for prostatectomy commenced 2Q 1999.
Lung Cancer.............................. Phase I study concluded. See description in text below.
Breast Cancer Recurrence................. Phase II/III trial initiated in 1Q 1998.
Breast cancer............................ Phase II study commenced 2Q 2000 in patients scheduled for surgery.
Combination therapy cancer trials........ Trials are planned to commence in 2000 evaluating Aptosyn(TM)(exisulind) in combination
with each of the approved chemotherapy agents Taxotere(R), Xeloda(R) and Gezmar(R) in
several major cancers. See description in text below.
CP 461
Cancer Indications ...................... IND filed December 1998. Phase IA single dose safety trial completed 3Q 1999.
Phase IB multiple dose safety/preliminary efficacy study commenced 3Q 1999. Phase II
studies anticipated to commence 2H 2000.
(1) The steps required before a drug may be marketed in the U.S. include: (i)
preclinical laboratory and animal tests; (ii) submission to the FDA of an
application for an IND exemption, which must become effective before human
clinical trials commence; (iii)
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human clinical trials to establish the safety and efficacy of the drug,
typically proceeding in three phases; (iv) submission of a detailed NDA to
the FDA; and (v) FDA approval of the NDA.
A "pivotal" study is a clinical trial used as primary evidence of safety
and efficacy. More than one pivotal study may be necessary to gain
marketing approval from the FDA.
Clinical trials proceed through three phases, which may overlap in design
and objective: "Phase I" trials involve the initial introduction of an
investigational new drug into humans and are designed to test for tolerance
and side effects and to determine the metabolic and pharmocologic actions
of the drug in humans.
"Phase IB" denotes a later stage Phase I study.
"Phase II" involves clinical studies conducted in a limited number of
patients to evaluate preliminarily the effectiveness of the drug for a
particular indication and to determine the optimal dosage and the common
short-term side effects and risks.
"Phase III" involves expanded studies to evaluate the safety and
effectiveness of the drug.
CPI's current clinical trial strategy seeks to identify subsets of
patient populations for the various targeted indications where the endpoints of
clinical trials occur in high frequency or in a relatively short time frame.
Because CPI is studying Aptosyn(TM) (exisulind) in multiple indications, CPI
plans to utilize safety and pharmacokinetic data obtained in clinical trials
already completed to provide a basis for commencing more advanced clinical
trials in other indications. CPI believes that this strategy of designing
clinical trials around selected populations and utilizing existing safety data
may allow CPI to reduce the duration of clinical trials and the number of test
subjects enrolled in its clinical trials, thereby generating statistically
significant clinical results more quickly and cost-effectively.
CLINICAL DEVELOPMENT OF APTOSYN(TM) (EXISULIND) FOR PRECANCEROUS LESIONS
Aptosyn(TM) (exisulind) lacks the side effects often associated with
cancer chemotherapeutic drugs. CPI therefore believes that the compound may be
useful in treating patients with precancerous lesions for whom a drug's
long-term safety profile is important. CPI is pursuing the clinical development
of Aptosyn(TM) (exisulind) in several types of precancerous conditions, as
described below.
Familial Adenomatous Polyposis (FAP). FAP is an inherited disease
characterized by the development of hundreds to thousands of adenomatous polyps
in the colon and the progression to colon cancer if left untreated. This disease
can be confirmed within a family by genetic testing. Most FAP patients must be
endoscopically screened beginning in their teenage years and must have a
substantial portion of their large intestine removed by age 20. Even with this
treatment, these patients continue to develop polyps in the remaining rectal
tissue and are typically monitored by endoscopy two to four times each year. It
is anticipated that polyps will be removed at each examination. CPI's clinical
program is testing Aptosyn(TM) (exisulind) in patients who previously have had
most of their large intestine removed, leaving the rectum intact (sub-total
colectomy), and in the pediatric population whose colons have not been removed.
It is estimated that FAP occurs in between 8,000 and 36,000 persons in
the United States. Because of the large number of lesions that occur in these
patients and the continuous development of new lesions with, characteristically,
no spontaneous remission, CPI has believed that clinical trials in FAP can be
conducted in, and statistically significant results obtained from, a relatively
small number of patients.
In a Phase I/II polyp regression study conducted with the support of
the National Cancer Institute at the Cleveland Clinic Foundation, 18 FAP
patients were treated with Aptosyn(TM) (exisulind) for six months. The study was
commenced in August 1995. It was designed to observe the safety and
pharmacokinetics of increasing doses of Aptosyn(TM) (exisulind) and to provide
preliminary data on dosage, clinical efficacy and mechanisms of action. No
serious adverse events attributable to Aptosyn(TM) (exisulind) were reported at
the clinically effective doses of 400-600 milligrams total daily dose. At the
800 milligram total daily dose level, four out of six patients displayed
asymptomatic reversible elevations of liver enzymes; all of such patients
continued in the trial at lower dose levels. This assisted in determining a
recommended maximum total daily dose of 600 milligrams in FAP patients with
subtotal colectomy. At the end of the study, all 18 patients elected to continue
taking the drug in extension studies, and the
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majority of the patients have been on the drug for more than four years. No
patient has withdrawn from the study or its extension due to serious adverse
events.
In the Phase I/II study and its extensions, nearly all patients were
observed to experience a marked reduction in the number and size of exophytic
(i.e., raised over the surface) precancerous rectal polyps that were six
millimeters or less in diameter at the beginning of the study. The effect was
observed to be correlated to dosage, with 600 milligrams per day having a
significantly more pronounced effect than 400 milligrams per day. This
dose-dependent difference was statistically significant. In the extended study,
no progressive increase in polyp size or volume was observed in the patients who
have remained in the study and have been maintained on the optimal dose;
instead, their polyps have diminished in number and size with continued drug
treatment. The condition of the eleven patients who have continued in the study
on drug since the initial phase which began in 1995 is characterized by the
investigator as being essentially free of clinically significant polyps.
Following treatment with Aptosyn(TM) (exisulind) in the Phase I/II
study, examination of certain regressing polyps showed substantial increases in
the rate of apoptosis as compared with the rate of apoptosis of untreated polyps
at the beginning of the study. At the same time, the rate of apoptosis in nearby
normal tissue was unchanged. This suggests that Aptosyn(TM) (exisulind) induces
apoptosis in neoplastic cells without affecting normal cells.
In July 1998, the FDA granted Aptosyn(TM) (exisulind) "Fast Track"
designation for expedited review for FAP. The Fast Track Program is a new
mechanism, introduced in the FDA Modernization Act of 1997, for facilitating the
development and expediting the approval of drugs that demonstrate the potential
to address unmet medical needs for serious and life-threatening conditions. This
mechanism builds upon existing FDA programs for accelerated approval.
In January 1999, CPI completed a double-blind, placebo-controlled
pivotal Phase III study of Aptosyn(TM) (exisulind) in FAP. The study was
conducted at centers in the U.S., Sweden, the United Kingdom and Israel. Of the
74 patients enrolled in the study, 65 completed the one-year course of drug (or
placebo) treatment. The primary endpoint of the study was a statistical
comparison of the formation of new polyps (as measured by periodic polyp
fulgeration) in drug-treated patients as compared with patients receiving
placebo. The primary analysis showed that in patients meeting the study's
eligibility criteria, i.e., those who form between approximately ten and
approximately forty polyps per year, Aptosyn(TM) (exisulind) demonstrated a
statistically significant reduction in new polyp formation when compared to
placebo. Of the 34 patients meeting these eligibility criteria, the fifteen
patients on Aptosyn(TM) (exisulind) showed a statistically significant reduction
in new polyp formation of approximately 50% as compared with the nineteen
patients on placebo. Supportive analysis showed that, if all 65 patients are
included in a statistical analysis regardless of whether they meet the inclusion
criteria of the study, the reduction in new polyp formation is substantial but,
due to the variations introduced by exceeding the study's inclusion/exclusion
criteria, does not achieve statistical significance. Further supportive analysis
showed that, if all participating patients forming nine or more polyps per year
are included in a statistical analysis regardless of whether they meet the
inclusion criteria, the reduction in new polyp formation is approximately 35% in
the drug treated group and that this result achieves statistical significance.
48 patients from the Phase III study participated in a six-month
extension study. The 25 former placebo patients who crossed over to Aptosyn(TM)
(exisulind) experienced during the six-month extension study a 50% reduction in
their polyp formation rate. The 23 patients who continued on Aptosyn(TM)
(exisulind) experienced declines in their polyp formation rate to 58% below the
already reduced rate they had demonstrated during the first year on drug. All of
these results achieved statistical significance. All measurements in the Phase
III trial and its extension covered the entire remaining colorectum, not just
selected areas.
CPI commenced its NDA filing for Aptosyn(TM) (exisulind) for FAP in
1998 with submission to the FDA of the chemistry section of the NDA in November
of that year. In December of 1998, CPI submitted to the FDA the
pharmacology/toxicology section of the NDA. In August of 1999, CPI submitted the
third,
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or clinical, section of the NDA to formally complete the NDA submission. In
October, CPI submitted additional data requested by the FDA with respect to
continuing FAP trials. In January 2000, CPI announced that it had been informed
by the FDA that review of the NDA to date had not identified any issues which
would require input from the Oncologic Drugs Advisory Committee. During the
first quarter of 2000, the Company has been interacting with the FDA in the
agency's process of reviewing the NDA.
In 1998, CPI commenced a safety study of Aptosyn(TM) (exisulind) in six
pediatric FAP patients. Based upon observations during this study, the Company
commenced a Phase II open label study in 20 pediatric patients in April of 1999.
Patients with FAP are usually managed by gastroenterologists and
colorectal surgeons. There are approximately 9,500 gastroenterologists and 1,000
colorectal surgeons in the U.S. CPI believes that a subset of these physicians
may treat a significant portion of the FAP patients. If CPI is granted marketing
approval for FAP, CPI intends to focus its marketing efforts on these
physicians.
Sporadic Adenomatous Colonic Polyps. Sporadic adenomatous colonic
polyps are relatively common precancerous lesions occurring in the large
intestine. These polyps are histologically, microscopically and genetically
indistinguishable from the polyps of FAP. More than 30% of people in the U.S.
over the age of 50 have sporadic adenomatous colonic polyps. Most of these
people will develop only one or two polyps and once the polyps are removed will
not require significant ongoing medical attention. There are, however, subgroups
of people at higher than usual risk of developing colorectal cancer who should
be monitored frequently. These patients include people with close relatives that
have had colorectal cancer, people over age 60 and people with multiple polyps
or polyps which are large or severely dysplastic or which recur frequently. CPI
is targeting these patients for clinical studies and chemopreventive therapy.
The American Cancer Society, American College of Gastroenterology,
American Gastroenterological Association and other expert organizations
recommend that all people over the age of 50 be screened for precancerous
colonic polyps and colon cancer. This recommendation is not followed universally
and, as a result, a large number of people whose polyps have not been detected
are at risk of developing colon cancer. The procedure for screening for sporadic
adenomatous colonic polyps is an endoscopic examination of the lower part of the
large intestine. This procedure, a sigmoidoscopy, is performed by
gastroenterologists, internists and other physicians. For more extensive and
invasive examination of patients who have had polyps detected by sigmoidoscopy
and for the treatment of sporadic adenomatous colonic polyps, a colonoscopy is
performed, usually by a gastroenterologist.
In September 1997, CPI completed a two-month Phase IB safety and
pharmacokinetic study in 18 patients who had a history of either sporadic
adenomatous colonic polyps or cervical dysplasia. CPI then initiated a one-year
multi-center, pivotal Phase II/III study in the regression of sporadic colonic
polyps. This study, initiated in December 1997, is a double-blind,
placebo-controlled study to evaluate the safety and efficacy of different doses
of Aptosyn(TM) (exisulind) for the treatment of existing sporadic adenomatous
colonic polyps. This study closed enrollment with 282 patients by early May
1999. Participants are expected to complete the one year of treatment in May of
2000. CPI may need to conduct further concurrent studies of safety and
pharmacokinetics. CPI may also need to conduct additional efficacy studies. CPI
does not know at this time if or when it will be able to submit an NDA for this
indication.
The 9,500 gastroenterologists and 1,000 colorectal surgeons in the U.S.
are primarily responsible for performing colonoscopies and managing treatment of
individuals who have sporadic adenomatous colonic polyps. This target audience
of physicians includes those who treat FAP and is a logical extension of CPI's
planned marketing and sales efforts.
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Barrett's Esophagus. Barrett's Esophagus is a precancerous condition of
the lower esophagus characterized by progressive and readily identifiable
changes in the appearance of the lining of the esophagus or esophageal
epithelium. Some patients experience reflux of stomach acid into the esophagus,
exacerbating the condition. Patients with Barrett's Esophagus have 30 to 40
times greater risk of developing esophageal cancer than the average person.
Treatment with anti-acid therapy or other anti-reflux measures is usually not
effective. Approximately one percent of the U.S. population, or an estimated 2.0
million people, are being managed for Barrett's Esophagus.
In December of 1998, CPI initiated a 12-month Phase II study in
patients with Barrett's Esophagus to evaluate the safety and efficacy of
Aptosyn(TM) (exisulind). CPI's proposed clinical endpoints are reduction in the
area affected or in the degree of dysplasia found in the affected tissues.
Enrollment in this approximately 20 patient study closed in the first quarter of
2000. Depending upon the data generated in this study, the Company may sponsor
additional studies in this disease indication.
Barrett's Esophagus is diagnosed by upper gastrointestinal endoscopy, a
procedure usually performed by gastroenterologists. Treatment is usually managed
by gastroenterologists or by thoracic surgeons. There are approximately 2,000
thoracic surgeons in the U.S. Because of the significant overlap between the
physician groups who treat Barrett's Esophagus and those who treat FAP and
sporadic adenomatous colonic polyps, CPI does not anticipate that any
significant increase in the sales and marketing organization will be required to
promote products for Barrett's Esophagus.
Clinical testing of Aptosyn(TM) (exisulind) for Barrett's Esophagus is
at a very early stage. No clinical data has been obtained for this indication.
CPI does not know if or when it will be able to file an NDA for this indication.
Bronchial Dysplasia. Bronchial dysplasia is a precancerous condition of
the lower respiratory tract characterized by progressive and readily
identifiable changes in the appearance of the lining of the bronchi of the lung
or bronchial epithelium. In the bronchial epithelium, smoking may initiate a
multi-step process that first appears histologically as dysplasia or metaplasia,
a biological precursor to lung cancer. Two-thirds of heavy smokers may develop
these precancerous lesions.
CPI plans to initiate, but has not scheduled, a Phase II study of
Aptosyn(TM) (exisulind) patients with bronchial dysplasia. The proposed clinical
endpoints would be reduction in the area affected or in the degree of dysplasia
found in the affected tissues. Whether CPI will commence this study in 2000, or
at all, will depend upon a variety of factors including developments in other
Company programs and competing demands for limited resources.
Pulmonary specialists and thoracic surgeons are primarily responsible
for performing bronchoscopies and managing treatment of individuals who have
bronchial dysplasia. There are approximately 8,400 of these physicians in the
U.S. If CPI develops Aptosyn(TM) (exisulind) or CP 461 or any other product
candidate to treat bronchial dysplasia, CPI anticipates marketing directly to
these focused physicians groups.
Cervical Dysplasia. Cervical dysplasia is a relatively common
precancerous lesion of the cervix that is easily diagnosed by Pap smears. Fifty
million Pap smears are performed each year in the U.S., of which approximately
five percent reveal some form of cervical dysplasia. Although very few cases of
cervical dysplasia progress to cancer, it is estimated that in 1997 there were
approximately 14,000 new cases of cervical cancer in the U.S.
In September 1997, CPI completed a two-month Phase IB safety and
pharmacokinetic study in 18 patients who had a history of sporadic adenomatous
colonic polyps or cervical dysplasia. CPI is designing a six-month cervical
dysplasia Phase II study to evaluate the safety and efficacy of different doses
of Aptosyn(TM) (exisulind) reducing the size of the area affected by and degree
of dysplasia. When, if and in which locations CPI will initiate this study will
depend upon a variety of factors, including developments in other Company
programs and competing demands for limited resources.
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Treatment of cervical dysplasia, especially those cases with severe
dysplasia or recurrence, is usually performed by gynecologists, of whom there
are approximately 36,000 in the U.S. If CPI determines to pursue this market,
CPI anticipates seeking a marketing partner for sales to this large physician
market.
CLINICAL DEVELOPMENT OF APTOSYN(TM) (EXISULIND) FOR CANCEROUS LESIONS.
Laboratory studies have demonstrated that Aptosyn(TM) (exisulind)
arrests or slows the progression of certain cancerous lesions. Based on the
safety profile of Aptosyn(TM) (exisulind) and its novel mechanism of activity,
CPI believes that Aptosyn(TM) (exisulind) may be clinically useful either as
stand-alone therapy or in combination with radiation or conventional
chemotherapy in the treatment of cancers and the prevention of recurrence.
CPI believes that cancer cells that are resistant to radiation or
conventional chemotherapy may be killed by Aptosyn(TM) (exisulind) due to its
effect on an apoptotic mechanism that is different from that targeted by
conventional therapies. Results of clinical trials of Aptosyn(TM) (exisulind) in
the treatment of any precancer indication may not be predictive of the results
that may be obtained from trials of Aptosyn(TM) (exisulind) for the treatment of
cancer.
Prostate Cancer. In in vitro and in vivo studies, CPI has observed that
Aptosyn(TM) (exisulind) inhibits growth of prostate cancer cells, including one
type of prostate cancer cell that is resistant to conventional chemotherapeutic
drugs. In August 1998, CPI completed enrollment of 96 patients in a one-year
Phase II/III clinical study for the prevention of prostate cancer recurrence.
This study involved men who had had a prostatectomy and had rising PSA levels.
This is often a sign of recurrent prostate cancer that is not detectable by
current imaging or diagnostic methods. The endpoint of this study was the arrest
or delay in the elevation of PSA. When this one-year study concluded in October
of 1999, the primary analysis showed a statistically significant difference in
mean change in PSA levels from baseline between drug and placebo groups: PSA
levels continued to rise in the placebo group while in the drug-treated group
PSA levels stabilized.
Results obtained from a planned interim evaluation of the Phase II/III
trial helped CPI design additional studies of exisulind in prostate cancer. Two
new studies were commenced in June 1999. The first is a 12-month, open-label
evaluation of exisulind in 15 post-prostatectomy patients who are receiving
LHRH-agonist hormone therapy and whose PSA levels are rising. Investigators will
determine the patients' PSA levels at monthly intervals and will check for
disease progression or the appearance of metastatic lesions by various x-ray
scans and other tests.
The second new prostate cancer study is an open-label evaluation of the
influence of Aptosyn(TM) (exisulind) on the rate of apoptosis and the expression
of cyclic GMPP-PDE (cGMP-PDE) in premalignant and malignant prostate tissue
compared to normal prostate tissue. This study is designed to enroll a total of
20 men who have histologically confirmed prostate cancer and are scheduled for a
radical prostatectomy within two to eight weeks of diagnosis. Participants in
the study will receive 500 mg of Aptosyn(TM) (exisulind) for periods of two,
four, six or eight weeks prior to surgery, starting at diagnosis. Investigators
will evaluate the resected prostate tissue for apoptosis rates in premalignant,
malignant and normal cells, and will measure the amount and expression of
cGMP-PDE.
Although a rising level of PSA is not itself a disease condition, it is
widely regarded in the medical community as a surrogate marker indicative of the
presence of prostate cancer. To CPI's knowledge, no drug has yet been approved
by the FDA for the treatment of prostate cancer solely on the basis of data with
respect to PSA levels. Prevailing thought suggests that efficacy must be shown
in some other biological or biochemical terms, in addition to effect upon PSA
levels. The requirements of a development program which would, if successful,
form the basis of the Company's filing an NDA for an indication dealing with
prostate cancer have not been definitively established. CPI does not know at
this time which specific clinical data, which additional clinical trials and how
much time will be required before CPI will be in a position to file an NDA
seeking regulatory approval for an indication involving prostate cancer.
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Prostate cancer is commonly diagnosed and treated by urologists, of
whom there are approximately 10,000 in the U.S. Oncologists, of whom there are
5,500 in the U.S., manage the chemotherapeutic treatment of prostate cancer. If
CPI develops and receives marketing approval for products to treat prostate,
cancer, CPI anticipates marketing these products directly to urologists and
oncologists.
Breast Cancer. CPI has observed that Aptosyn(TM) (exisulind) and other
CPI compounds show dose-related inhibitory effects in several in vitro breast
cancer cell systems, in in vivo chemically-induced cancer models and in in vitro
studies with primary breast cancer tissues removed from patients.
In February 1998, CPI initiated an 18-month double-blind, placebo
controlled Phase II/III study to evaluate the safety and efficacy of Aptosyn(TM)
(exisulind) for the prevention of recurrence of breast cancer in women who have
had breast cancer twice, have not responded to traditional recurrence prevention
such as tamoxifen, and who are in second remission after having been treated
with conventional chemotherapeutic agents. This study has been converted to an
open label study with all patients receiving Aptosyn(TM) (exisulind). Enrollment
in this study was closed at 35 patients. The Company is currently enrolling
patients in a second breast cancer study which is designed to evaluate the rates
of apoptosis during the very brief time period available prior to breast
surgery. There can be no assurance that this brief time period will be adequate
to permit an indication of the results of drug treatment.
It is estimated that in 2000 there will be approximately 183,000 new
cases of breast cancer in the U.S. Gynecologists usually diagnose breast cancer,
while oncologists manage the chemotherapeutic treatment. If CPI develops and
receives marketing approval for any products to treat breast cancer, CPI
anticipates marketing these products to oncologists.
Lung Cancer. Aptosyn(TM) (exisulind) has shown positive results in the
prevention of chemically-induced lung cancer in rodents. CPI initiated a Phase I
study of the safety and efficacy of Aptosyn(TM) (exisulind) patients with
advanced lung cancer in December 1997. This exploratory study initially included
six patients and concluded with 15 patients. The Company anticipates that its
next study in lung cancer patients will be in combination with one of the
approved chemotherapeutic agents.
Lung cancer may be diagnosed by general practitioners or internists.
Oncologists manage the chemotherapeutic treatment of lung cancer. If CPI
develops and receives marketing approval for products to treat lung cancer, CPI
anticipates marketing these products directly to oncologists.
CLINICAL DEVELOPMENT IN COMBINATION WITH CHEMOTHERAPEUTIC AGENTS
In September 1999, the Company announced a collaboration with
Rhone-Poulenc Rorer (which subsequently merged with Hoechst Marion Roussel to
form Aventis Pharmaceuticals ("Aventis")) to conduct clinical trials
investigating the therapeutic potential of Aptosyn(TM) (exisulind) in
combination with Aventis' Taxotere(R) docetaxel. It is planned that the initial
clinical trial will investigate the combination of Aptosyn(TM) (exisulind) and
Taxotere(R) and carboplatin chemotherapy in previously untreated non-small cell
lung cancer. Additional trials are intended to investigate Aptosyn(TM)
(exisulind) and Taxotere(R) combinations in breast, prostate and pancreatic
cancers as well as previously treated non-small cell lung cancer. Each company
will retain all marketing rights to its respective product.
In February 2000, the Company announced two more collaborations for
combination therapy. CPI and Roche Laboratories Inc. will conduct clinical
trials investigating the therapeutic potential of Aptosyn(TM) (exisulind) in
combination with Roche's Xeloda(R) (capecitabine) in breast and colorectal
cancers. CPI and Eli Lilly and Company ("Lilly") will conduct clinical trials
investigating the potential of Aptosyn(TM) (exisulind) in combination with
Lilly's Gemzar(R) (gemcitabine HCI) in lung bladder and pancreatic cancer.
In each of the three collaborations, the companies will jointly design
the clinical trials and share the data. CPI will provide monitoring and
administrative support, while clinical costs will be the responsibility of CPI's
partners. Product rights will be retained by each party for its respective
product.
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CPI is not in a position to know at this time if or when an NDA for
Aptosyn(TM) (exisulind) will be filed for any cancer indication (whether alone
or in combination with a cancer chemotherapeutic compound of another
pharmaceutical company), or which additional clinical trials may be required for
the submission of an NDA for a particular cancer indication, or, if an NDA is
filed, as to if or when the FDA will find that Aptosyn(TM) (exisulind), on the
basis of any or all of the studies which have been conducted or may hereafter be
conducted, is sufficiently safe and effective to warrant marketing approval by
the FDA for any such indication.
CP 461 DEVELOPMENT PROGRAM
Clinical Development of CP 461 for Cancer Treatment. Preclinical
toxicology and efficacy studies demonstrated that CP 461 has a potent
anti-cancer activity against a broad range of human cancer cell lines. The
preclinical studies also demonstrated that CP 461 selectively induces apoptosis
in abnormal cells and inhibits the formation of precancerous lesions without
affecting normal healthy cells.
CPI filed an IND for CP 461 in December 1998. A Phase IA single dose
safety and pharmacokinetic study in normal volunteers was completed in July 1999
and demonstrated good tolerability in all subjects following oral
administration. Plasma levels of CP 461 exceeded those predicted to be necessary
to achieve anti-cancer effects, based on preclinical studies. No clinically
significant drug-related side-effects were observed at any dose.
A Phase IB multiple dose safety, pharmacokinetic and preliminary
efficacy study in late stage cancer patients began in September 1999 and is
expected to conclude in the third quarter of 2000.
If preliminary indications of efficacy warrant, CPI plans to start, or
convert to, one or more Phase II studies in one or more cancers in the fourth
quarter of 2000. The cancer indication or indication(s) may be selected from
among lung, prostate, breast, colon and other cancers based upon experience with
the Phase IB trial and the Company's evaluation of the likelihood of success of
its SAANDs-based approach at that time. The commencement of Phase II studies
will depend upon a variety of factors including the outcome of the Phase IB
study, developments in other Company programs, developments in the field of
cancer therapy generally, and competing demands for limited resources.
In conjunction with the foregoing section "Products in Development,"
please read in the "Risk Factors" section the portions captioned "Early Stage of
Development; Absence of Developed Products; Uncertainty of Clinical Trials,"
"Technological Uncertainty; Regulatory Uncertainty," and "Extensive Government
Regulation; No Assurance of Necessary FDA and Other Regulatory Approvals,
Product Development; Safety and Efficacy."
NATIONAL CANCER INSTITUTE AND OTHER THIRD-PARTY ARRANGEMENTS
CPI and the National Cancer Institute ("NCI") entered into a clinical
trials agreement in 1994. In this agreement, the NCI agreed to sponsor human
clinical trials (including but not limited to safety and efficacy testing) of
Aptosyn(TM) (exisulind) in at least two precancer indications. The first
indication is colonic adenomas, including FAP. The NCI sponsored the first
six-month portion of the Phase I/II clinical study for FAP that commenced in
August 1995. Under the Agreement, NCI has the right to conduct as many
additional clinical trials as it would like and CPI is obligated to provide
Aptosyn(TM) (exisulind) for such studies. Although the clinical trials agreement
expired on July 1, 1999, renewal of the agreement is being negotiated. The
agreement with the NCI contains no provisions for royalties or restrictions on
CPI's ability to commercialize Aptosyn(TM) (exisulind).
In June 1991, CPI entered into a research and license agreement with
the University of Arizona (the "University"). Under the agreement, CPI has
agreed to attempt to commercialize at least one product while the University has
agreed to conduct a research program in support of CPI's efforts. The agreement,
as amended, provides for CPI to establish a budget for the research program with
the University on an
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annual basis and for CPI to be licensed under all patents based on inventions
developed by the University's employees in conjunction with CPI. CPI has agreed
to pay to the University a royalty based on sales of products, if any, based on
each such patent; this would apply to Aptosyn(TM) (exisulind) in the event it is
approved for sale by the FDA. The agreement expires on June 26, 2000 unless
extended by both parties, and is subject to termination by CPI upon thirty days'
notice.
CPI also contracts with university-based researchers and commercial
vendors throughout the U.S., Europe and other areas who furnish cell biology
studies, in vivo pharmacological studies, in vivo drug candidate screening,
animal toxicological studies, scale-up and synthesis of promising new compounds,
manufacture of clinical and commercial supplies, conduct of clinical studies,
laboratory analysis and/or other goods and services incident to the development
of the Company's business.
SCIENTIFIC ADVISORY BOARD
CPI is assisted in its research and development activities by its
Scientific Advisory Board ("SAB") composed of physicians and scientists who
review CPI's research and development, participate in the design of clinical
trials, discuss technological advances relevant to CPI and its business and
otherwise assist CPI. The members of the SAB are appointed by CPI's management.
The SAB meets periodically. Certain members meet in smaller groups or with CPI
individually as needed. Dr. Rifat Pamukcu, CPI's Chief Scientific Officer and
Senior Vice President, Research and Development, served as co-chair of CPI's SAB
prior to joining CPI in 1993, and continues to participate in all SAB meetings.
Dr. W. Joseph Thompson, Ph.D., CPI's Vice President, Research, serves as
Co-Chair for SAB meetings. SAB members are compensated in cash and stock options
for their services to CPI. CPI also reimburses each member for expenses incurred
when traveling to and attending meetings. All SAB members have commitments or
consulting contracts with other organizations and companies, some of which are
competitors or potential competitors of CPI, that may limit their availability
to CPI. None of these individuals is expected to devote more than a small
portion of his time to CPI. The members of the SAB are listed below by area of
specialization.
SCIENTIFIC ADVISORY BOARD
NAME PROFESSIONAL AFFILIATION
- ---- ------------------------
CELLULAR & ANIMAL RESEARCH
Dennis Ahnen, M.D........................ Professor of Medicine, University of Colorado School of Medicine; Director of Cancer
Prevention and Control, University of Colorado Cancer Center
David M. Livingston, M.D................. Emil Frei Professor of Medicine, Harvard Medical School; Chief of the Division of
Neoplastic Disease Mechanisms and Chairman of the Executive Committee for Research,
Dana-Farber Cancer Institute
Alan C. Sartorelli, Ph................... Alfred Gilman Professor of Pharmacology and Epidemiology, Yale University School of
Medicine; Director of Yale Comprehensive Cancer Center
I. Bernard Weinstein, M.D................ Frode Jensen Professor of Medicine, Professor of Genetics and Development and Public
Health, Columbia University; Director Emeritus, Herbert Irving Comprehensive Cancer
Center, Columbia University
Sharron H. Francis, Ph.D................. Professor, Department Molecular Physiology and Biophysics, Vanderbilt University
School of Medicine
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SCIENTIFIC ADVISORY BOARD
(CONTINUED)
NAME PROFESSIONAL AFFILIATION
- ---- ------------------------
CLINICAL & DRUG DEVELOPMENT
David S. Alberts, M.D.................... Associate Dean of Research, Director of Cancer Prevention and Control Program, and
Professor of Medicine and Pharmacology, Arizona Cancer Center, University of Arizona
Randall W. Burt, M.D. (Chairman)......... Professor of Internal Medicine and Chief of Gastroenterology, University of Utah
School of Medicine; formerly Chief of Medical Services, Veterans Administration
Medical Center, Salt Lake City, Utah
Daniel D. Von Hoff, M.D.................. Director Arizona Cancer Center, Professor of Medicine, The Arizona Health Sciences
Center, Tucson, Co-Director of Research, U.S. Oncology, Inc.
Louis M. Weiner, M.D..................... Chairman of the Department of Medical Oncology, Division of Medical Science at Fox
Chase Cancer Center; Professor in the Department of Medicine, Temple University School
of Medicine
INDUSTRY RESEARCH & DEVELOPMENT
Ira Ringler, Ph.D........................ Pharmaceutical industry consultant; formerly President of Takeda-Abbott
Pharmaceuticals, and Vice President, Pharmaceutical Research and Development, Abbott
Laboratories
PATENTS, TRADEMARKS AND PROPRIETARY TECHNOLOGY
CPI's success will depend, in part, on its ability to obtain patents,
operate without infringing the proprietary rights of others and maintain trade
secrets, both in the U.S. and other countries. Patent matters in the
pharmaceutical industry can be highly uncertain and involve complex legal and
factual questions. Accordingly, the validity, breadth, and enforceability of
CPI's patents and the existence of potentially blocking patent rights of others
cannot be predicted, either in the U.S. or in other countries.
As of February 2000, CPI held title or exclusive licenses to five
issued U.S. patents and three other pending U.S. patent applications relating to
the therapeutic uses of Aptosyn(TM) (exisulind) in the treatment of neoplasia,
precancerous lesions and/or other indications. A composition of matter patent is
not available to CPI (or anyone else) because the sulfone derivative of
sulindac, now named exisulind, was described in the scientific and patent
literature over 20 years ago. Thus, CPI's current patent rights relating to
Aptosyn(TM) (exisulind) are limited to a series of patents and patent
applications pertaining to various specific uses of Aptosyn(TM) (exisulind). CPI
has also been issued or holds exclusive licenses to 14 foreign patents
(including patents in various European countries, Australia, Canada, Korea and
Japan) and one pending international application relating to the use of
Aptosyn(TM) (exisulind) in pharmaceutical compositions for the treatment of
neoplasia, precancerous lesions and/or other indications. In Europe, CPI's
patent rights relating to Aptosyn(TM) (exisulind) are directed to the use
Aptosyn(TM) (exisulind) in the manufacture of pharmaceutical compositions for
the treatment of precancerous lesions. CPI also holds title or exclusive
licenses to six pending U.S. and five pending international patent applications
relating to uses of exisulind in combination with certain existing conventional
chemotherpeutics.
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CPI also holds title or exclusive licenses to one issued U.S. patent,
one allowed U.S. application and one pending international patent application
relating to CP 461, its composition of matter and various of its therapeutic
uses.
In addition, CPI holds title or exclusive licenses to fourteen U.S.
patents, seven U.S. patent applications which have been allowed, 48 other
pending U.S. pending patent applications, and seven pending foreign applications
on other compounds, or therapeutic methods involving such compounds, for the
treatment of colonic polyps, precancerous lesions and/or neoplasia. CPI has also
filed nine U.S. and 33 foreign patent applications, and owns one issued U.S.
patent, on methods for screening compounds for their usefulness in selectively
inducing apoptosis. CPI has also filed two U.S. applications and an
international application relating to diagnostic methodologies. CPI has also
filed four U.S. patent applications relating to certain business methods and
packaged pharmaceuticals with descriptive material describing and relating to
CPI's mechanisms of action.
CPI intends to file additional applications, as appropriate, for
patents on new compounds, products, or processes discovered or developed through
application of CPI's technology.
Research is an on-going process. Whether a new development or discovery
could be successfully patented is a very complicated question and depends on the
facts as they develop over time. Thus, beyond the patents granted to date, CPI
cannot provide assurance that its continuing research activities will discover
or develop patentable products or processes, or that patents will issue from any
of the currently pending patent applications, or that claims granted on issued
patents will be sufficient in their validity, breadth and enforceability to
protect CPI's technology or competitive commercial advantage. Potential
competitors or other researchers in the field may have filed patent
applications, been issued patents, published articles or otherwise created prior
art that could restrict or block CPI's efforts to obtain additional patents.
Similarly, CPI cannot predict whether CPI's issued patents or pending patent
applications, if issued, will be challenged, invalidated, circumvented or
breached by others, or whether judicial protection and enforcement will be
available to CPI to counteract such actions by others, or whether the rights
granted thereunder will provide proprietary protection or competitive advantages
to CPI. CPI's patent rights also depend in part on its compliance with
technology and patent licenses upon which its patent rights are based and upon
the validity of assignments of patent rights from consultants and other
inventors that are not or were not employed by CPI.
Competitors may manufacture and sell CPI's potential products in those
countries where CPI has not filed for patent protection or where patent
protection may be unavailable, not obtainable or ultimately not enforceable. The
ability of such competitors to do this is usually governed by the patent laws of
the countries in which the product is sold. If clinical uses of exisulind are
discovered beyond those set forth in CPI's patent claims, CPI may not be able to
enforce its patent rights against companies marketing exisulind for such other
clinical uses.
The success of CPI also will depend, in part, on CPI's not infringing
patents issued to others. Pharmaceutical companies, biotechnology companies,
universities, research institutions and others may have filed patent
applications or have received, or may obtain, issued patents in the U.S. or
elsewhere relating to aspects of CPI's technology. It is uncertain whether the
issuance of any third-party patents will require CPI to alter its products or
processes, obtain licenses or cease certain activities. Some third-party
applications or patents may conflict with CPI's issued patents or pending
applications. Such conflict could result in a significant reduction of the
coverage of CPI's issued or licensed patents. In addition, if patents are issued
to other companies which contain blocking, dominating or conflicting claims and
such claims are ultimately determined to be valid, CPI may be required to obtain
licenses to these patents or to develop or obtain alternative technology. If any
licenses are required, CPI might not be able to obtain any such licenses on
commercially favorable terms, if at all; and if these licenses are not obtained,
CPI might be prevented from pursuing the development of certain of its potential
products. CPI's failure to obtain a license to any technology that it may
require to commercialize its products may have a material adverse impact on
CPI's business, financial condition and results of operations.
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Litigation may be necessary to enforce any patents issued or licensed
to CPI. Litigation may be necessary to determine the scope and validity of the
proprietary rights of others. Litigation could result in substantial costs to
CPI.
Under the abbreviated new drug application ("ANDA") provisions of U.S.
law, after four years from the date marketing approval is granted to CPI by the
FDA for a patented drug, a generic drug company may submit an ANDA to the FDA to
obtain approval to market in the U.S. a generic version of the drug patented by
CPI. If approval is given to the generic drug company, CPI would be required to
promptly initiate patent litigation to prevent the marketing of such a generic
version prior to the normal expiration of the patent. CPI cannot provide
assurance that CPI's issued or licensed patents would be held valid by a court
of competent jurisdiction. In addition, if competitors of CPI file patent
applications in the U.S. that claim technology also claimed by CPI, CPI may have
to participate in interference proceedings to determine priority of invention.
These proceedings, if initiated by the U.S. Patent and Trademark Office, could
result in substantial cost to CPI, even if the eventual outcome is favorable to
CPI. An adverse outcome with respect to a third-party claim or in an
interference proceeding could subject CPI to significant liabilities, require
disputed rights to be licensed from third parties, or require CPI to cease using
such technology, any of which could have a material adverse effect on CPI's
business, financial condition and results of operations.
CPI also relies on trade secrets to protect technology, especially
where patent protection is not believed to be appropriate or obtainable or where
patents have not been issued. CPI attempts to protect its proprietary technology
and processes, in part, by confidentiality agreements and assignment of
invention agreements with its employees and confidentiality agreements with its
consultants and certain contractors. CPI cannot provide assurance that these
agreements will not be breached, that CPI would have adequate remedies for any
breach, or that CPI's trade secrets will not otherwise become known or be
independently discovered by competitors. Such trade secrets or other
intellectual property of CPI, should they become known to its competitors, could
result in a material adverse effect on CPI's business, financial condition and
results of operations. To the extent that CPI or its consultants or research
collaborators use intellectual property owned by others in their work for CPI,
disputes may also arise as to the rights to related or resulting know-how and
inventions.
Aptosyn(TM) (exisulind) is CPI's proposed trademark for exisulind. CPI
has filed an intent to use trademark application for the mark with the U.S.
Patent and Trademark Office, and plans to perfect foreign trademark rights in
the mark. While CPI has searched for confusingly similar marks and believes that
Aptosyn(TM) (exisulind) is available for use on its product under prevailing
standards of trademark law, there can be no guarantee that that mark will not be
challenged by others, or that others have not perfected or attempted to perfect
rights in a confusingly similar mark. In the event of a successful challenge to
CPI's adoption and use of Aptosyn(TM) (exisulind), CPI could be forced to change
its proposed mark in one or more countries in the world.
COMPETITION
The industry in which CPI competes is very competitive. It is
characterized by extensive research and development efforts and rapid
technological progress. New developments occur and are expected to continue to
occur at a rapid pace. Discoveries or commercial developments by CPI's
competitors may render some or all of CPI's potential products obsolete, subject
to competition or non-competitive. This would have a material adverse effect on
CPI's business, financial condition and results of operations. CPI's competitive
position also depends on its ability to attract and retain qualified scientific
and other personnel, develop effective proprietary products, implement
development and marketing plans, obtain patent protection and secure adequate
capital resources.
CPI faces competition in its specific areas of focus. In the fields of
cancer therapy and the prevention of precancerous and cancerous lesions, other
products and procedures are in use or in development that may compete directly
with the products that CPI is seeking to develop and market for cancer treatment
or cancer prevention. Surgery, radiation, chemotherapeutic agents and compounds
that interfere with hormone activities have been in use for years in the
treatment of cancer. Tamoxifen has been
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granted limited approval for use in the prevention of breast cancer. The
arthritis drug Celebrex has been granted approval for the regression of polyps
in FAP patients. CPI is aware of clinical trials in which a number of
pharmaceutical and nutritional agents are being examined for their potential
usefulness in the treatment of precancerous lesions and cancer. These include
studies of additional chemotherapeutic agents, monocloncal antibodies, hormone
blockers, cyclooxegenase inhibitors, thalidomide and other anti-angeogenesis
agents in the treatment of cancer; studies of NSAID-like compounds,
cyclooxygenase inhibitors, difluoromethylornithine ("DFMO") and natural
nutrients in the treatment of FAP and sporadic colonic polyps; studies of
retinoids and DFMO in the treatment of cervical dysplasia; and studies of
tamoxifen for the prevention of breast cancer. Additional compounds being tested
in various epithelial lesions include compounds related to aspirin, various
vitamins and nutritional supplements, oltipraz, N-acetyl cysteine and compounds
that interfere with hormone activities. The studies are being conducted by
pharmaceutical and biotechnology companies, major academic institutions and
government agencies. There are other agents, including certain prescription
drugs, that have been observed to have an effect in the general area of cGMP
PDE; although CPI is not aware that any third party has demonstrated the
preclinical utility of these compounds in the treatment of precancerous or
cancerous lesions, there can be no assurance that such existing or new agents
will not ultimately be found to be useful, and therefore competitive with any
future products of CPI.
CPI expects near-term competition from fully integrated and more
established pharmaceutical and biotechnology companies. Most of these companies
have substantially greater financial, research and development, manufacturing
and marketing experience and resources than CPI and represent substantial
long-term competition for CPI. Such companies may succeed in discovering and
developing pharmaceutical products more rapidly than CPI or pharmaceutical
products that are safer, more effective or less costly than any that may be
developed by CPI. Such companies also may be more successful than CPI in
production and marketing. Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical and established biotechnology companies. Academic institutions,
governmental agencies and other public and private research organizations also
conduct clinical trials, seek patent protection and establish collaborative
arrangements for the development of oncology products.
CPI will face competition based on a number of factors: product
efficacy and safety; the timing and scope of regulatory approvals; availability
of supply; marketing and sales capability; reimbursement coverage; price; and
patent position. CPI's competitors may develop safer and more effective
products. CPI's competitors may obtain patent protection or intellectual
property rights that limit CPI's ability to commercialize products. CPI's
competitors may develop or commercialize products earlier than CPI. CPI's issued
patents or pending patent applications, if issued, may be challenged,
invalidated or circumvented and the rights granted thereunder may not provide
proprietary protection or competitive advantage to CPI.
GOVERNMENT REGULATION
CPI's activities are subject to extensive governmental regulation. In
particular, the research, design, testing, manufacturing, labeling, marketing,
distribution and advertising of products such as CPI's proposed products are
subject to extensive regulation by governmental regulatory authorities in the
U.S. and other countries. The drug development and approval process is generally
lengthy, expensive and subject to unanticipated delays.
The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of new pharmaceutical products through lengthy
and detailed preclinical and clinical testing procedures, sampling activities
and other costly and time-consuming compliance procedures. A new drug may not be
marketed in the U.S. until it has undergone rigorous testing and has been
approved by the FDA. The drug may then be marketed only for the specific
indications, uses, formulation, dosage forms and strengths approved by the FDA.
Similar requirements are imposed by foreign regulators upon the marketing of a
new drug in their respective countries.
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Satisfaction of such regulatory requirements, which includes
demonstrating to the satisfaction of the FDA that the relevant product is both
safe and effective, typically takes several years or more depending upon the
type, complexity and novelty of the product. It also requires the expenditure of
substantial resources. Preclinical studies must be conducted in conformance with
the FDA's Good Laboratory Practice ("GLP") regulations. CPI's compounds require
extensive clinical trials and FDA review as new drugs. Clinical trials are
vigorously regulated and must meet requirements for FDA review and oversight and
requirements under Good Clinical Practice ("GCP") guidelines. CPI may encounter
problems in clinical trials which would cause CPI or the FDA to delay or suspend
clinical trials. Any such delay or suspension could have a material adverse
effect on CPI's business, financial condition and results of operations. The
steps required before a drug may be marketed in the U.S. include: (i)
preclinical laboratory and animal tests; (ii) submission to the FDA of an
application for an IND exemption, which must become effective before human
clinical trials may commence; (iii) human clinical trials to establish the
safety and efficacy of the drug; (iv) submission of a detailed NDA to the FDA;
and (v) FDA approval of the NDA. In addition to obtaining FDA approval for each
product, each domestic establishment where the drug is to be manufactured must
be registered with the FDA. Domestic manufacturing establishments must comply
with the FDA's Good Manufacturing Practice ("GMP") regulations and are subject
to periodic inspections by the FDA. Foreign manufacturing establishments
manufacturing drugs intended for sale in the U.S. also must comply with GMP
regulations and are subject to periodic inspection by the FDA or by local
authorities under agreement with the FDA.
Preclinical tests include laboratory evaluation of product chemistry
and animal studies to assess the metabolic and pharmacologic activity and
potential safety and efficacy of the product. Preclinical tests must be
conducted by laboratories that comply with FDA regulations regarding GLP. The
results of preclinical tests are submitted to the FDA as part of an IND, which
must become effective before the sponsor may conduct clinical trials in human
subjects. Unless the FDA objects to an IND, the IND becomes effective 30 days
following its receipt by the FDA. There is no certainty that submission of an
IND will result in FDA authorization of the commencement of clinical trials. A
separate IND application may be required by the FDA, in its sole discretion, as
to each indication. The FDA has determined that all cancer prevention and
therapeutic indications for which Aptosyn(TM) (exisulind) is or will be tested
are to be submitted under its current IND application filed in December 1993.
Clinical trials of CP 461 are proceeding under an IND filed in December 1998.
Clinical trials involve the administration of the investigational drug
to patients. Every clinical trial must be conducted under the review and
oversight of an institutional review board ("IRB") at each institution
participating in the trial. The IRB evaluates, among other things, ethical
factors, the safety of human subjects and the possible liability of the
institution. Clinical trials typically are conducted in three phases, which
generally are conducted sequentially, but which may overlap. Clinical trials
test for efficacy and safety, side effects, dosage, tolerance, metabolism and
clinical pharmacology. Phase I tests involve the initial introduction of the
drug to a small group of subjects to test for safety, dosage tolerance,
pharmacology and metabolism. Phase II trials involve a larger but still limited
patient population to determine the efficacy of the drug for specific
indications, to determine optimal dosage and to identify possible side effects
and safety risks. If a drug appears to be efficacious in Phase II evaluations,
larger-scale Phase III trials are undertaken to evaluate the safety and
effectiveness of the drug, usually, though not necessarily, in comparison with a
placebo or an existing treatment.
There are many uncertainties in the overall clinical trial process.
Phase I, Phase II and/or Phase III testing may not be completed successfully
within any specified time period, if at all. Designation of a trial by phase may
be changed by the Company or by the FDA. The FDA may increase, decrease or
re-characterize the number and phases of trials required for approval. The FDA
may suspend clinical trials at any time if it decides that patients are being
exposed to a significant health risk.
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The results of the preclinical studies and clinical trials are
submitted to the FDA as part of an NDA for approval of the marketing of the
drug. The NDA also includes information pertaining to the chemistry, formulation
and manufacture of the drug and each component of the final product, as well as
details relating to the sponsoring company. In prior years, the NDA review
process has taken from one to two years on average to complete, although reviews
of treatments for cancer and other life-threatening diseases may be accelerated.
The process may take substantially longer if the FDA has questions or concerns
about a product. In general, the FDA requires at least two adequate and
well-controlled clinical studies demonstrating efficacy in order to approve an
NDA. The FDA may, however, request additional information, such as long-term
toxicity studies or other studies relating to product safety, and may increase,
decrease or re-characterize the number and phases of trials required for
approval. Notwithstanding the submission of requested data, the FDA ultimately
may decide that the application does not satisfy its regulatory criteria for
approval. Finally, the FDA may require additional clinical tests following NDA
approval.
CPI may not succeed in developing drugs that prove to be safe and
effective in treating or preventing cancer. The development of such drugs will
require the commitment of substantial resources to conduct the preclinical
development and clinical trials necessary to bring such compounds to market.
Drug research and development by its nature is uncertain. There is a risk of
delay or failure at any stage, and the time required and cost involved in
successfully accomplishing CPI's objectives cannot be predicted. Actual drug
research and development costs could exceed budgeted amounts, which could have a
material adverse effect on CPI's business, financial condition and results of
operations.
As discussed above, CPI submitted an NDA for Aptosyn(TM) (exisulind)
for the indication of FAP in August 1999. CPI cannot predict when, if ever, it
will submit another NDA for Aptosyn(TM) (exisulind), for CP 461 or for another
of its compounds currently under development. See the discussion of Aptosyn(TM)
(exisulind) and CP 461 above under "Products in Development."
No new drug may be marketed in the U.S. until it has been approved by
the FDA. CPI may encounter delays or rejections in the approval process. The FDA
may make policy changes during the period of product development or the period
of FDA regulatory review of an NDA. A delay in obtaining, or failure to obtain,
approval would have a material adverse effect on CPI's business, financial
condition and results of operations. Even if regulatory approval were obtained,
it would be limited as to the indicated uses for which the product may be
promoted or marketed.
A marketed product, its manufacturer and the facilities in which it is
manufactured are subject to continual review and periodic inspections. If
marketing approval is granted, CPI would be required to comply with FDA
requirements for manufacturing, labeling, advertising, record keeping and
reporting of adverse experiences and other information. In addition, CPI would
be required to comply with federal and state anti-kickback and other health care
fraud and abuse laws that pertain to the marketing of pharmaceuticals. Failure
to comply with regulatory requirements and other factors could subject CPI to
regulatory or judicial enforcement actions, including, but not limited to,
product recalls or seizures, injunctions, withdrawal of the product from the
market, civil penalties, criminal prosecution, refusals to approve new products
and withdrawal of existing approvals, as well as enhanced product liability
exposure, any of which could have a material adverse effect on CPI's business,
financial condition and results of operations.
Sales of CPI's products outside the U.S. will be subject to foreign
regulatory requirements governing clinical trials, marketing approval,
manufacturing and pricing. Non-compliance with these requirements could result
in enforcement actions and penalties or could delay introduction of CPI's
products in certain countries.
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CPI's current clinical trial strategy for the development of drugs for
the prevention of precancerous lesions assumes that, for precancer trials, the
FDA will accept reduction in the formation of precancerous lesions as an
endpoint. To date, the FDA has not approved any compounds which are solely
chemoprevention compounds, and there can be no assurance that the FDA will
approve such compounds in the future. Should the FDA require CPI to demonstrate
the efficacy of Aptosyn(TM) (exisulind) in the reduction of certain cancers or
in overall mortality rates resulting from certain cancers, CPI's clinical trial
strategy would be materially and adversely affected. Significant additional time
and funding would be required to demonstrate such efficacy. For these and other
reasons, CPI may not be able to successfully develop a safe and efficacious
chemoprevention product. If CPI does succeed in obtaining approval for a cancer
chemopreventive product, the product may not be commercially viable or accepted
in the market place.
In 1988 and again in 1992, the FDA issued regulations intended to
expedite the development, evaluation and marketing of new therapeutic products
to treat life-threatening and severely debilitating illnesses for which no
satisfactory alternative therapies exist. One program under these regulations
provides for early consultation between the sponsor and the FDA in the design of
both preclinical studies and clinical trials. Another program provides for
accelerated approval based on a surrogate endpoint. This does not mean that any
future products CPI may develop will be eligible for evaluation by the FDA under
these regulations. Nor does this mean that Aptosyn(TM) (exisulind) or any future
products CPI may develop, if eligible for these programs, will be approved for
marketing sooner than would be traditionally expected. Regulatory approval
granted under these regulations may be restricted by the FDA as necessary to
ensure the safe use of the drug. In addition, post-marketing clinical studies
may be required. If Aptosyn(TM) (exisulind) or any future products of CPI do not
perform satisfactorily in such post-marketing clinical studies, they would
likely be required to be withdrawn from the market.
CPI has obtained "Orphan Drug" status for Aptosyn(TM) (exisulind) for
the treatment of FAP. "Orphan Drug" status may provide an applicant with
exclusive marketing rights in the U.S. for a designated indication for seven
years following marketing approval. In order to obtain such benefits, however,
the applicant must be the sponsor of the first NDA approved for that drug and
indication. Moreover, amendment of the Orphan Drug Act by the U.S. Congress and
reinterpretation by the FDA are frequently discussed. Therefore, the precise
scope of protection that may be afforded by Orphan Drug status in the future is
uncertain. The current level of exclusivity may not remain in effect.
CPI has been granted "Fast Track" designation by the FDA for
Aptosyn(TM) (exisulind) for the reduction in development of new polyps in
patients with FAP. The Fast Track Program is a new mechanism, introduced in the
FDA Modernization Act of 1997, for facilitating the development and expediting
the approval of drugs that demonstrate the potential to address unmet medical
needs for serious and life-threatening conditions. This mechanism builds upon
existing FDA programs for accelerated approval of such drugs.
Among other things, the Fast Track provisions provide for rolling
review of the NDA (marketing application) for the Fast Track drug, so that
portions of the application can be submitted and reviewed by FDA before the
complete application is submitted. This can help to accelerate FDA review. Under
Fast Track designation, CPI submitted to the FDA the chemistry section of its
NDA with respect to Aptosyn(TM) (exisulind) for FAP in November 1998, and the
pharmacology/toxicology section in December 1998. The clinical portion was
submitted in August 1999 and was supplemented in October 1999. See the
discussion of the Phase III trial above under "Products in Development." The FDA
may not approve the NDA for Aptosyn(TM) (exisulind) any sooner than would be
traditionally expected, or may not approve the NDA at all. Or, the FDA might
require post-marketing studies. If post-marketing studies were required as a
condition of approval of Aptosyn(TM) (exisulind) and such studies thereafter
showed that Aptosyn(TM) (exisulind) is not safe or effective or failed to
demonstrate any clinical benefit, it is likely that Aptosyn(TM) (exisulind)
would be required to be withdrawn from the market for such indication.
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In most cases, pharmaceutical companies rely on patents to provide
market exclusivity for the periods covered by the patents. See "Patents,
Trademarks and Proprietary Technology" above. In the U.S., the Drug Price
Competition and Patent Term Restoration Act of 1984 (the "Hatch-Waxman Act")
permits an extension of patents in certain cases to compensate for patent time
expended during clinical development and FDA review of a drug. In addition, the
Hatch-Waxman Act establishes a period of market exclusivity, independent of any
patents, during which the FDA may not accept or approve abbreviated applications
for generic versions of the drug from other sponsors, although the FDA may
accept and approve subsequent long-form applications for the drug. The
applicable period of market exclusivity for a drug containing an active
ingredient not previously approved is five years. There is no assurance that all
or any of CPI's products, if approved, will receive market exclusivity under the
Hatch-Waxman Act. Failure to receive such exclusivity could have an adverse
effect on CPI's business, financial condition and results of operations at that
time.
Among the requirements for product approval is the requirement that
prospective manufacturers conform to the GMP standards, which also must be
observed at all times following approval. Accordingly, manufacturers must
continue to expend time, money and effort in production, record keeping and
quality control to ensure compliance with GMP standards. Failure to so comply
subjects the manufacturer to possible FDA action, such as the suspension of
manufacturing or seizure of the product. The FDA may also request a voluntary
recall of a product.
Health care reform legislation, if enacted, could result in significant
change in the financing and regulation of the health care business. Also,
legislation affecting coverage and reimbursement under Medicare, Medicaid and
other government medical assistance programs has been enacted and modified from
time to time. The future course of legislation is unpredictable. Changes
adversely affecting drug pricing, drug reimbursement and prescription benefits,
among other changes, could have a materially adverse effect on CPI's business,
financial condition and results of operations at that time.
MANUFACTURING
CPI has no facilities for the manufacture, formulation or finishing of
products for clinical or commercial use. CPI relies on third parties to produce
its compounds for research, clinical and commercial purposes (both bulk drug and
final pharmaceutical forms). CPI will need to develop its own facilities or
continue to contract with third parties for the production of products, if any,
that it may develop for its own account or in connection with collaborative
arrangements in which it has retained manufacturing rights. See under "Risk
Factors" the section captioned "Lack of Manufacturing Experience; Reliance on
Contract Manufacturers and Suppliers."
MARKETING AND SALES
CPI has to date retained all rights to Aptosyn(TM) (exisulind) and its
other compounds and is establishing its own sales, marketing and distribution
organization through a combination of internal resources and contracted
third-party providers. CPI plans to promote Aptosyn(TM) (exisulind), if approved
for sale for these conditions, primarily to the gastroenterologists and other
physicians who manage patients with FAP, sporadic adenomatous colonic polyps and
Barrett's Esophagus. These initial markets are treated by approximately 10,500
physicians, a relatively small target audience.
If CPI receives additional FDA approvals for Aptosyn(TM) (exisulind),
CPI may expand its sale and marketing team to reach other targeted groups of
physicians. Target groups would include the approximately 10,000 urologists who
manage most prostate cancer patients, the approximately 8,400 pulmonary
specialists and thoracic surgeons who are primarily responsible for performing
bronchoscopies and managing treatment of individuals with bronchial dysplasia
and the approximately 5,500 oncologists who manage cancer therapy patients. CPI
will also consider alternative forms of distribution with or without marketing
partners.
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Certain indications, based on their treatment by a large number of
physicians, require an extensive sales force to sufficiently reach the
appropriate physician groups. Cervical dysplasia, for example, is treated by
approximately 36,000 gynecologists. To reach these more extensive physician
groups, CPI may, if appropriate, enter into co-marketing agreements with
pharmaceutical or biotechnology companies.
CPI anticipates marketing its products in Europe by entering into
strategic alliance agreements with established sales organizations located in
such markets. In Japan and other Pacific Rim countries, CPI is seeking marketing
partners to assist in local clinical trials, regulatory filings and marketing,
sales and distribution. While seeking international collaborations, CPI will
continue to pursue the clinical development and the regulatory approval of
Aptosyn(TM) (exisulind) in major international markets. See under "Risk Factors"
the section captioned "Absence of Sales and Marketing Experience; Dependence on
Third Parties".
EMPLOYEES
As of January 31, 2000, CPI employed 63 persons full-time.
EXECUTIVE OFFICERS AND KEY EMPLOYEES
ROBERT J. TOWARNICKI, 48, has served as Chief Executive Officer and a Director
of CPI since October 1996 and President of CPI since January 1998. Prior to
joining CPI, from 1992 to 1996, he served as President, Chief Operating Officer,
a director and most recently as Executive Vice President of Integra LifeSciences
Corporation, which is the publicly-held parent firm for a group of biotechnology
and medical device companies; including Collatech, Inc., ABS LifeSciences Inc.,
Telios Pharmaceuticals, Inc. and Vitaphore Corporation. In addition, from 1991
to 1992, he served as Founder, President and Chief Executive Officer of MediRel,
Inc. From 1989 to 1991, he was General Manager of Focus/MRL, Inc.; from 1985 to
1989, he was Vice President of Development and Operations for Collagen
Corporation and from 1974 to 1985, he held a variety of operations management
positions at Pfizer, Inc. and Merck & Co., Inc. Mr. Towarnicki was a Ph.D.
candidate in Pharmaceutical Chemistry at Temple University School of Pharmacy
and received his M.S. and B.S. degrees from Villanova University.
RIFAT PAMUKCU, M.D., 42, is CPI's Chief Scientific Officer and Senior Vice
President Research and Development. Dr. Pamukcu is a co-founder of CPI. Prior to
joining CPI full time in 1993, from 1989 to March 1993, he was Assistant
Professor of Medicine at the University of Cincinnati and co-chair of CPI's SAB.
He continued as an Adjunct Assistant Professor of Medicine at the University of
Cincinnati from 1993 to 1995. He was a postdoctoral fellow from 1986 to 1989 in
the Division of Gastroenterology at the University of Chicago. Dr. Pamukcu
received a B.A. in Biology from Johns Hopkins University in 1979 and an M.D.
degree from the University of Wisconsin School of Medicine in 1983.
RICHARD H. TROY, 62, has served as Senior Vice President, Corporate Development
of CPI since November 1997, Vice President , Finance, Law and Administration
from January 1993 until November 1997, and General Counsel, Secretary and a
Director since December 1992. He has been an advisor to CPI since its inception,
and he is a Director and President of FGN, Inc., the predecessor partnership's
first general partner and a principal stockholder of CPI. Prior to joining CPI,
from 1990 to 1992, he served as Vice President and Associate General Counsel of
UST, Inc. Prior to that, from 1973 to 1990, he worked at Combustion Engineering,
Inc., most recently as Vice President and Deputy General Counsel, and from 1964
to 1973, he practiced law with the firm of Shearman & Sterling in New York City.
Mr. Troy received a B.A. in Philosophy from Georgetown University in 1959,
studied at the Ludwig-Maximilians-Universitat in Munich in 1959-60, and received
a LL.B. degree from Harvard Law School in 1963.
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BRIAN J. HAYDEN, 48, has served as Vice President, Finance and Chief Financial
Officer of CPI since November 1997 and as Treasurer since June 1998. Prior to
joining CPI, during 1996 and 1997, he served as Vice President of Finance and
Administration for NeoStrata, Inc., a dermatology company, and Vice President
and Chief Financial Officer of Micrus Corporation, a medical device company.
From 1992 to 1996, he served as Vice President, Finance, Chief Financial Officer
and Treasurer of Biomatrix, Inc., a public medical device company. From 1988 to
1992, he served as Vice President, Chief Financial Officer, Treasurer and
Secretary of Alteon Inc., a public biopharmaceutical company. Mr. Hayden served
as Vice President, Finance and Administration for Healthways Systems, Inc., a
managed care organization, from 1985 to 1988. From 1976 to 1985, he served in
various auditing, financial analysis and senior financial management positions
with Hoffmann-La Roche, Inc. He served as a Senior Auditor from 1973 to 1976
with Coopers and Lybrand LLP. Mr. Hayden received a B.B.A. in Accounting from
Loyola University of Chicago and completed graduate courses at Seton Hall
University.
LLOYD G. GLENN, 44, has served as Vice President, Marketing of CPI since June
1998 and as Vice President, Sales and Marketing since January 2000. Prior to
joining CPI, from 1995 to 1998, he served as Vice President of Marketing for
Athena Neurosciences, Inc., the Neurological Division of Elan. From 1983 to
1994, he served in a series of sales management positions, ultimately serving as
Senior Product Manager for the Pharmaceutical Division of Allergan, Inc. His
additional past experience includes positions at Block Drug, from 1982 to 1983,
and Airwork, a subsidiary of Purex, Inc. from 1981 to 1982. Mr. Glenn received
his B.S. degree in marketing from Brigham Young University.
HECTOR ALILA, D.V.M., Ph.D., 47, has served as Vice President of Product
Development of CPI since February 1998. Prior to joining the Company, he was
Director of Pharmacology/Biology at GeneMedicine, Inc. from 1994 to 1998. He
also headed their Toxicology/Pharmacokinetic Studies and Growth Factors Program.
He was Project Leader and Senior Investigator at SmithKline Beecham from 1988 to
1994 and was Senior Research Associate in the Department of Physiology at
Cornell University from 1986 to 1988. Dr. Alila was Lecturer/Senior Research
Scientist at the University of Nairobi and Kenya Medical Research Institute from
1984 to 1986. Dr. Alila received his Bachelor of Veterinary Medicine from the
University of Nairobi in 1978. He received his Ph.D. in Physiology/Endocrinology
from Cornell University in 1984.
KERSTIN B. MENANDER, M.D., PH.D., 62, has served as Vice President, Medical and
Regulatory Affairs of CPI since January 1997. Prior to joining CPI, from 1989 to
1997 she was President of US 3D Development, Inc. From 1992 to 1994 she was also
a corporate officer and Vice President, Medical Affairs of Curative
Technologies, Inc. Between 1986 and 1989 she served as Vice President, Medical
and Regulatory Affairs and a corporate officer of Collagen Corporation. From
1973 to 1986 she held a variety of clinical and regulatory positions at
companies such as Syntex Corporation and Abbott Laboratories. Dr. Menander
received her M.D. and Ph.D. from the University of Lund, Sweden, where she also
did research and taught as Associate Professor of Histology of the Medical
Faculty.
JOSEPH D. PURVIS, M.D., 54, has served as Vice President, Clinical Research,
Oncology since August 1999. Prior to joining the Company, he was employed by
Sanofi Research Division from 1994 to 1999, initially joining that company as a
Director, Clinical Research, oncology. Between 1986 and 1994 he worked for
Burroughs Wellcome Co. ultimately serving as Associate Director, Cancer Therapy.
From 1986 to 1994 he held an appointment as Clinical Assistant Professor,
Medical Oncology at the University of North Carolina Chapel Hill. Prior to
joining the industry he was a Staff Physician, Hematology and Medical Oncology
at the Cleveland Clinic Foundation. He received his M.D. degree from Jefferson
Medical College, Philadelphia and was a fellow in medical oncology at the Mayo
Clinic from 1979 to 1981.
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ROBERT W. STEVENSON, J.D., 45, has served as Vice President, Intellectual
Property of CPI since November 1997. Prior to joining the Company, he was an
attorney at Brinks Hofer Gilson & Lione, where he served as a partner from 1992
to 1997 and as counsel from 1988 until 1992. He served as CPI's outside patent
counsel since its inception. In addition, he was an Adjunct Professor of Patent
Law at DePaul University from 1992 to 1996. Before joining Brinks Hofer Gilson &
Lione, he was a senior attorney at Abbott Laboratories, where he handled a
variety of patent matters involving pharmaceuticals and biotechnology. Mr.
Stevenson received his B.S.E. from Penn State University in 1977, his M.S.E.
from the University of Michigan in 1979, and his J.D. from Wayne State
University in 1982.
W. JOSEPH THOMPSON, PH.D., 56, has served as Vice President, Research of CPI
since June 1998. He joined the Company from the University of South Alabama
College of Medicine, where he was Professor of Pharmacology in the Department of
Pharmacology from 1983 to 1998. Prior to that time, he was employed from 1973 to
1983 at the University of Texas Medical School at Houston, where he ultimately
held the title of Professor of Pharmacology. Dr. Thompson is a member of the
editorial board of the Journal of Second Messengers and Phosphoprotein Research
and is the author of over 268 scientific publications. He received his Ph.D.
degree in biochemistry from the University of Southern California, and has a
B.A. degree from Depauw University in Indiana.
RISK FACTORS
The following risk factors relate to the business of the Company and
qualify the statements made in this report about the business of the Company.
These factors, among others, could cause actual results to differ materially
from those contained in forward-looking statements made in this report and/or
presented elsewhere by management from time to time. The subheadings below
identify the risks discussed but cannot do so completely. Each subsection may
relate to more than one aspect of the Company's business. Accordingly, each risk
factor should be considered carefully in evaluating the business of the Company,
any investment in the Company and the descriptions of the Company contained in
this report. Attention is also directed to the SEC filings of the Company on
Forms 10-Q, 10-K, 8-K and S-3, particularly the sections entitled "Business
Description," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Risk Factors" and "Other Events."
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; EXPECTED FUTURE LOSSES.
The business has experienced significant operating losses since
inception in 1990. CPI has not received any revenue from the sale of products
and no product candidate has been approved for marketing. As of December 31,
1999, CPI had an accumulated deficit of approximately $65 million. CPI expects
to incur additional operating losses over the next several years and expects
cumulative losses to increase substantially as research and development efforts
and preclinical and clinical testing expand. If FDA approval of Aptosyn(TM)
(exisulind) is granted, CPI will incur significant manufacturing and marketing
costs. CPI's ability to achieve profitability is dependent on its ability, alone
or with others, to complete the development of its proposed products
successfully, obtain the required regulatory approvals, manufacture and market
its proposed products successfully or have others manufacture and market such
products and gain market acceptance for such products. CPI may not achieve
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 of this report.
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STOCK VOLATILITY; CLASS ACTION LITIGATION.
CPI is a development-stage company. The market price of
development-stage companies is typically volatile. Stock volatility may be
induced by Company developments, industry developments or competitive
developments. Stock volatility may also be induced by statements appearing in
the media, whether true or false. When there is a sharp drop in the stock price,
stockholder class actions may be filed against the particular company. CPI's
stock price has been volatile. The stock price dropped substantially after CPI
made an announcement on February 1, 1999 that it anticipated a delay in filing
the NDA for Aptosyn(TM) (exisulind) for FAP. In February and March of 1999, five
stockholder class actions were filed against the Company and certain of its
officers and directors. These actions were consolidated into one action and, in
June 1999, a consolidated amended complaint was filed on behalf of a class of
all purchasers of CPI common stock between October 7, 1998 and February 2, 1999.
This action is in very preliminary stages and is pending in the United States
District Court for the Eastern District of Pennsylvania. See the discussion
under "Products in Development" above, "Dependence on Aptosyn(TM) (exisulind)"
below, "Absence of Prior Trading Market; Potential Volatility of Stock Price; No
Dividends" below, and Item 3 of this report, "Legal Proceedings." CPI's stock
price has also fluctuated substantially in response to statements which have
appeared in the media. Investors in CPI must expect that substantial
fluctuations in stock price may occur at any time, whether due to Company
developments, true or false statements which may appear in the media, published
investment opinions which may or may not be associated with a particular agenda,
or otherwise.
EARLY STAGE OF DEVELOPMENT; ABSENCE OF DEVELOPED PRODUCTS; UNCERTAINTY OF
CLINICAL TRIALS.
CPI is at an early stage of development and must be evaluated in light
of the uncertainties and complications present in a development-stage company.
CPI has no products approved for sale in any country. CPI has only one product
candidate which has been in clinical trials for an appreciable length of time,
Aptosyn(TM) (exisulind). CPI has completed only limited human clinical trials
designed to demonstrate the safety and efficacy of Aptosyn(TM) (exisulind) and
has not commenced such trials for any other compounds with the exception of
Phase I studies of CP 461. CPI has not generated any revenue from product sales
to date, and no product candidate has been approved for marketing. Accordingly,
CPI's income has been limited to interest income from investments, and CPI's
primary source of capital has been the sale of equity securities.
Before obtaining regulatory approval for the commercial sale of any of
its product candidates, CPI must demonstrate through preclinical and clinical
trials that the product is safe and effective for use in each target indication.
The results from preclinical and early clinical trials may not be predictive of
results that will be obtained in later stage clinical trials. The clinical
trials of product candidates may not demonstrate sufficient safety and efficacy
to obtain the requisite regulatory approvals and result in marketable products.
Clinical trials are often conducted with patients who are critically ill. During
the course of treatment these patients may die or suffer other adverse medical
events for reasons that may not be related to the pharmaceutical agent being
tested, but which can nevertheless affect clinical trial results. A number of
companies in the pharmaceutical and biotechnology industries have suffered
significant setbacks in advanced clinical trials, even after achieving promising
results in earlier trials.
The completion of clinical trials of CPI's product candidates could be
interrupted by many factors. Delays and terminations may occur. One relevant
factor is the rate of enrollment of patients, which generally varies throughout
the course of a clinical trial and which depends on the size of the patient
population, the number of clinical trial sites, the proximity of the patients to
clinical trial sites, the eligibility criteria for the clinical trial and the
existence of competitive clinical trials. CPI cannot control the rate at which
patients present themselves for enrollment. The rate of patient enrollment may
not be consistent with CPI's expectations or be sufficient to enable clinical
trials of CPI's product candidates to be completed in a timely manner. See the
discussion of CPI's clinical trials above under "Products in Development." CPI
has limited experience managing clinical trials and any delays or terminations
of such trials could have a material adverse effect on its business, financial
condition and results of operations.
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Trials to date have involved only a limited number of patients. While
CPI has submitted an NDA to the FDA for Aptosyn(TM) (exisulind) for the FAP
indication and is awaiting the FDA's review of that submission, CPI may not be
able to submit an NDA to the FDA or the foreign equivalent with respect to
Aptosyn(TM) (exisulind) for any other indication. In addition, results obtained
in clinical trials for the treatment of FAP may not be predictive of results of
clinical trials for other indications. If CPI product candidates are not shown
to be safe and effective in clinical trials for one or more indications, there
would be a material adverse effect on CPI's business, financial condition and
results of operations.
CPI faces intense competition. In the fields of cancer therapy and the
prevention of precancerous and cancerous lesions, other products are being
developed that may compete directly with the products that CPI is seeking to
develop and market. CPI is aware of clinical trials in which a number of
pharmaceutical and nutritional agents are being examined for their potential
usefulness in the treatment of precancerous lesions and cancer. The studies are
being conducted by pharmaceutical and biotechnology companies, major academic
institutions and government agencies. Such existing or new agents may ultimately
be found to be useful, and therefore competitive with, any products of CPI.
Tamoxifen has been given a limited approval for the prevention of recurrence of
breast cancer, and the arthritis drug Celebrex has been approved for the
regression of colonic polyps in FAP patients. See the discussion above entitled
"Competition," as well as the discussion entitled "Intense Competition; Rapid
Technological Change" below in this "Risk Factors" section.
CPI may not be able to submit an IND or foreign equivalents with
respect to any new chemical entities or follow-on compounds (other than that
filed in December 1998 with respect to CP 461). CPI may not be permitted to
undertake human clinical testing of such additional compounds. If human clinical
testing is permitted, such compounds may not prove to be safe and effective. CPI
compounds may prove to have undesirable and unintended side effects or other
characteristics that may prevent or limit their commercial use. Products, if
any, resulting from CPI research and development programs may not be
commercially available for a number of years even if they are successfully
developed and proven to be safe and effective. Thus, CPI product development
efforts may not be successfully completed. Regulatory approvals may not be
obtained or may not be as broad as sought. CPI products may not be capable of
being produced in commercial quantities at a reasonable cost. Products, if
introduced, may not achieve market acceptance. CPI failure to complete clinical
trials, obtain regulatory approval or successfully market its products, if
approved, would have a material adverse effect on CPI's business, financial
condition and results of operations. See "Products in Development" and
"Government Regulation" above.
DEPENDENCE ON APTOSYN(TM) (EXISULIND).
Until the spring of 1999, when CPI commenced Phase I clinical trials of
CP 461, CPI had only one compound, Aptosyn(TM) (exisulind), in clinical trials.
CPI does not expect to have an additional compound (other than Aptosyn(TM)
(exisulind) and CP 461) in clinical trials during 2000.
In August 1999, CPI submitted an NDA to the FDA for Aptosyn(TM)
(exisulind) to obtain marketing approval for the treatment of FAP. If approved
by the FDA for marketing, Aptosyn(TM) (exisulind) would provide a non-surgical
treatment option to individuals with FAP.
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The NDA submission is based upon significant outcomes achieved in
clinical trials in which Aptosyn(TM) (exisulind) impeded the progression of the
disease in FAP patients. The primary analysis of eligible patients in the Phase
III trial of Aptosyn(TM) (exisulind) demonstrated a clinically and statistically
significant reduction in new polyp formation when compared to placebo. A
supportive analysis of that trial, including all patients enrolled in that trial
regardless of whether they met the inclusion criteria of forming approximately
ten to approximately forty polyps on an annual basis, demonstrated a substantial
reduction in the formation of new polyps but did not achieve statistical
significance due to the variations introduced by the patients not meeting
eligibility requirements. A further supportive analysis, which included all
patients, eligible and ineligible, forming nine or more polyps per year, again
produced both substantial reduction in polyp formation rate and statistical
significance in that reduction. In an extension of the Phase III study, the
placebo patients who crossed over to treatment with Aptosyn(TM) (exisulind)
experienced a 50% reduction in new polyp formation as compared to their prior
year on placebo. In the same six-month extension, the patients continuing on
Aptosyn(TM) (exisulind) experienced a 58% drop in their new polyp formation rate
as compared with the reduced rate already experienced while taking Aptosyn(TM)
(exisulind) during the first year of the trial. In a Phase I/II trial funded by
the National Cancer Institute, Aptosyn(TM) (exisulind) demonstrated a clinically
and statistically significant dose response at six months; and, over periods
ranging from six months to 30 months, this study and its extensions continued to
demonstrate clinically and statistically significant differences in the mean
change in number of polyps between dose groups. Regressing polyps showed
substantial increases in the rate of apoptosis, while the rate of apoptosis in
nearby normal tissue was unchanged, confirming a selective induction of
apoptosis in neoplastic tissue without affecting normal cells.
The prospects of the Company are highly dependent upon approval by the
FDA of the NDA filed for Aptosyn(TM) (exisulind) for FAP. The NDA has not been
approved yet. There is no assurance that the NDA will be approved. If approved
for marketing, Aptosyn(TM) (exisulind) may not gain market acceptance. In
addition, competition to Aptosyn(TM) (exisulind) may develop from other new or
existing products. The failure of Aptosyn(TM) (exisulind) to be approved for
marketing or to gain market acceptance would have a material adverse effect on
the Company's business, financial condition and results of operations.
The number of FAP patients in the U.S. is limited and estimates vary.
In order to increase the potential applications for which Aptosyn(TM)
(exisulind) may be used, the Company must successfully complete lengthy clinical
trials and thereafter receive marketing clearance from the FDA for each
additional indication. CPI may not successfully complete these clinical trials
and receive appropriate regulatory clearance on a timely basis, if at all. The
inability to achieve marketing clearance of Aptosyn(TM) (exisulind) for at least
one indication in addition to FAP would be expected to materially limit the
commercial potential of Aptosyn(TM) (exisulind) and thereby have a materially
limiting and adverse effect upon its business, financial condition and results
of operations. The "Orphan Drug" and "Fast Track" designations granted by the
FDA for Aptosyn(TM) (exisulind) may not provide any meaningful competitive
advantage to CPI. See "Government Regulation" above.
TECHNOLOGICAL UNCERTAINTY; REGULATORY UNCERTAINTY.
As of December 31, 1999, to our knowledge, the FDA has not approved any
drug for the prevention of precancerous lesions or cancer other than a limited
approval of Tamoxifen for prevention of breast cancer. The arthritis drug
Celebrex has been approved for the regression of polyps in FAP patients. CPI may
not be able to develop successfully a chemoprevention drug; and if it can, it
may not be able to develop such a drug within proposed timelines. Even if such a
drug is approved, such a drug may not be commercially viable and may not achieve
market acceptance. CPI's area of focus, oncology in general and chemoprevention
in particular, is not thoroughly understood. The products CPI is seeking to
develop may not prove to be safe and effective in preventing or treating
precancerous lesions or cancer.
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CPI believes that Aptosyn(TM) (exisulind) and its other compounds
selectively induce apoptosis through a novel mechanism. Additional research by
CPI or others may cause CPI to revise or abandon this approach, adversely
affecting its ability to develop products on a timely basis, if at all. The use
of CPI's technology may not lead to the development and approval of commercial
pharmaceutical products that are safe and efficacious. CPI's competitors may
develop safer and more effective products, may obtain patent protection or
intellectual property rights that limit CPI's ability to commercialize products,
and may commercialize products earlier than CPI. See "CPI Technology" above.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING.
CPI will have continuing needs for additional capital. Development of
CPI's initial product candidate, Aptosyn(TM) (exisulind), and additional
compounds will require substantial additional funds to conduct research,
development and clinical trials necessary to bring such products to market and
to establish manufacturing, marketing and distribution capabilities.
The extent of CPI's future capital requirements will depend on many
factors, including, among others: whether the FDA will approve the NDA submitted
to the FDA for Aptosyn(TM) (exisulind) for the FAP indication and, if approval
is granted, the timing of the approval; reevaluation of CPI's other programs,
depending upon what action is taken by the FDA with respect to the NDA for FAP;
scientific progress in research and development programs; progress with
preclinical and clinical trials; progress in obtaining regulatory approvals; the
costs involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims; competing technological efforts and market developments; changes
in CPI's existing research relationships; changes in the programs of clinical
development of one or more compounds; CPI's ability to establish sales and
marketing capabilities; the extent of competition; and CPI's ability to
establish collaborative arrangements to the extent necessary.
The need for additional capital may arise from additional factors.
There is always a risk of delay or failure at any stage of developing a product
candidate. Additional compounds may be introduced into clinical testing. The
time required and costs involved in successfully accomplishing CPI's objectives
cannot be predicted. Actual drug research and development costs could
substantially exceed budgeted amounts. Revenue and expense forecasts, if made by
CPI, may not prove to be accurate. Any of the foregoing, singly or in
combination, could have a material adverse effect on CPI's business, financial
condition or results of operations and could increase CPI's need for additional
capital.
To the extent necessary, CPI will need to seek additional funding
through public or private equity or debt financings, collaborative
relationships, capital lease transactions or other available financing
transactions. However, additional financing may not be available on acceptable
terms, if at all; and such financings could be dilutive to stockholders.
In the event that additional funds are obtained through arrangements
with collaborative partners, such arrangements may require CPI to relinquish
rights to certain of its technologies, product candidates or products that CPI
would otherwise seek to develop or commercialize itself. If adequate funds are
not available, CPI may be required to delay, reduce the scope of or eliminate
one or more of its research or development programs. CPI's failure to obtain
adequate financing when needed and on acceptable terms would have a material
adverse effect on its business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 of this report.
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UNCERTAINTY OF PROTECTION OF PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS.
Patents are important to CPI and to its competitors. CPI's success will
depend, in part, on its ability to obtain patents, establish and maintain
trademarks, operate without infringing the proprietary rights of others and
maintain trade secrets, both in the U.S. and other countries. CPI could fail in
any one or more of these endeavors. Patent matters in the pharmaceutical
industry can be highly uncertain and involve complex legal and factual
questions. Accordingly, the validity, breadth, and enforceability of CPI's
patents and the existence of potentially blocking patent rights of others cannot
be predicted, either in the U.S. or in other countries. See the lengthy
discussion of these factors under "Patents, Trademarks and Proprietary
Technology" above.
INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE.
The industry in which CPI competes is very competitive. It is
characterized by extensive research and development efforts and rapid
technological progress. New developments occur and are expected to continue to
occur at a rapid pace. Discoveries and commercial developments by CPI's
competitors may render some or all of CPI's potential products obsolete, or
subject to competition, or non-competitive, which would have a material adverse
effect on CPI's business, financial condition and results of operations. Many of
CPI's potential competitors have far greater resources than CPI. They may be
large, well-financed companies or small, well-focused companies. CPI's
competitive position also depends on its ability to attract and retain qualified
scientific and other personnel, develop effective proprietary products,
implement development and marketing plans, obtain patent protection and secure
adequate capital resources. See the lengthy discussion under "Competition"
above.
DEPENDENCE ON THIRD-PARTY RELATIONSHIPS.
CPI depends on third parties. Third-party contractors perform basic
laboratory research studies, animal toxicology studies, animal efficacy studies,
human clinical trials, bulk drug manufacture, drug assay and characterization,
product formulation and finishing, strategic consulting, commercialization
planning, planned product distribution and other important functions. Loss,
failure or delay in respect of any individual material segment or any material
cumulative amount of such contracting activity could delay CPI's development
efforts and could have a material adverse effect on its business, financial
condition and results of operations.
CPI's strategy for commercialization of its proposed products for
certain indications and markets includes collaborating with corporate partners
and others. To the extent that such corporate partnerships may be entered into,
CPI's success will be dependent upon the subsequent success of these outside
parties in performing their responsibilities. CPI currently has collaborations
with other pharmaceutical companies for the conduct of clinical trials using
combination cancer therapies, but does not have any collaborations with other
pharmaceutical companies for the commercialization of products. CPI may not be
able to negotiate collaborative arrangements in the future on acceptable terms,
if at all; and, if negotiated, such collaborative arrangements may not be
maintained or may not prove to be successful. To the extent that such
arrangements are negotiated, the amount and timing of resources to be devoted to
these activities are not within CPI's complete control. Partners may not perform
their obligations as expected. CPI may not derive any revenue from such
arrangements. Future collaborators may pursue their existing or alternative
technologies or product candidates in preference to those being developed in
collaboration with CPI. In addition, there can be no assurance that CPI's future
collaborators will pay license fees to CPI, that they will develop and market
any products under the agreements or that they will commit to fund product
development costs.
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To the extent that CPI chooses not to enter into collaborative
relationships, or is unable to establish such arrangements, CPI would be
required to continue to undertake research, development and marketing of its
proposed products at its own expense. In addition, CPI may encounter significant
delays in introducing its proposed products into certain markets or find that
the development, manufacture or sale of its proposed products in such markets is
adversely affected by the absence of such collaborative agreements. See
"Products in Development," "Marketing and Sales," and "National Cancer Institute
and Other Third-Party Arrangements" above.
The third parties with whom CPI works, or with whom CPI may work in the
future, are subject to much of the regulation described in the following
section. Failure of any third party to comply with applicable regulations could
adversely affect the Company to the extent that Company matters are affected by
such non-compliance. Compliance reviews by governmental authorities are common;
findings of non-compliance and requirements for remediation are also common.
Accordingly, the Company is at the additional risk of non-compliance by such
third parties.
EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF NECESSARY FDA AND OTHER
REGULATORY APPROVALS; PRODUCT DEVELOPMENT; SAFETY AND EFFICACY.
CPI's activities are subject to extensive governmental regulation. In
particular, the research, design, testing, manufacturing, labeling, marketing,
distribution and advertising of pharmaceutical products such as CPI's proposed
products are subject to extensive regulation by governmental regulatory
authorities in the U.S. and other countries. The drug development and approval
process is generally lengthy, expensive and subject to unanticipated delays. See
the discussion under "Governmental Regulations" and "Products in Development"
above under this Item 1 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 below.
The FDA and comparable agencies in foreign countries impose substantial
requirements on the introduction of new pharmaceutical products through lengthy
and detailed preclinical and clinical testing procedures, sampling activities
and other costly and time-consuming compliance procedures. A new drug may not be
marketed in the U.S. until it has undergone rigorous testing and has been
approved by the FDA. The drug may then be marketed only for the specific
indications, uses, formulation, dosage forms and strengths approved by the FDA.
Similar requirements are imposed by foreign regulators upon the marketing of a
new drug in their respective countries.
Governmental inspections apply to virtually every phase of drug
development, testing and commercialization. These inspections apply to CPI to
the extent of CPI's direct activities. They also apply to those third parties
with whom CPI contracts and upon whom CPI depends. Inspections are common;
findings of non-compliance and requirements of remediation, including
time-consuming replication of studies, tests or other work, are also common.
Depending upon the matter at issue, a finding of non-compliance with respect to
activities undertaken directly by CPI or with respect to activities undertaken
by third parties upon whom CPI depends could lead to a substantial delay in
clinical programs, in drug approval, in commercialization or in some other
important program and have a material adverse effect on the Company.
There are many uncertainties in the overall clinical trial process. CPI
may not complete Phase I, Phase II and/or Phase III testing successfully within
any specified time period, if at all. Designation of a trial by phase may be
changed by the Company or by the FDA. The FDA may increase, decrease or
re-characterize the number and phases of trials required for approval. The FDA
may suspend clinical trials at any time if it decides that patients are being
exposed to a significant health risk.
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CPI may not succeed in developing drugs that prove to be safe and
effective in treating or preventing cancer. The development of such drugs will
require the commitment of substantial resources to conduct the preclinical
development and clinical trials necessary under governmental regulations to
bring such compounds to market. Drug research and development by its nature is
uncertain. There is a risk of delay or failure at any stage, and the time
required and cost involved in successfully accomplishing CPI's objectives cannot
be predicted. Actual drug research and development costs could exceed budgeted
amounts; this could have a material adverse effect on CPI's business, financial
condition and results of operations.
CPI's current clinical trial strategy for the development of drugs for
the prevention of precancerous lesions assumes that, for precancer trials, the
FDA will accept reduction in the formation of precancerous lesions as an
endpoint. To date, the FDA has not approved any compounds that are solely
chemoprevention compounds, and there can be no assurance that the FDA will
approve such compounds in the future. Should the FDA require CPI to demonstrate
the efficacy of Aptosyn(TM) (exisulind) in the actual prevention (or reduction
in the incidence of) certain cancers or in overall mortality rates resulting
from certain cancers, CPI's clinical trial strategy for precancer would be
materially and adversely affected. Significant additional time and funding would
be required to demonstrate such efficacy. For these and other reasons, CPI may
not be able to successfully develop a safe and efficacious chemoprevention
product. If CPI does succeed in obtaining approval for a cancer chemopreventive
product, the product may not be commercially viable or accepted in the market
place.
Data obtained from preclinical and clinical testing are subject to
varying interpretations that could delay, limit or prevent FDA approval. There
may be delays or rejections based upon changes in FDA policy for drug approval
during the period of development and FDA regulatory review of each submitted
NDA. Satisfaction of regulatory requirements (which includes demonstrating to
the satisfaction of the FDA that the relevant product is both safe and
effective) typically takes several years or more depending upon the type,
complexity and novelty of the product. This also requires the expenditure of
substantial resources. CPI may encounter problems in clinical trials which would
cause CPI or the FDA to delay or suspend clinical trials. CPI may encounter
delays in the FDA approval process. Any such delay or suspension could have a
material adverse effect on CPI's business, financial condition, results of
operations or market price of the common stock of the Company. For example, on
February 1, 1999, CPI announced that it anticipated a delay in NDA filing and
subsequent commercialization of Aptosyn(TM) (exisulind) in light of preliminary
evaluation of data from the Phase III trial for FAP. The market price of the
Company's common stock dropped substantially. Although CPI subsequently filed
the NDA in August of 1999 after an only immaterial delay, the market price of
the Company's Common Stock remained substantially below the pre-announcement
level until early 2000. See "Products in Development" above and Item 3 "Legal
Proceedings" below.
Even after such time has been expended and expenses incurred by CPI in
product development, CPI may fail to obtain regulatory approval for any
therapeutic product. In the event that such regulatory approval is obtained,
CPI, its products, its contract manufacturers and its commercial collaborators
will be subject to continual regulatory review in both the U.S. and other
countries. Later discovery of previously unknown problems with regard to such a
product, distributor or manufacturer may result in restrictions on such product
or manufacturer, including withdrawal of the product from the market and
disqualification or decertification of the distributor or manufacturer.
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POTENTIAL LIMITATIONS ON THIRD-PARTY REIMBURSEMENT; HEALTH CARE REFORM.
In both U.S. and foreign markets, sales of CPI proposed products will
depend in part on the availability of reimbursement from third-party payors such
as government health administration authorities, private health insurers and
other organizations. The levels of revenues and profitability of pharmaceutical
companies may be affected by the continuing efforts of governmental and
third-party payors to contain or reduce the costs of health care. CPI cannot
predict the effect that private sector or governmental health care reforms may
have on our business, and there can be no assurance that any such reforms will
not have a material adverse effect on CPI's business, financial condition and
results of operations. In addition, in both the U.S. and elsewhere, sales of
prescription drugs are dependent in part on the availability of reimbursement to
the consumer from third-party payors, such as government and private insurance
plans. Third-party payors are increasingly challenging the price and
cost-effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
There can be no assurance that CPI's proposed products will be considered
cost-effective or that adequate third-party reimbursement will be available to
enable CPI to maintain price levels sufficient to realize an appropriate return
on CPI's investment in product development. Legislation and regulations
affecting the pricing of pharmaceuticals may change before any of our proposed
products are approved for marketing. Adoption of such legislation could further
limit reimbursement for medical products and services. As a result, we may elect
not to market future products in certain markets.
LACK OF MANUFACTURING EXPERIENCE; RELIANCE ON CONTRACT MANUFACTURERS AND
SUPPLIERS.
CPI does not have facilities to manufacture and produce its compounds
for preclinical, clinical or commercial purposes. CPI's product candidates have
never been manufactured for commercial purposes and there can be no assurance
that such products can be manufactured at a cost or in quantities necessary to
make them commercially viable, although CPI's lead compound, Aptosyn(TM)
(exisulind), has been manufactured by CPI's contractors at commercial scale. If
CPI is unable to manufacture or contract for a sufficient supply of our
compounds on acceptable terms, or if CPI should encounter delays or difficulties
in its relationships with manufacturers, CPI's preclinical and human clinical
testing schedule would be delayed, resulting in delay of the submission of
products for regulatory approval or delay of the market introduction and
subsequent sales of such products, which would have a material adverse effect on
CPI's business, financial condition and results of operations. Furthermore, CPI
or contract manufacturers must supply all necessary documentation in support of
CPI's NDA on a timely basis and must adhere to GLP and GMP regulations enforced
by the FDA through its facilities inspection program. Inspections are common;
findings of noncompliance and consequent delays are also common; if delays were
to be material, the adverse consequences to the Company could be material. For
example, if facilities of a third-party manufacturer or finisher of drug could
not pass a pre-approval plant inspection, the FDA approval of the products would
not be granted and delay would ensue until the FDA were satisfied.
CPI may not be able to maintain sufficiently advantageous relationships
with current or future suppliers of raw or intermediate materials and finished
product. If CPI's current manufacturing sources and suppliers are unable or
unwilling to make Aptosyn(TM) (exisulind) and formulation and finishing
materials and services available to CPI in required quantities, there can be no
assurance that CPI will be able to identify and contract with alternative
contract manufacturers. CPI would incur significant costs and delays to qualify
alternative manufacturing sources and suppliers, which could have a material
adverse effect on CPI's business, financial condition and results of operations.
The availability and price of Aptosyn(TM) (exisulind) or other materials may be
subject to curtailment or change due to limitations that may be imposed under
governmental regulations, suppliers' allocations or facilities priorities,
interruptions in production by suppliers and market and other events and
conditions, which could have a material adverse effect on CPI's business,
financial condition and results of operations.
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ABSENCE OF SALES AND MARKETING EXPERIENCE; DEPENDENCE ON THIRD PARTIES.
CPI has no product approved; and, as a company, has had no experience
in sales, marketing or distribution. Depending upon the marketing strategy
ultimately adopted with respect to each relevant market, CPI intends either to
market its products, if developed and approved, on its own or through
relationships with pharmaceutical companies that have established distribution
systems and direct sales forces. To market any of its products directly, CPI
must develop a marketing and sales force with technical expertise and with
supporting distribution capabilities. While CPI is currently preparing to handle
the marketing and selling in the United States (with distribution through
contracted third parties), there can be no assurance that CPI will be able to
establish effective sales, marketing and distribution capabilities or
relationships with third parties, or that CPI will be successful in gaining
market acceptance for our products. To the extent that CPI enters into
co-promotion or other licensing arrangements, any revenues received by CPI will
depend upon the efforts of third parties, and there can be no assurance that
such efforts will be successful. See "Marketing and Sales" above.
NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS.
Because of the specialized scientific nature of CPI's business, its
success is highly dependent upon its ability to attract and retain qualified
scientific and technical personnel. CPI is highly dependent on the principal
members of its scientific and management staff and the loss of any of their
services might significantly delay or prevent the achievement of research,
development or business objectives. CPI does not maintain key-man life insurance
with respect to any of its employees, nor does it intend to secure such
insurance. CPI also relies on consultants and advisors, including the members of
its Scientific Advisory Board, to assist CPI in formulating its research and
development strategy. Retaining and attracting qualified personnel, consultants
and advisors is critical to CPI's success. In order to pursue its product
development and marketing and sales plans, CPI will be required to hire
additional qualified scientific personnel to perform research and development,
as well as personnel with expertise in clinical testing, government regulation,
manufacturing and marketing and sales. CPI faces competition for qualified
individuals from numerous pharmaceutical and biotechnology companies,
universities and other research institutions. CPI may not be able to attract and
retain such individuals on acceptable terms, if at all, and the failure to do so
could have a material adverse effect on its business, financial condition and
results of operations.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY.
CPI may seek to acquire and further develop technologies, products
and/or companies focused in the prevention, diagnosis and treatment of cancer,
consistent with the objective of building an integrated pharmaceutical company
focused in oncology. CPI may not identify appropriate acquisition candidates,
and, if it does, it may not be successful in completing any such transactions on
favorable terms, if at all. In addition, to the extent that CPI undertakes or
completes any such acquisitions, such activities may place a strain on its
financial and management resources, which could have a material adverse effect
on its business, financial condition and results of operations. Also, the
technologies, products and/or companies acquired may be subject to many of the
risk factors associated with development of our present technologies and product
candidates to an equal or greater degree or may present new or added risks of
product liability, technological development, market acceptance or other factors
associated therewith.
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POTENTIAL PRODUCT LIABILITY; POSSIBLE INSUFFICIENCY OF INSURANCE.
CPI's business will expose CPI to potential product liability risks.
These would include risks that are inherent in the testing, manufacturing and
marketing of human therapeutic products. Clinical research involves the testing
of new drugs on human volunteers pursuant to a research plan, and such testing
involves a risk of liability for personal injury or death to patients due to,
among other reasons, possible unforeseen adverse side effects or improper
administration of the new drug. Many of these patients are already seriously ill
and are at risk of further illness or death. CPI currently has clinical trial
liability insurance in the amount of $10 million, but there can be no assurance
that it will be able to maintain such insurance. CPI could be materially and
adversely affected if it were required to pay damages or incur defense costs:
(i) in connection with a claim outside the scope of indemnity or insurance
coverage; (ii) if the indemnity, although applicable, is not performed in
accordance with the terms of the relevant contract; or (iii) if CPI's liability
exceeds the amount of applicable insurance. Similar risks would exist upon the
commercialization or marketing of any products by CPI or its partners or the
involvement of CPI with the development or sale of products acquired from
others.
HANDLING AND DISPOSAL OF HAZARDOUS MATERIALS.
CPI research and development involves the controlled use of hazardous
materials, chemicals and various radioactive compounds. Although CPI believes
that its safety procedures for handling and disposing of such materials comply
with the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, CPI could be held liable for any
damages that result, and any such liability could exceed CPI's resources. CPI
may incur substantial costs to comply with environmental regulations if it
develops manufacturing capacity.
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE; NO
DIVIDENDS.
Prior to November 4, 1998, there was no direct public market for CPI
common stock. There can be no assurance as to the degree to which an active
market in CPI common stock will be maintained. The market price of CPI common
stock, like that of the common stock of many other early-stage pharmaceutical
and biotechnology companies, is likely to be highly volatile. Factors such as
the fluctuation in CPI's operating results, comments by research analysts,
announcements of technological innovations or new commercial products by CPI (or
CPI's subsidiaries) or its competitors, progress with clinical trials,
governmental regulations, changes in reimbursement policies, developments in
CPI's patent or other proprietary rights or of its competitors, including
litigation, developments in CPI's relationships with collaborative partners, if
any, public concern as to the safety and efficacy of drugs developed by CPI and
its competitors, general market conditions and market conditions affecting the
pharmaceutical and biotechnology sectors particularly may have a significant
effect on the market price of CPI common stock. CPI has never paid any cash
dividends and does not anticipate paying cash dividends in the foreseeable
future.
Development stage companies often experience attempts by stock market
participants to influence the market price of their stock. Development stage
companies often attract disproportionate attention of short sellers. CPI
attracted significant short selling attention during 1999. By year end, the
short interest in CPI stock was equal to approximately 20% of the number of
shares of outstanding stock. Such large short interest may have a significant
negative effect on the market price during its establishment and thereafter. On
the other hand, the unwinding of short positions represents purchasing pressure
and tends in the direction of exerting upward pressure on stock price. The
activities of market participants who seek to influence stock price may be legal
or illegal. Attempts to influence market price of the stock may be associated
with the circulation of statements or rumors which may be true or may be false.
Regulators of the stock markets have spoken publicly about the environment of
lawlessness prevailing in certain sectors of the Internet and are taking steps
to augment their law enforcement resources to curb illegal practices. There can
be no assurance that they will become effective in preventing unlawful practices
which unfairly affect stock prices.
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OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS; ANTI-TAKEOVER PROVISIONS.
CPI directors and executive officers, taken in the aggregate with
entities represented by them, beneficially owned or significantly influenced
approximately 20% of the outstanding shares of CPI common stock as of December
31, 1999. Accordingly, these stockholders, if they act in concert with others,
might be able to control many matters requiring approval by the stockholders of
CPI, including the election of directors. CPI's Certificate of Incorporation
does not provide for cumulative voting with respect to the election of
directors. Consequently, the directors and executive officers will be able to
exercise substantial influence over the election of the members of the board.
Such concentration of ownership could have an adverse effect on the price of CPI
common stock or have the effect of delaying or preventing a change in control of
CPI. In addition, certain provisions of Delaware law and the CPI Certificate of
Incorporation, including the provision in the Certificate of Incorporation for a
classified board of directors, could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of CPI. In December 1998, CPI's board of directors adopted a
stockholder rights plan to enable the directors to act in the best interests of
the stockholders in the event of an actual or threatened accumulation of stock
by a third party without the consent of the board of directors. Such provisions
could limit the price that certain investors might be willing to pay in the
future for shares of CPI common stock. The provisions of Delaware law, of the
CPI Certificate of Incorporation and Bylaws and of the stockholder rights plan
may also have the effect of discouraging or preventing certain types of
transactions involving an actual or threatened change of control of CPI
(including unsolicited takeover attempts) even though such a transaction may
offer CPI stockholders the opportunity to sell their stock at a price above the
prevailing market price. Certain of these provisions allow CPI to issue
preferred stock without any vote or further action by the stockholders, require
stockholders to provide advance notice prior to bringing proposals before a
meeting and prevent or eliminate cumulative voting in the election of directors.
These provisions may make it more difficult for stockholders to take certain
corporate actions and could have the effect of delaying or preventing a change
in control of CPI.
RISKS ASSOCIATED WITH THE YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions and information, send invoices, or engage in
similar normal business activities. Non-information technology systems that
utilize embedded technology, such as microcontrollers, HVAC, and security may
also face Year 2000 issues.
During 1999, CPI conducted an analysis to determine the extent to which
CPI's major suppliers', third-party researchers' and clinical trial sites'
systems (insofar as they relate to CPI's business) are subject to the Year 2000
issue. CPI has not yet experienced any material adverse event attributable to
Year 2000. CPI is currently unable to predict whether one will yet surface. The
failure of a major third party subject to the Year 2000 issue to convert its
systems on a timely basis or a conversion that is incompatible with CPI's
systems could have a material adverse effect on CPI.
ITEM 2. PROPERTIES
CPI leases approximately 40,000 square feet of laboratory and office
space in Horsham, Pennsylvania under a ten-year lease which expires in 2008 and
which contains two five-year renewal options.
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ITEM 3. LEGAL PROCEEDINGS
In February and March of 1999, five stockholder class actions were
filed against the Company and certain of its officers and directors in the
United States District Court for the Eastern District of Pennsylvania seeking
unspecified damages on behalf of various classes of persons, including all
persons who purchased Company common stock during certain periods in 1998 and
1999. The complaints alleged that the Company made false and misleading
statements about the efficacy and near-term commercialization of the Company's
lead drug candidate which had the effect of artificially inflating the price of
the Company's common stock. These actions were consolidated into one action, and
a consolidated amended complaint was filed in late June 1999 asserting a class
period extending from October 7, 1998 to February 2, 1999. The litigation is at
a very preliminary stage. The Company believes that the allegations are without
merit and intends to vigorously defend the litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since November 4, 1998, the Company's common stock has traded on the
Nasdaq Stock Market(R) under the symbol CLPA. Prior to November 4, 1998, the
Company's common stock was not publicly traded. The following table sets forth
for the period indicated the high and low closing prices per share of common
stock as reported by the Nasdaq Stock Market(R).
1999 HIGH LOW
---- ---- ---
First Quarter $27.250 $5.875
Second Quarter $14.000 $6.750
Third Quarter $14.438 $8.563
Fourth Quarter $11.750 $6.750
1998
----
Fourth Quarter (commencing November 4, 1998) $22.000 $9.875
As of February 29, 2000, there were approximately 1,200 holders of
record of the common stock. This does not reflect beneficial stockholders who
hold their stock in nominee or "street" name through various brokerage firms.
During 1999, the Company did not sell any securities which were not
registered under the Securities Act of 1933 other than (a) 204,579 shares of
Common Stock issued for $840,289 pursuant to the exercise of previously
outstanding warrants which had been issued, and (b) a private placement of
Common Stock and warrants as described in the Company's Report on Form 10-Q for
the Third Quarter of 1999, both pursuant to the exemption provided by Section
4(2) of the Securities Act.
DIVIDENDS
The Company has never paid cash dividends on its common stock and does
not expect to pay cash dividends on its common stock for the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Expenses:
Research and development ......... $ 16,254,858 $ 16,052,232 $ 8,756,499 $ 4,162,981 $ 2,574,105
General and administrative ....... 4,849,162 4,253,537 950,057 663,030 644,407
Provision for redemption of the
Redeemable Preferred Stock ..... -- -- 1,017,000 -- --
------------ ------------ ------------ ------------ ------------
Total expenses ................. 21,104,020 20,305,769 10,723,556 4,826,011 3,218,512
Interest Income ..................... 1,470,298 960,333 426,644 90,807 27,688
------------ ------------ ------------ ------------ ------------
Net Loss ............................ $(19,633,722) $(19,345,436) $(10,296,912) $ (4,735,204) $ (3,190,824)
============ ============ ============ ============ ============
Basic and diluted net loss per
Common Share ................... $ (0.79) $ (3.04) $ (3.63) $ (1.83) $ (1.39)
============ ============ ============ ============ ============
Shares used in computing basic and
diluted net loss per Common Share.... 24,772,256 6,369,006 2,838,814 2,587,552 2,296,167
============ ============ ============ ============ ============
DECEMBER 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents .... $ 32,013,118 $ 37,232,404 $ 8,460,839 $ 644,790 $ 2,202,871
Working capital (deficiency) . 29,106,239 33,804,194 5,384,546 (506,464) 834,785
Total assets ................. 35,278,971 40,232,699 10,978,653 1,106,371 2,329,923
Long-term debt ............... 33,917 159,897 9,259 62,424 --
Redeemable Preferred Stock ... -- -- 1,092,000 613 613
Common Stock ................. 261,059 242,796 29,901 27,189 22,962
Convertible Preferred Stock .. -- -- 32,158,000 15,137,516 11,639,231
Deficit accumulated during
the development stage....... (64,963,494) (45,329,772) (25,984,336) (15,687,424) (10,952,220)
Total stockholders' equity
(deficit).................. $ 31,462,742 $ 36,132,118 $ 6,622,429 $ (179,238) $ 901,919
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cell Pathways, Inc. was incorporated in Delaware in July 1998 as a
subsidiary of, and, as of November 3, 1998, the successor to, a Delaware
corporation of the same name. As the context requires, the "Company" or "CPI" is
used herein to signify the successor and/or the predecessor corporations.
Certain statements made in this report, and oral statements made with
respect to this report, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
include those which express plan, anticipation, intent, estimation, belief,
contingency or future development and/or otherwise are not statements of
historical fact. These statements are subject to risks and uncertainties, known
and unknown, which could cause actual results and developments to differ
materially from those expressed or implied in such statements. Such risks and
uncertainties relate to, among other factors, the costs, delays and
uncertainties inherent in basic pharmaceutical research, drug development and
clinical trials; the uncertainty of obtaining regulatory approval, and the
timing and scope of any approval received; acceptance by providers of healthcare
reimbursement; the validity, scope and enforceability of patents; the actions of
competitors; dependence upon third parties; product liability; and other risks
detailed in Cell Pathways, Inc. reports filed under the Securities Exchange Act
of 1934, including the section under Item 1 of this report entitled "Risk
Factors". The Company undertakes no obligation to update or revise the
statements made in this report.
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OVERVIEW
CPI is a development-stage pharmaceutical company focused on the
research, development and commercialization of products to prevent and treat
cancer. From the inception of the Company's business in 1990, operating
activities have related primarily to conducting research and development,
raising capital and recruiting personnel. The Company's initial investigational
new drug application ("IND") was filed with the Food and Drug Administration
("FDA") in December 1993 for human clinical trials of Aptosyn(TM) (exisulind).
The Company filed an IND for its second product candidate, CP 461, in December
1998. In August 1999, the Company submitted to the FDA an NDA for Aptosyn(TM)
(exisulind) for APC, an FDA designated orphan drug indication. The Company is
continuing to conduct clinical trials of Aptosyn(TM) (exisulind) and CP 461 for
the prevention and treatment of various precancer and cancer indications.
On November 3, 1998, CPI completed a financing through the acquisition
of Tseng Labs, Inc. ("Tseng") (a publicly-held company with no continuing
operations which, subsequent to the transaction, became a subsidiary of CPI), in
which CPI issued to Tseng stockholders approximately 5.5 million shares of CPI
Common Stock and received net proceeds of approximately $26.4 million. In
October 1999, the Company issued 1.555 million shares of Common Stock for net
proceeds of approximately $13.5 million and which increased the Common Stock
outstanding to 26.1 million shares. During the first two months of 2000, the
Company has received approximately $14.0 million primarily from the exercise of
previously issued Common Stock warrants.
The Company has not received any revenue from the sale of products, and
no product candidate of CPI has been approved for marketing. CPI's income has
been limited to interest income from investments, and CPI's primary source of
capital has been the sale of its equity securities, including the transaction
with Tseng. Annual losses were $19,633,722, $19,345,436 and $10,296,912 in 1999,
1998 and 1997, respectively. As of December 31, 1999 and 1998, CPI's accumulated
deficit was $64,963,494 and $45,329,772, respectively, and its unrestricted cash
and cash equivalents for the same periods were $32,013,118 and $37,232,404,
respectively. CPI anticipates that it will continue to incur additional
operating losses for the next several years. There can be no assurance that any
of CPI's product candidates will be approved for marketing, that CPI will attain
profitability or, if profitability is achieved, that CPI will remain profitable
on a quarterly or annual basis in the future. CPI's operating results will
fluctuate from quarter to quarter. Some of these fluctuations may be significant
and, as a result, quarter to quarter comparisons may not be meaningful.
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared with Year Ended December 31,
1998. Total expenses for the year ended December 31, 1999 were $21,104,020, an
increase of $798,251 from the same period in 1998. Such increase was due to
increases in the Company's research and development ("R&D") and general and
administrative ("G&A") expenses. R&D expenses for the year ended December 31,
1999 were $16,254,858, an increase of $202,626 from the same period in 1998.
Such increase was primarily due to a planned increase in personnel to support
internal research activities, product development of Aptosyn(TM) (exisulind) and
CP 461 and clinical trial management expenses. G&A expenses were $4,849,162 for
the year ended December 31, 1999, an increase of $595,625 from the same period
in 1998. Such increase was primarily the result of expenses related to the
commercialization preparations related to Aptosyn(TM) (exisulind) and a planned
increase in administrative personnel offset partially by a one-time charge of
$715,000 recorded in the first half of 1998 for expenses related to a planned
initial public offering which was not undertaken.
Interest income was $1,470,298 for the year ended December 31, 1999, an
increase of $509,965 from the same period in 1998, primarily due to higher
average cash balances resulting from the transaction with Tseng in November
1998, which resulted in net proceeds of approximately $26.4 million and the
private placement of Common Stock in October 1999, which resulted in net
proceeds of approximately $13.5 million.
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Year Ended December 31, 1998 Compared with Year Ended December 31, 1997. Total
expenses for the year ended December 31, 1998 were $20,305,769, an increase of
$9,582,213 from the same period in 1997. Such increase was primarily due to an
increase in the Company's R&D and G & A expenses. R & D expenses for the year
ended December 31, 1998 were $16,052,232, an increase of $7,295,733 from the
same period in 1997. Such increase was primarily due to the procurement of
clinical trial supplies of exisulind, higher expenses associated with the
Company's ongoing clinical trials, additional personnel in 1998 to support the
in-house activities of research, product development and clinical trial
management and facility expenses. G&A expenses were $4,253,537 for the year
ended December 31, 1998, an increase of $3,303,480 from the same period in 1997.
Such increase was primarily the result of additional personnel hired, a one-time
charge for expenses related to the Company's planned initial public offering
which was not completed, expenses associated with marketing and
commercialization preparations and higher facility expenses. In 1997, the
Company recorded a provision of $1,017,000 for the redemption of CPI Redeemable
Preferred Stock, which was subsequently redeemed in November 1998.
Interest income was $960,333 for the year ended December 31, 1998, an
increase of $533,689 from the same period in 1997, primarily due to higher cash
balances resulting from the Series G Convertible Preferred Stock financing in
April and May 1998, which resulted in net proceeds of approximately $21.4
million, and the transaction with Tseng, which resulted in net proceeds of
approximately $26.4 million.
LIQUIDITY AND CAPITAL RESOURCES
CPI has financed its operations since inception primarily with the net
proceeds received from the sale of equity securities, including the transaction
with Tseng. Financing activities have generated net proceeds of approximately
$95.9 million from inception through December 31, 1999. The exercise of
previously issued Common Stock warrants during the first two months of 2000
resulted in additional proceeds of approximately $14.0 million.
At December 31, 1999, CPI had cash and cash equivalents of $32,013,118
(excluding restricted cash of $640,110). CPI's cash position decreased by
$5,219,286 for the year ended December 31, 1999, primarily reflecting operating
expenses and capital expenditures offset partially by the net proceeds from the
issuance of Common Stock and the exercise of stock options and warrants. CPI
invests its excess cash primarily in low risk, highly liquid money market funds
and U.S. government treasuries. CPI had $640,110 in a restricted account pledged
as security for a letter of credit for a security deposit under the lease of its
Horsham, Pennsylvania facility, and as security to a letter of credit for a
portion of a software lease commitment.
In 1999, the Company acquired approximately $519,000 in laboratory,
computer and office equipment, office furniture and leasehold improvements for
its research laboratories and offices in its Horsham facility.
In October 1999, the Company completed a private placement of 1.555
million shares of Common Stock resulting in net proceeds of approximately $13.5
million. For each share of Common Stock purchased, the purchasers received a
warrant to purchase one share of Common Stock at $14 per share expiring on
December 31, 2000. In February 2000, the Company received approximately $14.0
million from the exercise of approximately 1.0 million of these Common Stock
warrants.
CPI leases approximately 40,000 square feet of laboratory and office
space in Horsham, Pennsylvania under a ten - year lease which expires in 2008
and which contains two five - year renewal options. The Company believes its
facilities will be adequate for the foreseeable future.
In February and March of 1999, five stockholder class actions were
filed against the Company and certain of its officers and directors. The Company
believes that the allegations are without merit (see Note 12 of notes to
consolidated financial statements included elsewhere in this report).
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CPI anticipates the annual expenditures for preclinical studies,
clinical trials, product development, research, selling and marketing, and
general and administrative expenses will increase significantly in future years.
In anticipation of possible FDA approval for the marketing of Aptosyn(TM)
(exisulind), in 1998 the Company began to make preparations and incurred
expenses for the commercialization of CPI's first product and continued such
preparations in 1999. There can be no assurance that CPI will be able to
successfully complete the clinical development of Aptosyn(TM) (exisulind) for
any indication, that the FDA will grant approval with respect to any indication
within the time frame expected, if at all, that the other developments or
expansions in CPI's research, development and commercialization programs will
not require additional funding or encounter delays or that, in light of these or
other circumstances, CPI will be able to achieve anticipated levels of revenue,
expense and cash flow.
CPI cannot predict the date of its first product approval, if any, the
rate of revenue generated from initial product sales, if achieved, or the level
of expense which may be associated with such initial product sales. Accordingly,
while the Company has no present plans for financing, the Company anticipates
that it may require additional financing in the future to continue its research
and development programs. Absent sufficient revenue from product sales, CPI
plans to finance its anticipated growth and development largely through equity
or debt financing and/or strategic alliances with corporate partners. CPI
believes, based on its current operating plans, and without benefit of any
revenue from product sales if product approval is achieved, that its existing
cash and cash equivalents balance of approximately $32.0 million as of December
31, 1999, the $14.0 million received in February 2000 from the exercise of
Common Stock warrants together with interest earned on these balances, will
provide sufficient working capital to sustain operations into the second half of
2001. However, there can be no assurance the Company will not require additional
funding prior to that time, as the Company must adapt to changing circumstances
arising from within the Company's programs or from outside the Company. There
can be no assurance that additional equity or debt financing or corporate
collaborations will be available on terms acceptable to CPI, if at all. Any
additional equity financing would be dilutive to stockholders. Debt financing,
if available, may include restrictive covenants. Corporate alliances could
require the Company to give up certain marketing rights or other rights to its
potential products and technology. If additional funds should be needed but are
not available, CPI may be required to modify its operations significantly or to
obtain funds by entering into collaborative arrangements or other arrangements
on unfavorable terms. The failure by CPI to raise capital on acceptable terms if
and when needed would have a material adverse effect on CPI's business,
financial condition and results of operations.
INFLATION
CPI does not believe that inflation has had any significant impact on
CPI's business to date.
INCOME TAXES
As of December 31, 1999, CPI has net operating loss carryforwards
("NOLs") for income tax purposes available to offset future federal income tax,
subject to limitations for alternative minimum tax. In addition, the Company has
other significant deferred tax assets which will also offset future income tax.
As the Company has not yet achieved profitable operations, management believes
the tax assets do not satisfy the realization criteria of Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes" and
therefore the Company has recorded a valuation allowance for the entire amount
of its net tax asset as of December 31, 1999. (See Note 11 of notes to
consolidated financial statements included elsewhere in this report.)
The Tax Reform Act of 1986 contains provisions that may limit the NOLs
available to be used in any given year upon the occurrence of certain events,
including significant changes in ownership interest. A change in ownership of a
company of greater than 50% within a three-year period results in an annual
limitation on CPI's ability to utilize its NOLs from tax periods prior to the
ownership change. CPI believes that the transaction with Tseng triggered such
limitation. However, CPI does not expect such limitation to have a significant
impact on its operations.
43
46
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133, as amended by SFAS No. 137,"Accounting for Derivative Instruments and
Hedging Activities Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133," which must be adopted by the Company in
the year ending December 31, 2001, provides a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. As the Company does not currently hold derivative instruments or
engage in hedging activities, the adoption of this pronouncement is expected to
have no impact on the Company's financial position or results of operations.
YEAR 2000
The Company has completed implementation of its Year 2000 remediation
plan on a timely basis and such remediation plan as implemented addressed all
mission critical systems. The Company is not aware of any adverse effects of
Year 2000 issues on the Company, including its systems and operations. The
Company has no information that indicates that a significant vendor may be
unable to sell to the Company or a significant service provider may be unable to
provide services to the Company, because of Year 2000 compliance problems.
Costs directly related to the Year 2000 issue were immaterial as the
Company's past infrastructure was built with Year 2000 issues in mind and to
minimize these issues. Based on information now known to the Company, the
Company does not expect to incur any material costs to address Year 2000 issues
in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. The Company's exposure to market risk for changes
in interest rates primarily relates to the Company's investment portfolio. The
Company is averse to principal loss and seeks to limit default risk, market risk
and reinvestment risk. In particular, the Company does not use derivative
financial instruments in its investment portfolio, places its investments with
high quality issuers and, except for investments with the U.S. Government,
limits the amount of credit exposure to any one issuer. The Company mitigates
default risk by investing in only the safest and highest credit quality
securities, predominantly those of the U.S. Government, and by positioning its
portfolio to respond appropriately to a significant reduction in a credit rating
of any investment issuer, guarantor or depository. The portfolio includes only
marketable securities with active secondary or resale markets to ensure
portfolio liquidity and has historically been invested in securities which have
original maturities of less than three months to ensure principal preservation.
As of December 31, 1999 and 1998, the Company was invested in U.S. Government
securities and money market funds, which were classified as cash equivalents in
the Company's financial statements. The investments had principal (or notional)
amounts of $32,013,118 and $37,593,339, respectively, which were equal to their
fair value, average interest rates of 4.8% and 5.0%, respectively, and
maturities of less than three months.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Registrant's financial statements and notes thereto, together with the
Report of Independent Public Accountants thereon, appear at pages F-1 through
F-19 of this report and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
44
47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) The information required by Item 10 for Directors of the
Company is contained in the Company's definitive Proxy Statement with respect to
the Company's Annual Meeting of Stockholders, to be filed with the Securities
and Exchange Commission within 120 days following the end of the Company's
fiscal year, and is incorporated herein by reference thereto.
(b) The information required by Item 10 for Executive Officers
of the Company is set forth in Part 1 of this report and is incorporated herein
by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained in the
Company's definitive Proxy Statement with respect to the Company's Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
within 120 days following the end of the Company's fiscal year, and is
incorporated herein by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is contained in the
Company's definitive Proxy Statement with respect to the Company's Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
within 120 days following the end of the Company's fiscal year, and is
incorporated herein by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is contained in the
Company's definitive Proxy Statement with respect to the Company's Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
within 120 days following the end of the Company's fiscal year, and is
incorporated herein by reference thereto.
45
48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a)
1. LIST OF FINANCIAL STATEMENTS
See page F-1 of this report, which includes an index to
consolidated financial statements.
2. LIST OF FINANCIAL STATEMENT SCHEDULES
None.
3. LIST OF EXHIBITS
*2.1 Agreement and Plan of Reorganization dated as of June 23, 1998
among Cell Pathways, Inc. and Tseng Labs, Inc.
****3.1 Certificate of Incorporation as amended November 2, 1998.
****3.2 Amendment to Certificate of Incorporation by way of Certificate of
Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock.
*3.3 Bylaws of Cell Pathways Inc.
4.1 Reference is made to Exhibits 3.1 and 3.2.
*4.2 Specimen certificate of Registrant.
***4.3 Rights Agreement dated as of December 3, 1998 between Registrant
and Registrar and Transfer Company.
****4.4 Form of Warrant issued in Private Placement, October 13, 1999.
*10.2 Lease, dated June 25, 1998, between Cell Pathways, Inc. and ARE-702
Electronic Drive, L.P.
*10.3 1997 Equity Incentive Plan of Cell Pathways, Inc.
*10.4 Form of Incentive Stock Option Agreement.
*10.5 1997 Non-Employee Director Stock Option Plan of Cell Pathways, Inc.
*10.6 Form of Stock Option Agreement.
**10.7 1997 Employee Stock Purchase Plan of Cell Pathways, Inc.
**10.8 Employment Agreement, dated November 6, 1997, between Cell
Pathways, Inc. and Brian J. Hayden.
**10.9 1995 Stock Award Plan of Cell Pathways, Inc.
**10.10 Employment Agreement, dated October 12, 1996, between Cell
Pathways, Inc. and Robert J. Towarnicki.
46
49
**10.11 Employment Agreement, dated February 1, 1993, between Cell
Pathways, Inc. and Rifat Pamukcu.
**10.12 Memorandum of Employment, dated January 1, 1993, between Cell
Pathways, Inc. and Richard H. Troy.
**10.13 Agreement, dated June 30, 1994, between Cell Pathways, Inc. and the
Division of Cancer Prevention and control, National Cancer
Institute.
**10.14 Amendment to Agreement, dated September 4, 1996, between Cell
Pathways, Inc. and the Division of Cancer Prevention and Control,
National Cancer Institute.
**10.15 Research and License Agreement, dated June 26, 1991, between Cell
Pathways, Inc. and the University of Arizona, as amended.
*10.17 Severance Agreement, dated April 17, 1998, between Tseng Labs, Inc.
and John J. Gibbons.
*****10.18 Form of Purchase Agreement in Private Placement, October 13, 1999.
21 Subsidiaries
23.1 Consent of Arthur Andersen LLP
24.1 Power of Attorney. Reference is made to the signature page of this
report.
27.1 Financial Data Schedule as of and for the period ended December 31,
1999.
* Previously filed as an exhibit to Registrant's Registration
Statement on Form S-4 (No. 333-59557), filed July 22, 1998, or
amendments thereto, and incorporated herein by reference.
** Previously filed as an exhibit to Registrant's Registration
Statement on Form S-1 (No. 333-37557), filed October 9, 1997 or
amendments thereto, and incorporated herein by reference.
*** Previously filed as an exhibit to Registrant's Report on Form 8-K
filed December 18, 1998.
**** Previously filed as an exhibit to Registrant's Report on Form 10-K
for 1998.
***** Previously filed as an exhibit to Registrant's Registration
Statement on Form S-3 (No. 333-93811), declared effective January
7, 2000, and incorporated herein by reference.
(b) REPORT ON FORM 8-K
None
47
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CELL PATHWAYS, INC.
By: /s/ ROBERT J. TOWARNICKI
-------------------------------------------
President, Chief Executive Officer and Director
March 27, 2000 (Principal Executive Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert J. Towarnicki and Richard H. Troy and each
of them, his or her true and lawful attorney-in-fact and agents, with the full
power of substitution and resubstitution, for such person and in each person's
name, place and stead, in any and all capacities, to sign this report and any
and all amendments to this report, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agents, and any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ WILLIAM A. BOEGER
- ------------------------------------ Chairman of the Board of March 27, 2000
(William A. Boeger) Directors
/s/ JOHN J. GIBBONS
- ------------------------------------ Director March 27, 2000
(John J. Gibbons)
/s/ THOMAS M. GIBSON
- ------------------------------------ Director March 27, 2000
(Thomas M. Gibson)
/s/ JUDITH A. HEMBERGER
- ------------------------------------ Director March 27, 2000
(Judith A. Hemberger)
/s/ BRUCE R. ROSS
- ------------------------------------ Director March 27, 2000
(Bruce R. Ross)
48
51
Signature Title Date
--------- ----- ----
/s/ ROBERT J. TOWARNICKI
- ------------------------------------ President, Chief Executive March 27, 2000
(Robert J. Towarnicki) Officer and Director
/s/ RICHARD H. TROY
- ------------------------------------ Senior Vice President, March 27, 2000
(Richard H. Troy) Corporate Development,
General Counsel, Secretary
and Director
/s/ LOUIS M. WIENER
- ------------------------------------ Director March 27, 2000
(Louis M. Wiener)
/s/ BRIAN J. HAYDEN
- ------------------------------------ Chief Financial Officer March 27, 2000
(Brian J. Hayden) Vice President, Finance
(Principal Financial and
Accounting Officer)
49
52
CELL PATHWAYS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants...................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998........... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997 and for the period from inception
(August 10, 1990) to December 31, 1999................................. F-4
Consolidated Statement of Stockholders' Equity (Deficit) and Partners'
Investment for the period from inception (August 10, 1990) to
December 31, 1999...................................................... F-5 to F-8
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 and the period from inception
(August 10, 1990) to December 31, 1999................................. F-9
Notes to Consolidated Financial Statements ............................ F-10 to F-19
F-1
53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cell Pathways, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Cell Pathways,
Inc. (a Delaware corporation in the development stage) and subsidiaries, as of
December 31, 1999 and 1998 and the related consolidated statements of
operations, stockholders' equity (deficit) and partners' investment, and cash
flows for each of the three years in the period ended December 31, 1999 and for
the period from inception (August 10, 1990) to December 31, 1999. 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 generally accepted auditing
standards. 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 Cell Pathways, Inc. and
subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 and for the period from inception (August 10, 1990) to
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
February 4, 2000
F-2
54
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------------------
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 32,013,118 $ 37,232,404
Prepaid expenses and other ..................................... 875,433 512,474
------------ ------------
Total current assets ..................................... 32,888,551 37,744,878
EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS, NET
(NOTE 4) ....................................................... 1,519,655 1,533,634
RESTRICTED CASH .................................................. 640,110 611,172
OTHER ASSETS ..................................................... 230,655 343,015
------------ ------------
$ 35,278,971 $ 40,232,699
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of obligation under capital lease ......... $ 146,260 $ 146,260
Accounts payable ............................................... 1,510,569 601,988
Accrued leasehold improvement costs ............................ -- 161,280
Accrued compensation ........................................... 669,597 250,056
Accrued transaction and offering costs ......................... 67,386 996,720
Other accrued liabilities ...................................... 1,388,500 1,784,380
------------ ------------
Total current liabilities ................................ 3,782,312 3,940,684
------------ ------------
OBLIGATION UNDER CAPITAL LEASE, EXCLUDING CURRENT
INSTALLMENTS ..................................................... 33,917 159,897
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 12)
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; none
issued and outstanding ......................................... -- --
Common Stock $.01 par value, 70,000,000 shares authorized;
26,105,894 and 24,279,526 shares issued and outstanding ........ 261,059 242,796
Additional paid-in capital ....................................... 96,202,177 81,256,094
Stock subscription receivable from issuance of Common Stock ...... (37,000) (37,000)
Deficit accumulated during the development stage ................. (64,963,494) (45,329,772)
------------ ------------
Total stockholders' equity ............................... 31,462,742 36,132,118
------------ ------------
$ 35,278,971 $ 40,232,699
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-3
55
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD
YEAR ENDED DECEMBER 31, FROM INCEPTION
--------------------------------------------------- (AUGUST 10, 1990)
TO DECEMBER 31,
1999 1998 1997 1999
------------ ------------ ------------ -----------------
EXPENSES:
Research and development ......... $ 16,254,858 $ 16,052,232 $ 8,756,499 $ 53,383,188
General and administrative ....... 4,849,162 4,253,537 950,057 13,658,207
Provision for redemption of the
Redeemable Preferred Stock ..... -- -- 1,017,000 1,017,000
------------ ------------ ------------ ------------
Total expenses ................. 21,104,020 20,305,769 10,723,556 68,058,395
INTEREST INCOME ..................... 1,470,298 960,333 426,644 3,094,901
------------ ------------ ------------ ------------
NET LOSS ............................ $(19,633,722) $(19,345,436) $(10,296,912) $(64,963,494)
============ ============ ============ ============
Basic and diluted net loss per Common
Share ............................... $ (0.79) $ (3.04) $ (3.63)
============ ============ ============
Shares used in computing basic and
diluted net loss per Common Share 24,772,256 6,369,006 2,838,814
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
56
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DEFICIT) AND PARTNERS' INVESTMENT
FOR THE PERIOD FROM INCEPTION (AUGUST 10, 1990) TO DECEMBER 31, 1999
REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
PARTNERS' --------------- ---------------------- ---------------------
INVESTMENT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------ ---- ------- ---------- --------- -------
BALANCE, Inception (August 10, 1990) ...... $ -- -- $ -- -- $ -- -- $ --
Partner cash contributions in September
1990 for Class A Partnership Units ..... 406,000 -- -- -- -- -- --
Partner contribution of interest in
research grant in September 1990
for Class A Partnership Units, at
historical cost ........................ 48,638 -- -- -- -- -- --
Net loss ................................. -- -- -- -- -- -- --
----------- ------ ---- ------- ---------- --------- -------
BALANCE, December 31, 1990 ................ 454,638 -- -- -- -- -- --
Partner cash contributions in March 1991
for Class A Partnership Units .......... 406,000 -- -- -- -- -- --
Partner cash contributions in December
1991 for Class B Partnership
Units .................................. 896,563 -- -- -- -- -- --
Net loss ................................. -- -- -- -- -- -- --
----------- ------ ---- ------- ---------- --------- -------
BALANCE, December 31, 1991 ................ 1,757,201 -- -- -- -- -- --
Partner cash contributions in January and
April 1992 for Class B
Partnership Units ...................... 21,812 -- -- -- -- -- --
Partner cash contributions in December
1992 for Class B Partnership Units ..... 133,300 -- -- -- -- -- --
Partner cash contributions in December
1992 for Class C Partnership Units ..... 1,540,000 -- -- -- -- -- --
Partner cash contributions in December
1992 for Class D Partnership
Units .................................. 1,475,027 -- -- -- -- -- --
Net loss ................................. -- -- -- -- -- -- --
----------- ------ ---- ------- ---------- --------- -------
BALANCE, December 31, 1992 ................ 4,927,340 -- -- -- -- -- --
Partner cash contributions in January 1993
to March 1993 for Class D
Partnership Units ...................... 385,015 -- -- -- -- -- --
Exchange of interests in the Partnership
in September 1993 for
872,000 shares of Series A Convertible
Preferred Stock ........................ (812,000) -- -- 872,400 812,000 -- --
Exchange of interests in the Partnership
in September 1993 for
848,100 shares of Series B Convertible
Preferred Stock ........................ (868,000) -- -- 848,100 868,000 -- --
Exchange of interests in the Partnership
in September 1993 for
700,000 shares of Series C Convertible
Preferred Stock ........................ (1,540,000) -- -- 700,000 1,540,000 -- --
Exchange of interests in the Partnership
in September 1993 for
616,808 shares of Series D Convertible
Preferred Stock ........................ (1,860,042) -- -- 616,808 1,860,042 -- --
Exchange of interests in the Partnership
in September 1993 for
61,250 shares of Redeemable Preferred
Stock .................................. (613) 61,250 613 -- -- -- --
Exchange of interests in the Partnership
in September 1993 for
2,279,500 shares of Common Stock ....... (231,700) -- -- -- -- 2,279,500 22,795
Net loss ................................. $ -- -- $ -- -- $ -- -- $ --
----------- ------ ---- ------- ---------- --------- -------
STOCK
SUBSCRIPTION STOCK
RECEIVABLE SUBSCRIPTION
FROM RECEIVABLE DEFICIT
ISSUANCE OF FROM ACCUMULATED
ADDITIONAL CONVERTIBLE ISSUANCE OF DURING THE
PAID-IN PREFERRED COMMON DEVELOPMENT
CAPITAL STOCK STOCK STAGE
-------- --------- ------- -----------
BALANCE, Inception (August 10, 1990) ...... $ -- $ -- $ -- $ --
Partner cash contributions in September
1990 for Class A Partnership Units ..... -- -- -- --
Partner contribution of interest in
research grant in September 1990
for Class A Partnership Units, at
historical cost ........................ -- -- -- --
Net loss ................................. -- -- -- (252,116)
-------- --------- ------- -----------
BALANCE, December 31, 1990 ................ -- -- -- (252,116)
Partner cash contributions in March 1991
for Class A Partnership Units .......... -- -- -- --
Partner cash contributions in December
1991 for Class B Partnership
Units .................................. -- -- -- --
Net loss ................................. -- -- -- (738,204)
-------- --------- ------- -----------
BALANCE, December 31, 1991 ................ -- -- -- (990,320)
Partner cash contributions in January and
April 1992 for Class B
Partnership Units ...................... -- -- -- --
Partner cash contributions in December
1992 for Class B Partnership Units ..... -- -- -- --
Partner cash contributions in December
1992 for Class C Partnership Units ..... -- -- -- --
Partner cash contributions in December
1992 for Class D Partnership
Units .................................. -- -- -- --
Net loss ................................. -- -- -- (1,391,531)
-------- --------- ------- -----------
BALANCE, December 31, 1992 ................ -- -- -- (2,381,851)
Partner cash contributions in January 1993
to March 1993 for Class D
Partnership Units ...................... -- -- -- --
Exchange of interests in the Partnership
in September 1993 for
872,000 shares of Series A Convertible
Preferred Stock ........................ -- -- -- --
Exchange of interests in the Partnership
in September 1993 for
848,100 shares of Series B Convertible
Preferred Stock ........................ -- -- -- --
Exchange of interests in the Partnership
in September 1993 for
700,000 shares of Series C Convertible
Preferred Stock ........................ -- -- -- --
Exchange of interests in the Partnership
in September 1993 for
616,808 shares of Series D Convertible
Preferred Stock ........................ -- -- -- --
Exchange of interests in the Partnership
in September 1993 for
61,250 shares of Redeemable Preferred
Stock .................................. -- -- -- --
Exchange of interests in the Partnership
in September 1993 for
2,279,500 shares of Common Stock ....... 208,905 -- -- --
Net loss ................................. $ -- $ -- $ -- $(2,269,099)
-------- --------- ------- -----------
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
57
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
AND PARTNERS' INVESTMENT -- (CONTINUED)
FOR THE PERIOD FROM INCEPTION (AUGUST 10, 1990) TO DECEMBER 31, 1999
REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
PARTNERS' ---------------- ------------------------- ---------------------
INVESTMENT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ------ ------ --------- ----------- --------- -------
BALANCE, December 31, 1993 .......... $ -- 61,250 $613 3,037,308 $ 5,080,042 2,279,500 $22,795
Issuance of Common Stock for
services valued
at $0.41 per share ............... -- -- -- -- -- 16,667 167
Issuance of 542,761 shares of
Series E
Convertible Preferred Stock for
cash at $4.10 per share .......... -- -- -- 542,761 2,225,320 -- --
Net loss ........................... -- -- -- -- -- --
------ ------ ---- --------- ----------- --------- -------
BALANCE, December 31, 1994 .......... -- 61,250 613 3,580,069 7,305,362 2,296,167 22,962
Issuance of 1,121,800 shares of
Series E Convertible Preferred
Stock for cash at
$3.15 per share .................. -- -- -- 1,121,800 3,533,670 -- --
Issuance of 163,701 shares of
Series E Convertible Preferred
Stock to effect the
price change from $4.10 to $3.15
(Note 6) ......................... -- -- -- 163,701 -- -- --
Conversion of bridge notes payable
plus interest to 253,633 shares of
Series E Convertible Preferred
Stock at a price of
$3.15 per share (Note 6) ......... -- -- -- 253,633 800,199 -- --
Net loss ........................... -- -- -- -- -- -- --
------ ------ ---- --------- ----------- --------- -------
BALANCE, December 31, 1995 .......... -- 61,250 613 5,119,203 11,639,231 2,296,167 22,962
Issuance of 887,661 shares of
Series E Convertible Preferred
Stock for cash at
$3.15 per share, net of offering
costs of $298,313 ................ -- -- -- 887,661 2,497,819 -- --
Collection of Series E Convertible
Preferred Stock subscription
receivable ....................... -- -- -- -- -- -- --
Issuance of 270,270 shares of
Series F Convertible Preferred
Stock for cash at
$3.70 per share .................. -- -- -- 270,270 1,000,000 -- --
Issuance of 185,000 shares of
Common Stock in February 1996
as bonuses to officers and
employees valued at $0.32 per
share ............................ -- -- -- -- -- 185,000 1,850
Issuance of 14,828 shares of Common
Stock in May 1996 for consulting
services, valued at
$0.32 per share .................. -- -- -- -- -- 14,828 148
Exercise of warrants to purchase
148 shares of Series E Convertible
Preferred Stock at
$3.15 per share .................. -- -- -- 148 466 -- --
Exercise of options to purchase
Common Stock at $0.32 per share .. -- -- -- -- -- 222,850 2,229
Net loss ........................... $ -- -- $ -- -- $ -- -- $ --
------ ------ ---- --------- ----------- --------- -------
STOCK
SUBSCRIPTION STOCK
RECEIVABLE SUBSCRIPTION
FROM RECEIVABLE DEFICIT
ISSUANCE OF FROM ACCUMULATED
ADDITIONAL CONVERTIBLE ISSUANCE OF DURING THE
PAID-IN PREFERRED COMMON DEVELOPMENT
CAPITAL STOCK STOCK STAGE
---------- ------------ ------------ -------------
BALANCE, December 31, 1993 .......... $208,905 $ -- $ -- $ (4,650,950)
Issuance of Common Stock for
services valued
at $0.41 per share ............... 6,667 -- -- --
Issuance of 542,761 shares of
Series E
Convertible Preferred Stock for
cash at $4.10 per share .......... -- (23,501) -- --
Net loss ........................... -- -- -- (3,110,446)
-------- -------- ----------- ------------
BALANCE, December 31, 1994 .......... 215,572 (23,501) -- (7,761,396)
Issuance of 1,121,800 shares of
Series E Convertible Preferred
Stock for cash at
$3.15 per share .................. -- (125) -- --
Issuance of 163,701 shares of
Series E Convertible Preferred
Stock to effect the
price change from $4.10 to $3.15
(Note 6) ......................... -- -- -- --
Conversion of bridge notes payable
plus interest to 253,633 shares of
Series E Convertible Preferred
Stock at a price of
$3.15 per share (Note 6) ......... -- -- -- --
Net loss ........................... -- -- -- (3,190,824)
-------- -------- ----------- ------------
BALANCE, December 31, 1995 .......... 215,572 (23,626) -- (10,952,220)
Issuance of 887,661 shares of
Series E Convertible Preferred
Stock for cash at
$3.15 per share, net of offering
costs of $298,313 ................ -- -- -- --
Collection of Series E Convertible
Preferred Stock subscription
receivable ....................... -- 20,505 -- --
Issuance of 270,270 shares of
Series F Convertible Preferred
Stock for cash at
$3.70 per share .................. -- -- -- --
Issuance of 185,000 shares of
Common Stock in February 1996
as bonuses to officers and
employees valued at $0.32 per
share ............................ 57,350 -- -- --
Issuance of 14,828 shares of Common
Stock in May 1996 for consulting
services, valued at
$0.32 per share .................. 4,596 -- -- --
Exercise of warrants to purchase
148 shares of Series E Convertible
Preferred Stock at
$3.15 per share .................. -- -- -- --
Exercise of options to purchase
Common Stock at $0.32 per share .. 69,084 -- -- --
Net loss ........................... $ -- $ -- $ -- $ (4,735,204)
-------- -------- ----------- ------------
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-6
58
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
AND PARTNERS' INVESTMENT -- (CONTINUED)
FOR THE PERIOD FROM INCEPTION (AUGUST 10, 1990) TO DECEMBER 31, 1999
REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
PARTNERS' --------------------- ------------------------- ---------------------
INVESTMENT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ------ ---------- --------- ----------- --------- -------
BALANCE, December 31, 1996 ... $ -- 61,250 $ 613 6,277,282 $15,137,516 2,718,845 $27,189
Issuance of 4,538,675 shares
of Series F Convertible
Preferred Stock for cash at
$3.70 per share, net of
offering costs
of $249,239 ............... -- -- -- 4,538,675 16,547,859 -- --
Exercise of warrants to
purchase 149,462
shares of Series E
Convertible Preferred
Stock at $3.15 per share .. -- -- -- 149,462 470,805 -- --
Exercise of warrants to
purchase 492
Shares of Series F
Convertible Preferred
Stock at $3.70 per share .. -- -- -- 492 1,820 -- --
Cashless exercise of warrants
to purchase
2,476 shares of Series E
Convertible
Preferred Stock ........... -- -- -- 2,476 -- -- --
Exercise of options by
employees and
Directors at $0.32 - $0.50
per share ................. -- -- -- -- -- 251,250 2,512
Issuance of Common Stock to
director at
$3.70 per share ........... -- -- -- -- -- 10,000 100
Issuance of Common Stock to
consultant, valued at $3.70
per share ................. -- -- -- -- -- 10,000 100
Collection of stock
subscription
receivable ................ -- -- -- -- -- -- --
Provision for redemption of
Redeemable
Preferred Stock ........... -- -- 1,091,387 -- -- -- --
Net loss .................... $ -- -- $ -- -- $ -- -- $ --
-------- ------ ---------- --------- ----------- --------- -------
STOCK
SUBSCRIPTION STOCK
RECEIVABLE SUBSCRIPTION
FROM RECEIVABLE DEFICIT
ISSUANCE OF FROM ACCUMULATED
ADDITIONAL CONVERTIBLE ISSUANCE OF DURING THE
PAID-IN PREFERRED COMMON DEVELOPMENT
CAPITAL STOCK STOCK STAGE
--------- ------- ------------ ------------
BALANCE, December 31, 1996 ... $ 346,602 $(3,121) $ -- $(15,687,424)
Issuance of 4,538,675 shares
of Series F Convertible
Preferred Stock for cash at
$3.70 per share, net of
offering costs
of $249,239 ............... -- -- -- --
Exercise of warrants to
purchase 149,462
shares of Series E
Convertible Preferred
Stock at $3.15 per share .. -- -- -- --
Exercise of warrants to
purchase 492
Shares of Series F
Convertible Preferred
Stock at $3.70 per share .. -- -- -- --
Cashless exercise of warrants
to purchase
2,476 shares of Series E
Convertible
Preferred Stock ........... -- -- -- --
Exercise of options by
employees and
Directors at $0.32 - $0.50
per share ................. 109,462 -- -- --
Issuance of Common Stock to
director at
$3.70 per share ........... 36,900 -- (37,000) --
Issuance of Common Stock to
consultant, valued at $3.70
per share ................. 36,900 -- -- --
Collection of stock
subscription
receivable ................ -- 3,121 -- --
Provision for redemption of
Redeemable
Preferred Stock ........... (74,000) -- -- --
Net loss .................... $ -- $ -- $ -- $(10,296,912)
--------- ------- -------- ------------
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-7
59
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
AND PARTNERS' INVESTMENT -- (CONTINUED)
FOR THE PERIOD FROM INCEPTION (AUGUST 10, 1990) TO DECEMBER 31, 1999
REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
PARTNERS' --------------------- ----------------------- ---------------------
INVESTMENT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------- ---------- ---------- ----------- ---------- ---------
BALANCE, December 31, 1997....... $ -- 61,250 $1,092,000 10,968,387 $32,158,000 2,990,095 $ 29,901
Issuance of 4,645,879 shares
of Series G Convertible
Preferred Stock at $4.75 per
share, net of offering costs
of $663,921................... -- -- -- 4,645,879 21,404,004 -- --
Exercise of warrants to
purchase 65,076 shares of
Series E Convertible
Preferred Stock at $3.15
per share..................... -- -- -- 65,076 204,987 -- --
Exercise of options by
employees at $0.32 -
$8.09 per share............... -- -- -- -- -- 65,500 655
Redemption of Redeemable
Preferred Stock for $546,051
and 33,052 shares of Common
Stock......................... -- (61,250) (1,092,000) -- -- 33,052 331
Conversion of Preferred Stock
to Common Stock triggered
by the transaction with
Tseng Labs, Inc............... -- -- -- (15,679,342) (53,766,991) 15,679,342 156,793
Issuance of Common Stock in
exchange for the Common Stock
of Tseng Labs, Inc., net of
transaction costs
of $1,907,354................. -- -- -- -- -- 5,510,772 55,108
Exercise of Series F warrants
to purchase 150 shares of
Common Stock at $3.70 per
share......................... -- -- -- -- -- 150 2
Exercise of Series G warrants
to purchase 615 shares of
Common Stock at $4.75 per
share.......................... -- -- -- -- -- 615 6
Non-employee stock option
expense........................ -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
--------- --------- ---------- ---------- ----------- ---------- ---------
BALANCE, December 31, 1998....... -- -- -- -- -- 24,279,526 242,796
Exercise of options by
employees at $0.32 - $8.09.... -- -- -- -- -- 48,061 481
Exercise of Series F warrants
to purchase 125,201 shares
of Common Stock at $3.70
per share..................... -- -- -- -- -- 125,201 1,252
Exercise of Series G warrants
to purchase 79,378 shares
of Common Stock at $4.75
per share..................... -- -- -- -- -- 79,378 793
Issuance of 1,555,000 shares of
Common Stock at $9.00 per
share, net of offering costs
of $415,855................... -- -- -- -- -- 1,555,000 15,550
Issuance of 18,728 shares of
Common Stock at
$6.32 - $9.67 under the
Employee Stock
Purchase Plan................. -- -- -- -- -- 18,728 187
Non-employee stock option
expense....................... -- -- -- -- -- -- --
Net loss......................... -- -- -- -- -- -- --
--------- --------- ---------- ---------- ----------- ---------- ---------
BALANCE, December 31, 1999....... $ -- -- $ -- -- $ -- 26,105,894 $ 261,059
========= ========= ========== ========== -========== ========== =========
STOCK
SUBSCRIPTION STOCK
RECEIVABLE SUBSCRIPTION
FROM RECEIVABLE DEFICIT
ISSUANCE OF FROM ACCUMULATED
ADDITIONAL CONVERTIBLE ISSUANCE OF DURING THE
PAID-IN PREFERRED COMMON DEVELOPMENT
CAPITAL STOCK STOCK STAGE
----------- ---------- -------- ------------
BALANCE, December 31, 1997...... $ 455,864 $ -- $(37,000) $(25,984,336)
Issuance of 4,645,879 shares
of Series G Convertible
Preferred Stock at $4.75 per
share, net of offering costs
of $663,921.................. -- -- -- --
Exercise of warrants to
purchase 65,076 shares of
Series E Convertible
Preferred Stock at $3.15
per share.................... -- -- -- --
Exercise of options by
employees at $0.32 -
$8.09 per share.............. 262,739 -- -- --
Redemption of Redeemable
Preferred Stock for $546,051
and 33,052 shares of Common
Stock........................ 545,618 -- -- --
Conversion of Preferred Stock
to Common Stock triggered
by the transaction with
Tseng Labs, Inc. ............ 53,610,198 -- -- --
Issuance of Common Stock in
exchange for the Common Stock
of Tseng Labs, Inc., net of
transaction costs
of $1,907,354................ 26,364,894 -- -- --
Exercise of Series F warrants
to purchase 150 shares of
Common Stock at $3.70
per share.................... 553 -- -- --
Exercise of Series G warrants
to purchase 615 shares of
Common Stock at $4.75
per share..................... 2,915 -- -- --
Non-employee stock option
expense........................ 13,313 -- -- --
Net loss......................... -- -- -- (19,345,436)
----------- ---------- -------- ------------
BALANCE, December 31, 1998....... 81,256,094 -- (37,000) (45,329,772)
Exercise of options by
employees at $0.32 - $8.09.... 276,260 -- -- --
Exercise of Series F warrants
to purchase 125,201 shares
of Common Stock at $3.70
per share..................... 461,992 -- -- --
Exercise of Series G warrants
to purchase 79,378 shares
of Common Stock at $4.75
per share..................... 376,252 -- -- --
Issuance of 1,555,000 shares of
Common Stock at $9.00 per
share, net of offering costs
of $415,855................... 13,563,595 -- -- --
Issuance of 18,728 shares of
Common Stock at
$6.32 - $9.67 under the
Employee Stock
Purchase Plan................. 170,933 -- -- --
Non-employee stock option
expense....................... 97,051 -- -- --
Net loss......................... -- -- -- (19,633,722)
----------- ---------- -------- ------------
BALANCE, December 31, 1999....... $96,202,177 $ -- $(37,000) $(64,963,494)
-========== ========== ======== ============
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-8
60
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM
YEAR ENDED INCEPTION
DECEMBER 31, (AUGUST 10,
--------------------------------------------------- 1990) TO
1999 1998 1997 DECEMBER 31, 1999
-------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net loss ......................... $(19,633,722) $(19,345,436) $(10,296,912) $(64,963,494)
Adjustments to reconcile net loss
to net cash used in
operating activities-
Depreciation expense and
amortization ..................... 532,549 255,197 61,782 920,566
Issuance of Common Stock for
services rendered ................ -- -- 37,000 48,578
Issuance of Common Stock options
for services rendered ............ 97,051 13,313 -- 110,364
Provision for redemption of
Redeemable Preferred Stock ....... -- -- 1,017,387 1,017,387
Write-off of deferred offering
costs ............................ -- 469,515 -- 469,515
Other ............................ -- -- -- 68,399
Increase in prepaid and other
current assets ................... (362,959) (15,176) (106,882) (556,807)
(Increase) decrease in other
assets ........................... 128,360 (208,248) -- (79,888)
Increase (decrease) in accounts
payable and accrued
liabilities ...................... (158,372) (1,558,774) 505,248 1,015,061
------------ ------------ ------------ ------------
Net cash flows used in
operating activities .......... (19,397,093) (20,389,609) (8,782,377) (61,950,319)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Purchase of equipment and
leasehold improvements ........... (518,570) (2,624,383) (466,164) (4,918,370)
Sale of leasehold improvements ... -- 3,000,000 -- 3,000,000
Cash paid for deposits ........... (16,000) (6,329) (17,694) (50,767)
------------ ------------ ------------ ------------
Net cash flows provided by
(used in) investing
activities .................. (534,570) 369,288 (483,858) (1,969,137)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of Common
Stock, net of
related offering costs ........... 13,579,145 -- -- 13,579,145
Proceeds from issuance of Common
Stock under the Employee Stock
Purchase Plan .................... 171,120 -- -- 171,120
Proceeds from issuance of
Convertible Preferred Stock, net
of related offering costs ........ -- 21,404,004 16,548,326 47,185,046
Proceeds from the transaction
with Tseng Labs, Inc. ........... -- 27,966,372 -- 27,966,372
Proceeds from exercise of Series
E, F and G warrants to purchase
stock ............................ 840,289 208,463 472,625 1,521,843
Decrease in shareholder receivable -- -- 3,121 23,626
Cash received for Common Stock
options exercised ................ 276,741 263,394 111,974 723,422
Redemption of Redeemable
Preferred Stock .................. -- (546,051) -- (546,051)
Proceeds from bridge loan (Note 6) -- -- -- 791,000
Partner cash contributions ........ -- -- -- 5,312,355
Increase in restricted cash ....... (28,938) (412,580) (4,592) (640,110)
Principal payments under capital
lease obligation ................. (125,980) (29,214) -- (155,194)
Proceeds from borrowings .......... -- -- -- 150,000
Repayment of borrowings ........... -- (62,502) (49,175) (150,000)
------------ ------------ ------------ ------------
Net cash flows provided by
financing activities ......... 14,712,377 48,791,886 17,082,279 95,932,574
------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents .................. (5,219,286) 28,771,565 7,816,044 32,013,118
CASH AND CASH EQUIVALENTS,
beginning of period ............... 37,232,404 8,460,839 644,795 --
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
period ............................ $ 32,013,118 $ 37,232,404 $ 8,460,839 $ 32,013,118
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH
FINANCING ACTIVITIES:
Accrual of leasehold improvements
payable ........................... $ -- $ -- $ 848,000 $ 848,000
============ ============ ============ ============
Accrual of deferred offering costs .. $ -- $ -- $ 441,375 $ 441,375
============ ============ ============ ============
Conversion of partners' investment
to Preferred Stock ................ $ -- $ -- $ -- $ 5,312,355
============ ============ ============ ============
Conversion of bridge loan to
Convertible Preferred Stock ....... $ -- $ -- $ -- $ 791,000
============ ============ ============ ============
Conversion of Convertible Preferred
Stock for Common Stock ............ $ -- $ 53,766,991 $ -- $ 53,766,991
============ ============ ============ ============
Issuance of Convertible Preferred
Stock to investment advisors ...... $ -- $ 425,742 $ -- $ 540,742
============ ============ ============ ============
Issuance of Common Stock as payment
of Management bonus ............... $ -- $ -- $ -- $ 59,200
============ ============ ============ ============
Redemption of Redeemable Preferred
Stock for Common Stock ............ $ -- $ 545,949 $ -- $ 545,949
============ ============ ============ ============
Sale of Common Stock in exchange for
stock subscription receivable ..... $ -- $ -- $ 37,000 $ 37,000
============ ============ ============ ============
Sale of Convertible Preferred Stock
in exchange for stock
subscription receivable ........... $ -- $ -- $ -- $ 23,626
============ ============ ============ ============
Issuance of Common Stock as payment
for accounts payable .............. $ -- $ -- $ 37,000 $ 48,578
============ ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-9
61
CELL PATHWAYS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND BASIS OF PRESENTATION:
Cell Pathways, Inc. was incorporated in Delaware in July 1998 as a
subsidiary of, and as of November 3, 1998 successor to, a Delaware corporation
of the same name. As the context requires, "Company" is used herein to signify
the successor and/or the predecessor corporations. (See Note 3)
The Company is a pharmaceutical company focused on the research, development
and future commercialization of products to prevent and treat cancer. The
Company is in the development stage and has not generated any product revenues
to date, nor is there any assurance of any future product revenues. The
Company's intended products are subject to long development cycles and there is
no assurance the Company will be able to successfully develop, manufacture,
obtain regulatory approval for or market its products. During the period
required to develop its products, the Company plans to continue to finance
operations through debt and equity financings, corporate alliances or through
combinations thereof. There is no assurance, however, that such additional
funding will be available on terms acceptable to the Company, if at all. The
Company will continue to be considered in the development stage until such time
as it generates significant revenues from its principal operations. As of
December 31, 1999, the Company had a deficit accumulated during the development
stage of $64,963,494.
On November 3, 1998, the Company completed a financing through the
acquisition of Tseng Labs, Inc. ("Tseng") (a publicly held shell company) in
which the Company issued to Tseng stockholders approximately 5.5 million shares
of the Company's Common Stock and received net proceeds of approximately $26.4
million (See Note 3). The accompanying financial statements include the accounts
of the Company from inception (August 10, 1990) and the accounts of Tseng after
November 3, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Management's Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 such estimates.
Cash, Cash Equivalents and Restricted Cash
For purposes of the statements of cash flows, the Company considers all
highly liquid instruments with an original maturity of three months or less to
be cash equivalents. As of December 31, 1999 and December 31, 1998,
approximately $640,000 and $611,000, respectively, of cash and cash equivalents
were restricted to secure letters of credit for security deposits on the
Company's leases (See Note 12).
Equipment, Furniture and Leasehold Improvements
Equipment, furniture and leasehold improvements are stated at cost.
Depreciation of equipment and furniture is provided on the straight-line method
over estimated useful lives of three to seven years. Leasehold improvements are
amortized over the shorter of the useful life or the life of the related lease.
Research and Development
Costs incurred in connection with research and development activities are
expensed as incurred.
F-10
62
Stock Compensation
The Company accounts for stock option grants in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the Company's stock option plans, options are granted at the
fair market value on the date of the grant and therefore no compensation expense
is recognized for stock options granted to employees. In 1996, the Company
adopted the disclosure provisions of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation."
Basic and Diluted Net Loss Per Common Share
The Company provides basic and diluted net loss per Common share pursuant
to SFAS No. 128, "Earnings per Share." SFAS No. 128 requires dual presentation
of basic and diluted net loss per Common share. "Basic" net loss per Common
share equals net loss divided by the weighted average Common shares outstanding
during the period. "Diluted" net loss per Common share equals net loss divided
by the sum of the weighted average Common shares outstanding during the period
plus Common stock equivalents. The Company's basic and diluted net loss per
share amounts are the same since the assumed exercise of stock options and
warrants, conversion of Convertible Preferred Stock and the redemption of
Redeemable Preferred Stock are all anti-dilutive. The amount of Common Stock
equivalents excluded from the calculation are options and warrants to purchase
3,640,842, 2,128,424 and 616,271 shares of Common Stock, Convertible Preferred
Stock convertible into 0, 0 and 10,968,387 shares of Common Stock, warrants to
purchase 0, 0 and 194,395 shares of Convertible Preferred Stock convertible into
the same number of shares of Common Stock and 0, 0 and 33,052 shares of Common
Stock issuable upon redemption of the Redeemable Preferred Stock that were
outstanding as of December 31, 1999, 1998 and 1997, respectively.
Comprehensive Income
Effective with the first quarter of 1998, the Company was subject to the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
established standards for reporting and display of comprehensive income (loss)
in a full set of general-purpose financial statements. Comprehensive income
(loss) is defined as the total of net income (loss) and all other non-owner
changes in equity. For years ended December 31, 1999, 1998 and 1997, the
Company's comprehensive loss consists only of the Company's net loss.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended by SFAS No. 137," Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - an
amendment of FASB Statement No. 133," which must be adopted by the Company in
the year ending December 31, 2001, provides a comprehensive and consistent
standard for the recognition and measurement of derivatives and hedging
activities. As the Company does not currently hold derivative instruments or
engage in hedging activities, the adoption of this pronouncement is expected to
have no impact on the Company's financial position or results of operations.
Effective with the year ended December 31, 1999, the Company was subject to
the provisions of Statement of Position ("SOP") 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" and SOP 98-5,
"Reporting on the Costs of Start-up Activities." SOP 98-1 provides guidance on
accounting for computer software developed or obtained for internal use
including the requirement to capitalize specified costs and the amortization of
such costs. SOP 98-5 provides guidance on the financial reporting of start-up
activities and organization costs. It requires costs of start-up activities and
organization costs to be charged to expense as incurred. The adoption of SOP
98-1 and SOP 98-5 did not have a material impact on the Company's financial
position or results of operations.
F-11
63
3. TRANSACTION WITH TSENG:
In June 1998, Cell Pathways, Inc., a Delaware corporation, and Tseng, a Utah
corporation, entered into an agreement and plan of reorganization (the
"Reorganization Agreement"). The Reorganization Agreement provided for (i) the
formation of Cell Pathways Holding, Inc., a Delaware corporation ("CPHI"), (ii)
the merger of Tseng Sub, Inc., a wholly-owned subsidiary of CPHI, with and into
Tseng, (iii) the merger of CPI Sub, Inc., a wholly-owned subsidiary of CPHI,
with and into Cell Pathways, Inc. and (iv) the issuance of approximately 23% of
the outstanding shares of the Common Stock of CPHI to the Tseng stockholders and
approximately 77% of the outstanding shares of the Common Stock of CPHI to the
Cell Pathways, Inc. stockholders. In connection with this transaction, the
Company raised net proceeds of approximately $26.4 million (see Note 1). As a
result of the aforementioned transactions, Tseng and Cell Pathways, Inc.,
subsequently renamed Cell Pathways Pharmaceuticals, Inc. ("CPP") became
wholly-owned subsidiaries of CPHI, subsequently renamed Cell Pathways, Inc.
("CPI"). The transaction closed November 3, 1998 and was accounted for as a
reorganization of CPP into CPI with the sale of approximately 23% of CPI Common
Stock in exchange for Tseng's net assets. The historical financial statements of
the combined Company are the historical financial statements of CPP.
4. EQUIPMENT, FURNITURE AND LEASEHOLD IMPROVEMENTS:
Equipment, furniture and leasehold improvements consisted of the following:
DECEMBER 31,
--------------------------
1999 1998
------------- ------------
Furniture and fixtures.................. $ 287,539 $ 257,412
Computer equipment and software......... 827,165 652,031
Laboratory equipment.................... 1,267,624 1,012,208
Office equipment........................ 7,225 --
Leasehold improvements.................. 50,668 --
--------- ----------
$2,440,221 $1,921,651
(920,566) (388,017)
--------- ----------
Less accumulated depreciation and
amortization............................ $1,519,655 $1,533,634
========== ==========
In June 1998, the Company entered into a new facility lease (see Note 12)
in which the company received a one-time payment of $3.0 million related to the
reimbursement of leasehold improvements made by the Company to the facility. The
leasehold improvements that were included in equipment, furniture and leasehold
improvements in the accompanying consolidated balance sheets were removed from
the Company's assets as they became the property of the new lessor. No gain or
loss was recorded on the transaction as the reimbursement was at the net book
value of the assets. As of December 31, 1998, the Company had approximately
$161,000 accrued in the accompanying consolidated balance sheet related to the
remaining payments on leasehold improvements that became the property of the new
lessor once purchased during the year ended December 31, 1999.
5. OTHER ACCRUED LIABILITIES:
Other accrued liabilities consisted of the following:
DECEMBER 31,
--------------------------
1999 1998
------------- ------------
Accrued severance....................... $ -- $ 339,638
Accrued consultant fees................. 285,000 49,746
Accrued research contracts.............. 326,740 681,790
Other................................... 776,760 713,206
---------- ----------
$ 1,388,500 $ 1,784,380
============ ============
F-12
64
6. STOCKHOLDERS' EQUITY:
As of December 31, 1999 and 1998, the Company was authorized to issue a
total of 75,000,000 shares of stock, consisting of 5,000,000 shares of $0.01 par
value Preferred Stock, and 70,000,000 shares of $0.01 par value Common Stock.
In October 1999, the Company sold 1,555,000 shares of Common Stock in a
private placement to a group of institutional investors at a price of $9.00 per
share, resulting in net proceeds of approximately $13,579,000. With each share
of Common Stock purchased the Company issued one warrant for the purchase of the
Company's Common Stock at $14.00 per share. The warrants are exercisable until
December 31, 2000. In addition, the Company has an agreement to grant warrants
to the placement agent of the private placement equal to 3.5% of the total
warrants exercised by the purchasers which the purchasing agent brought to the
offering. Under the agreement, warrants to purchase up to 39,375 shares of
Common Stock may be issued. The warrants issued to the placement agent are
exercisable until the later of (i) December 31, 2000 or (ii) 30 days after the
exercise of the warrants by the purchasers.
In April through June 1998, the Company issued 4,556,249 shares of Series G
Convertible Preferred Stock ("Series G") and warrants to purchase 227,793 shares
of Series G at $4.75 per share, resulting in net proceeds to the Company of
approximately $21,404,000. The warrants are exercisable until the earlier of May
1, 2000, or the sale of substantially all of the assets of the Company. In
addition, the Company issued 89,630 shares of Series G as compensation for
services rendered in connection with the offering of the Series G.
In December 1996, the Company issued 270,270 shares of Series F Convertible
Preferred Stock ("Series F") and warrants to purchase 13,514 shares of Series F
at $3.70 per share, resulting in net proceeds to the Company of $1,000,000.
During 1997, the Company issued 4,507,594 shares of Series F and warrants to
purchase 112,329 shares of Series F, resulting in net proceeds to the Company of
approximately $16,548,000. In addition, the Company issued 31,081 shares of
Series F as compensation for services rendered in connection with the offering
of the Series F.
During 1996, the Company issued 185,000 shares of Common Stock as bonuses to
officers and employees, and 14,828 shares of Common Stock were issued for
consulting services.
In June through August 1995, the Company borrowed $791,000 from certain of
its stockholders. In August 1995, this bridge loan, together with interest at
9%, was converted into 253,633 Series E Convertible Preferred Shares ("Series
E") at $3.15 per share. In connection with the bridge loan, warrants to purchase
125,550 shares of Series E at $3.15 per share were issued. In August 1995, the
Board of Directors authorized the issuance and sale of up to $7 million of
Series E at $3.15 per share, including conversion of the bridge loan. During the
year ended December 31, 1995, the Company issued 1,121,800 shares of Series E
and warrants to purchase 85,339 shares of Series E at $3.15 per share, resulting
in net proceeds to the Company of approximately $3,534,000; and in January
through May of 1996, the Company issued 841,306 shares of Series E at $3.15 per
share, resulting in net proceeds to the Company of approximately $2,650,000.
This offering, including conversion of the bridge loan, resulted in the issuance
of 2,216,739 shares of Series E and warrants to purchase 210,889 shares of
Series E, resulting in net proceeds of approximately $6,832,000. In May of 1996,
the Company issued 46,355 shares of Series E and paid cash of $154,000 as
payment for financial advisory services.
In April 1994, the Company issued 542,761 of Series E and warrants to
purchase an additional 18,766 shares of Series E at $4.10 per share resulting in
net proceeds to the Company of approximately $2,225,000. In conjunction with the
Company's aforementioned 1995 financing, the Series E was re-priced to $3.15 per
share, the same price as the 1995 financing. Accordingly, the Company issued an
additional 163,701 shares of Series E and warrants to purchase an additional
5,654 shares of Series E at $3.15 per share. In March 1994, the Company issued
16,667 shares of Common Stock as partial payment for financial advisory
services.
During the period of 1990 through 1992, the Company, while in Partnership
form, issued Class A, B, C and D partnership units, which resulted in net
proceeds to the Company of $812,000, $1,051,675, $1,540,000 and $1,860,042,
respectively. In September 1993, upon conversion of the Company from partnership
to corporate form, each class of partnership interest was exchanged for shares
of Series A, B, C and D Convertible Preferred Stock, respectively.
In November 1998, in conjunction with the transaction with Tseng (see Note
3), each share of Series A, B, C, D, E, F and G Convertible Preferred Stock was
converted into one share of CPI Common Stock.
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65
7. REDEEMABLE PREFERRED STOCK:
Prior to redemption, the Redeemable Preferred Stock carried no vote and no
dividend and was mandatorily redeemable in an aggregate amount of $1,092,000 in
cash and/or freely transferable Common Stock upon the closing of any firm
commitment underwritten public offering of Common Stock. In November 1998,
immediately prior to the transaction with Tseng, the Company redeemed the
Redeemable Preferred Stock for $546,051 and 33,052 shares of Common Stock. The
Company recorded a provision for the redemption of the Redeemable Preferred
Stock during the third quarter of 1997 as Company preparations for an initial
public offering of Common Stock made it probable that the Company would redeem
the Redeemable Preferred Stock.
8. STOCKHOLDERS' RIGHTS PLAN:
On December 3, 1998, the Company's Board of Directors authorized the
adoption of a stockholders' rights plan. Under the plan, rights to purchase
stock, at a rate of one right for each share of Common Stock held, were
distributed to holders of record on December 15, 1998 and automatically attach
to shares issued thereafter. Under the plan, the rights attach to the Common
Stock and are not represented by separate rights certificates until, and
generally become exercisable only after, a person or group (i) acquires 15% or
more of the Company's outstanding Common Stock or (ii) commences a tender offer
that would result in such a person or group owning 15% or more of the Company's
Common Stock. When the rights first become exercisable, a holder will be
entitled to buy from the Company a unit consisting of one one-hundredth of a
share of Series A Junior Participating Preferred Stock of the Company at a
purchase price of $90. However, if any person acquires 15% or more of the
Company's Common Stock other than pursuant to a qualified offer, each right not
owned by a 15% or more stockholder would become exercisable for Common Stock of
the Company (or in certain circumstances, other consideration) having a market
value equal to twice the exercise price of the right. The rights expire on
December 14, 2008, except as otherwise provided in the plan. Full details are
set forth in the rights agreement filed as an exhibit to the Company's Report on
Form 8-K dated December 18, 1998.
9. STOCK OPTIONS, WARRANTS AND PURCHASE PLAN:
The Company's 1993 Stock Option Plan, which was amended and renamed in 1997
the 1997 Equity Incentive Plan (the "Plan"), authorizes the Company to grant to
eligible employees, directors and consultants Common Stock, stock appreciation
rights, or options to purchase Common Stock with respect to 2,350,000 shares of
Common Stock. As of December 31, 1999, options with respect to 1,898,121 shares
have been granted, 523,350 have been exercised, 94,500 have been forfeited,
1,280,271 were outstanding, and 546,379 shares of Common Stock remained eligible
for future option grants. The stock options granted may be either incentive
stock options ("ISO") or nonstatutory stock options ("NSO"). Such options may be
granted only at an exercise price equal to the fair market value of the shares
at the date of grant unless such option is granted pursuant to an assumption of
or a substitution for another option. The Board of Directors may set the rate at
which the options become exercisable and determine when the options expire,
subject to the limitations described below. Options granted through June 1999
may be exercised up to ten years following the date of grant. Options granted
after June 1999 may be exercised up to the earlier of ten years from the date of
grant or 90 days after termination of services. All options will generally
become exercisable in the event the Company is sold or has other significant
changes in ownership. Generally, options to employees vest ratably over a
four-year period. Options granted under the Plan through July 1997 may be
immediately exercisable, but any unvested shares exercised are held by the
Company and are subject to reacquisition by the Company should employment
terminate prior to completion of applicable vesting periods.
In 1995, the Company adopted the 1995 Cell Pathways, Inc. Stock Award
Plan pursuant to which the Company may award shares of Common Stock to
employees, directors and consultants as part or all of their compensation,
whether salary, bonus or fee and whether for past services or as incentive for
current and future services. The only awards which have been made under this
plan were made during 1996 by way of bonus compensation to officers and
employees of the Company for the years 1993, 1994 and 1995. In accordance with
APB Opinion No. 25, a compensation charge of $59,000 associated with the
issuance of 185,000 shares of Common Stock having a fair market value of $0.32
per share at the date of grant, was recognized in the year ended 1995.
In October 1997, the Board of Directors adopted and the stockholders
approved the 1997 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan") covering an aggregate of 453,925 shares of Common Stock. Pursuant to the
terms of the Directors' Plan, each person who first becomes a non-employee
Director automatically shall be granted an option to purchase 18,157 shares of
Common Stock (the "Inaugural Grant"). On the date of each annual stockholders
meeting commencing with the meeting in 1998, each non-employee Director who has
served at least one full year as a director is automatically granted an option
to purchase 5,447 shares of Common Stock (the "Anniversary Grant"). In
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66
addition, the Company granted options to purchase 27,235 shares of Common Stock
at the inception of the plan. Options subject to an Inaugural Grant under the
Directors' Plan will vest in three equal, annual installments commencing on the
first anniversary of the date of the grant of the option. Options subject to an
Anniversary Grant under the Directors' Plan will vest in full on the first
anniversary of the date of the grant of the option. In addition, certain grants
made at the inception of the Director's Plan vested on March 31, 1998. The
vesting of all options under the Directors' Plan is conditioned on the continued
service of the recipient as a director, employee or consultant of the Company or
any affiliate of the Company. As of December 31, 1999, options to purchase
165,227 shares of Common Stock have been granted, none have been exercised or
forfeited.
The exercise price of the options granted under the Directors' Plan will be
equal to the fair market value of the Common Stock granted on the date of grant.
No option granted under the Directors' Plan may be exercised after the
expiration of ten years from the date it was granted. Options granted under the
Directors' Plan generally are non-transferable, except as provided in the option
agreement. The Directors' Plan will terminate on the tenth anniversary of the
date of its adoption by the Board unless sooner terminated by the Board. In the
event of certain changes of control, options outstanding under the Directors'
Plan will automatically become fully vested and will terminate if not exercised
prior to such change of control.
In November 1998, the Company assumed the Tseng Labs, Inc. 1991 Stock Option
Plan, the Tseng Labs, Inc. 1991 Special Directors Stock Option Plan and the
Tseng Labs, Inc. 1995 Stock Option Plan. The Company assumed the plans in order
to administer the remaining options outstanding as of November 4, 1998. The
Company has no intention of issuing any options under these plans and has
terminated any right to grant further options under the assumed stock option
plans. As of December 31, 1999, there are 448,169 options outstanding under
these plans to purchase Common Stock at a weighted average exercise price of
$8.10 per share.
The Company accounts for stock options granted to employees under the Plan
in accordance with the intrinsic value method provided for under APB Opinion No.
25. Under the Plan, options may be granted at the fair market value on the date
of the grant and therefore no compensation expense is, or has been, recognized
in respect of stock options awarded to employees. The option pricing models
recommended by SFAS No. 123 for recognition of, or disclosure of pro forma
compensation cost in respect of employee stock options are option pricing models
which have been developed for fully transferable, traded options having no
vesting requirements and which require the input of subjective assumptions
including expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, in management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its stock options. Had
compensation cost for the Plan been recognized in the income statements under
SFAS No. 123, the Company's net loss would have increased to the following pro
forma amounts:
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1999 1998 1997
-------------------------------------------------
Net loss:
As reported........... $ (19,633,722) $ (19,345,436) $ (10,296,912)
============= ============= =============
Pro forma............. $ (20,398,272) $ (19,643,828) $ (10,369,323)
============= ============= =============
Basic and diluted
net loss per Common
Share:
As reported........... $ (0.79) $ (3.04) $ (3.63)
============ ============= =============
Pro forma............. $ (0.82) $ (3.08) $ (3.65)
============ ============= =============
The pro forma disclosures made above do not reflect options granted prior to
January 1, 1995. Therefore this pro forma compensation cost may not be
representative of the effects which SFAS No. 123 may have on the disclosure of
pro forma compensation cost in future years. The weighted average fair value of
the stock options granted during 1999, 1998 and 1997 was $6.64, $1.93 and $0.92,
respectively. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
1999 1998 1997
-------- -------- -------
Risk-free interest rate... 6.56% 6.15% 6.15%
Expected dividend yield... 0% 0% 0%
Expected life ............ 6 years 6 years 6 years
Expected volatility ...... 75% .45% 0%
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Information relative to the Company's stock options is as follows:
WEIGHTED
AVERAGE
EXERCISE PRICE EXERCISE PRICE AGGREGATE
OPTIONS (PER SHARE) (PER SHARE) PROCEEDS
--------- ------------------ -------------- -------------
Balance as of December 31, 1996..... 476,000 $ 0.32 - $0.50 $ 0.39 $ 183,819
Granted........................... 455,021 1.00 - 4.75 3.47 1,578,000
Exercised......................... (251,250) 0.32 - 0.50 0.45 (111,974)
Forfeited......................... (63,500) 0.32 - 3.70 0.85 (54,120)
--------- ------------------ ------------- -------------
Balance as of December 31, 1997..... 616,271 0.32 - 3.70 2.59 1,595,725
Granted........................... 719,298 4.75 - 12.13 6.39 4,599,069
Tseng options assumed............. 512,480 3.79 - 24.10 8.10 4,151,701
Exercised......................... (65,500) 0.32 - 8.09 4.02 (263,394)
Forfeited......................... (11,500) 0.32 - 6.60 0.39 (4,525)
--------- ------------------ ------------- -------------
Balance as of December 31, 1998..... 1,771,049 0.32 - 24.10 5.69 10,078,576
Granted........................... 179,679 6.81 - 11.00 9.35 1,679,132
Exercised......................... (48,061) 0.32 - 8.09 5.76 (276,741)
Forfeited......................... (9,000) 6.60 - 12.13 7.11 (63,974)
--------- ------------------ ------------- --------------
Balance as of December 31, 1999..... 1,893,667 $ 0.32 - $24.10 $ 6.03 $ 11,416,993
============== ================== ============= ==============
Options exercisable as of
December 31, 1999................. 1,213,659 $ 5.44
============== ============
The weighted average remaining contractual life of all options outstanding at
December 31, 1999 is 7.6 years.
The following table summarizes information about the Company's stock options
outstanding and exercisable at December 31, 1999 based upon each exercise price:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------------------- ------------------------------
NUMBER OF WEIGHTED WEIGHTED WEIGHTED
OPTIONS AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
EXERCISE AT DECEMBER 31, CONTRACTUAL PRICE AT DECEMBER 31, PRICE
PRICES 1999 LIFE IN YEARS (PER SHARE) 1999 (PER SHARE)
----------------- --------------- --------------- ----------- -------------- -------------
$ 0.32 - $1.00 207,500 6.4 $ 0.59 207,500 $ 0.59
3.70 - 3.79 291,735 7.7 3.72 291,735 3.72
4.13 - 4.75 220,676 8.0 4.73 122,561 4.71
6.60 - 6.81 627,106 8.5 6.61 210,769 6.60
8.09 - 9.29 468,150 6.4 8.35 351,098 8.12
11.00 - 12.13 56,892 9.1 11.13 8,388 11.46
$ 21.69 - $24.10 21,608 6.1 $ 22.28 21,608 $ 22.28
----------- ----------
1,893,667 1,213,659
=========== ==========
In October 1997, the Board of Directors adopted and the stockholders
approved the Employee Stock Purchase Plan (the "Purchase Plan") covering an
aggregate of 544,710 shares of Common Stock. Under the Purchase Plan, the Board
may authorize participation by eligible employees, including officers, in
periodic offerings following the adoption of the Purchase Plan. The offering
period for any offering will be no longer than 27 months.
As of November 4, 1998, employees became eligible to participate in the
Purchase Plan if they are employed by the Company or an affiliate of the Company
designated by the Board. Employees who participate in an offering can have up to
15% of their earnings withheld pursuant to the Purchase Plan and applied, on
specified dates determined by the Board, to the purchase of shares of Common
Stock. The price of Common Stock purchased under the Purchase Plan will be not
less than 85% of the lower of the fair market value of the Common Stock on the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment with the Company. The Purchase Plan will terminate at the Board's
direction. As of December 31, 1999, the Company has issued 18,728 shares under
the Purchase Plan.
In 1994 and 1995, the Company issued warrants to purchase an aggregate of
235,309 shares of Series E at an exercise price of $3.15 per share. All warrants
were exercised by August 1997.
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68
In 1996, the Company issued warrants to purchase 13,514 shares of Series F
and during 1997, warrants to purchase 112,329 shares of Series F at an exercise
price of $3.70 per share. As a result of the transaction with Tseng in November
1998, the warrants no longer purchased shares of Series F but purchased the
equivalent number of shares of Common Stock at an exercise price of $3.70 per
share. All remaining Series F warrants were exercised in 1999 resulting in net
proceeds to the Company of $463,244.
In 1998, the Company issued warrants to purchase 227,793 shares of Series G
at an exercise price of $4.75 per share. As a result of the transaction with
Tseng in November 1998, the warrants no longer purchase shares of Series G. The
warrants purchase the equivalent number of shares of Common Stock at an exercise
price of $4.75 per share. As of December 31, 1999, warrants to purchase 147,800
shares of Common Stock were outstanding.
In 1998, the Company issued warrants to purchase 5,000 shares of Common
Stock at an exercise price of $6.60 per share, to an investment advisor in
consideration for services rendered. These warrants are exercisable through June
30, 2000.
In 1999, the Company, in conjunction with the private placement of Common
Stock, issued warrants to purchase 1,555,000 shares of Common Stock at an
exercise price of $14.00 per share. As of December 31, 1999, these warrants were
still outstanding. The Company also made an agreement to grant warrants to the
placement agent of the private placement equal to 3.5% of the total warrants
exercised by the purchasers which the purchasing agent brought to the offering.
Under the agreement, warrants to purchase up to 39,375 shares of Common Stock
may be issued. The warrants issued to the placement agent are exercisable until
the later of (i) December 31, 2000 or (ii) 30 days after the exercise of the
warrants by the purchasers. As of December 31, 1999, the Company has not issued
any warrants to the purchasing agent.
10. DEBT:
In March 1996, the Company borrowed $150,000 from a bank. The note bore
interest at a rate of 7.79% and was payable in equal monthly installments
through March 1999. During the year ended December 31, 1998, the note was
repaid.
11. INCOME TAXES:
The Company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." As of December 31, 1999, the Company had
approximately $44,492,000 of net operating loss carryforwards ("NOLs") for
income tax purposes available to offset future federal income tax, subject to
limitations for alternative minimum tax. The NOLs are subject to examination by
the tax authorities and expire between 2008 and 2019.
Prior to its conversion into corporate form, the business had accumulated
losses totaling approximately $3,900,000. For tax purposes these losses were
distributed to the partners in accordance with the provisions of the partnership
agreement of the Company's predecessor partnership. Thus, these losses, while
included in the financial statements of the Company, are not available to offset
future taxable income, if any, of the Company.
The Tax Reform Act of 1986 contains provisions that may limit the NOLs
available to be used in any given year upon the occurrence of certain events,
including significant changes in ownership interest. A change in ownership of a
company of greater than 50% within a three-year period results in an annual
limitation on the Company's ability to utilize its NOLs from tax periods prior
to the ownership change. The Company believes that the transaction with Tseng
(see Note 3) triggered such limitation. However, the Company does not expect
such limitation to have a significant impact on its operations.
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69
The components of the net deferred income tax asset at December 31, 1999 and
1998 were as follows:
DECEMBER 31,
---------------------------------
1999 1998
------------ ------------
Gross deferred tax asset:
Net operating loss
carryforwards ........... $ 18,748,000 $ 5,293,000
Capitalized research
and development
expenditures ............ 2,465,000 8,695,000
Capitalized start-up
costs ................... 4,449,000 2,521,000
Accruals not currently
deductible .............. 194,000 216,000
Other ..................... 39,000 --
------------ -----------
25,895,000 16,725,000
Gross deferred tax
liabilities:
Other ..................... (3,000) --
Less valuation allowance .. (25,892,000) (16,725,000)
------------ -----------
$ -- $ --
============ ===========
The Company has not yet achieved profitable operations. Accordingly,
management believes the tax assets as of December 31, 1999 do not satisfy the
realization criteria set forth in SFAS No. 109 and has recorded a valuation
allowance for the entire net tax asset.
12. COMMITMENTS AND CONTINGENCIES:
Leases
In June 1998, the Company entered into a ten-year lease for office and
laboratory space in Horsham, Pennsylvania. This lease contains two five-year
renewal terms.
In 1998, the Company also entered into a 30-month capital lease agreement to
lease software to be used in the research and development activities of the
Company. The software acquired under the lease at a cost of $335,371 less
accumulated amortization of $190,044 and $55,895 is included in equipment in the
accompanying consolidated balance sheets as of December 31, 1999 and 1998,
respectively. The interest rate on this capital lease is 12%.
Aggregate minimum annual payments under the Company's lease commitments are
as follows as of December 31, 1999:
CAPITAL CAPITAL
LEASE LEASE
--------- ----------
2000 ...................................... $ 156,000 $ 856,000
2001 ...................................... 36,000 882,000
2002 ...................................... -- 908,000
2003 ...................................... -- 936,000
2004 ...................................... -- 964,000
thereafter ................................ -- 3,602,000
--------- ----------
Total minimum lease payments .............. 192,000 $8,148,000
==========
Less: Interest ............................ (11,823)
---------
Present value of net minimum lease
payments ................................ $ 180,177
=========
Rental expense under the operating leases and other month-to-month leases
entered into by the Company totaled approximately $939,000, $815,000 and
$121,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Contracts
The Company contracts with a number of university-based researchers and
commercial vendors who provide various research, clinical and product
development activities. Such arrangements are generally cancelable at any time.
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70
Litigation
In February and March of 1999, five stockholder class actions were filed
against the Company and certain of its officers and directors in the United
States District Court for the Eastern District of Pennsylvania seeking
unspecified damages on behalf of various classes of persons, including all
persons who purchased Company Common Stock during certain periods in 1998 and
1999. The complaints alleged that the Company made false and misleading
statements about the efficacy and near-term commercialization of the Company's
lead drug candidate which had the effect of artificially inflating the price of
the Company's Common Stock. These actions were consolidated into one action in
April 1999, and a consolidated amended complaint was filed in late June 1999
asserting a class period extending from October 7, 1998 to February 2, 1999. The
litigation is at a very preliminary stage. The Company believes that the
allegations are without merit and intends to vigorously defend the litigation.
F-19