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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Mark One
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
/X/ OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d)
/ / OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________.
Commission File No. 0-19529
ALTEON INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3304550
(State or other jurisdiction of ( I.R.S. Employer Identification No.)
incorporation or organization)
170 Williams Drive, Ramsey, New Jersey 07446
(Address of principal executive offices) (zip code)
(201) 934-5000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(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-K. [ ]
State the aggregate market value of the equity stock held by
non-affiliates of the Registrant: $16,298,445 at March 17, 1999 based on the
last sales price on that date.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of March 17, 1999.
Class Number of Shares
Common Stock, $.01 par value 18,888,660
Documents Incorporated by reference
The Proxy Statement to be filed with respect to the Annual Meeting of
Stockholders to be held on June 2, 1999 is incorporated by reference into Part
III.
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ITEM 1. BUSINESS.
OVERVIEW
Alteon is engaged in the discovery and development of pharmaceutical
products for the treatment of the complications of diabetes and age-related
diseases. The Company's efforts have focused primarily on developing its lead
first-in-class compound, pimagedine, as an agent to inhibit or block abnormal
glucose/protein complexes, known as Advanced Glycosylation End-products
("A.G.E.s"), that lead to diabetic complications such as kidney disease and
retinopathy. Alteon has completed certain clinical trials of pimagedine and is
currently evaluating its future development.
A.G.E.s accumulate throughout the body at a rate dependent on
glucose levels. This accumulation and the subsequent crosslinking of A.G.E.s to
other proteins results in a progressive loss of function of certain organs,
blood vessels and nerves. High levels of A.G.E.s are found in persons with
diabetes, a disease characterized by elevated glucose levels. The Company is
also utilizing its technical expertise in the field of diabetes to develop
compounds focused on glucose regulation and control.
The status of Alteon's clinical development programs for pimagedine
in diabetic complications is as follows:
Overt Nephropathy. The Company has thus far tested the safety and
efficacy of oral pimagedine in a Phase III clinical trial, called the ACTION I
trial (A Clinical Trial In Overt Nephropathy) in Type I diabetics with overt
nephropathy. The trial was conducted at 56 clinical sites and involved 690
patients. In November 1998, the Company announced that a preliminary analysis of
the ACTION I trial showed that the data for the trial's primary endpoint did not
reach statistical significance.
The Company is continuing the evaluation of pimagedine's primary
outcome and key secondary endpoints, some of which show statistical
significance. Based on an ongoing in-depth analysis of the Phase III ACTION I
trial results, the Company is preparing a comprehensive pre-NDA data package on
pimagedine for submission to the U.S. Food and Drug Administration ("FDA") in
order to seek input from the FDA regarding the future development of pimagedine.
Based upon its evaluation of the ACTION I trial results and the outcome of its
communications with the FDA, the Company will decide whether to file a New Drug
Application ("NDA") for pimagedine, conduct additional trials, or terminate the
development of pimagedine for overt nephropathy.
A second Phase III trial of pimagedine in patients with Type II
diabetes and overt nephropathy, called the ACTION II trial, was initiated in
July 1995. In March 1998, the Company discontinued this trial because of an
insufficient risk/benefit ratio based upon data then available.
End-Stage Renal Disease ("ESRD"). Alteon initiated a Phase II trial
in ESRD in January 1996. An interim analysis in July 1997 revealed positive
trend data in survival of treated patients versus placebo patients. Based on
these findings, the Company expanded this trial to a pivotal Phase III trial.
Alteon is evaluating this program as part of its overall evaluation of
pimagedine.
In addition to the clinical programs for pimagedine in diabetic
complications, Alteon has a number of research programs under way to expand its
research and development pipeline. The key programs are:
A.G.E. Crosslink Breakers. The Company has identified novel orally
available compounds that in preclinical testing demonstrate the ability to
chemically break what were previously believed to be permanent, A.G.E.-mediated
bonds between proteins. A.G.E. crosslink breakers offer the possibility of the
first therapeutic approach to removing A.G.E. crosslinks. These compounds are
being evaluated in preclinical models for their potential to reverse certain
cardiovascular complications, as well as ophthalmic and dermatological
conditions. A lead agent, ALT-711, has completed a series of Phase I human
safety trials.
Glucose Lowering Agents. The Company has identified novel orally
available compounds which in preclinical models of diabetes demonstrate the
ability to lower blood glucose and free fatty acids by a potentially
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new mechanism of action. The Company is actively pursuing additional studies in
order to advance the most promising compound to clinical lead status.
Alteon has strategic alliances with Genentech, Inc. ("Genentech"),
Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi"), Roche Diagnostics, GmbH,
formerly Corange International Ltd., acting through Boehringer Mannheim
Diagnostics ("Roche"), Gamida for Life, formerly Eryphile BV ("Gamida"), and
IDEXX Laboratories, Inc. ("IDEXX") to develop and market pimagedine and A.G.E.
diagnostics for human or veterinary uses in specific territories throughout the
world. The strategic alliance with Genentech will terminate as of June 30, 1999
unless Genentech and the Company agree to amend their contractual arrangements
before that date. The Company anticipates that during 1999 it will review with
its corporate partners their arrangements in light of the Company's current
development plans and priorities. In order to expand its internal research and
development capacities, Alteon has licensed technology and/or patent rights from
The Rockefeller University ("Rockefeller University"), The Picower Institute for
Medical Research ("The Picower Institute") and Washington University in St.
Louis, Missouri ("Washington University").
Alteon owns or has exclusive rights to 91 issued or allowed United
States patents and has 22 additional patent applications pending in the United
States. Alteon also owns or has exclusive rights to over 25 issued or granted
non-U.S. patents and has over 67 patent applications pending in Europe, Japan,
Australia and Canada. Alteon intends to continue pursuing this filing strategy
and intends to vigorously defend its intellectual property position against
infringement.
This document includes certain forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The words "believes," "anticipates," "expects," and similar
expressions are intended to identify such forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those anticipated by the statements
made by the Company. Factors described in this Annual Report on Form 10-K,
including without limitation those identified in the section captioned "Forward
Looking Statements" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," could cause the Company's actual results
to differ materially from those expressed in any forward-looking statements made
by the Company.
BACKGROUND
The human body is composed of a complex network of cells which
interact and communicate with each other through the actions of proteins,
hormones and other chemical messengers to carry out and maintain bodily
functions. This interactive network incorporates various tissue and organ
systems in the body, including the nervous system, the endocrine (hormone)
system and the immune system. Changes in the balance of, and the interactions
in, these systems occur in a variety of disease states including diabetes,
cardiovascular disease and inflammatory conditions.
In healthy individuals, physiological glucose levels are tightly
regulated by the opposing actions of two hormones -- insulin, which lowers blood
glucose, and glucagon, which elevates blood glucose. Diabetes arises from either
1) a severe decrease of insulin production and subsequent uptake and utilization
of glucose, generally referred to as Type I or Insulin Dependent Diabetes
Mellitus ("IDDM"), or 2) a loss in responsiveness to insulin, generally referred
to as Type II or Non-Insulin Dependent Diabetes Mellitus ("NIDDM").
Concurrently, the ability to moderate the glucose-elevating effects of glucagon
is diminished, leading to the persistent hyperglycemic (excess blood sugar)
state of diabetes. In both cases, glucose levels rise significantly and, if not
brought under control, increase the rate of formation of A.G.E.s.
These A.G.E. complexes form continuously over time at a rate
dependent upon glucose levels, subsequently crosslink to other proteins and
ultimately accumulate in various tissues, vessels and organs. As the rate of
accumulation increases, A.G.E. crosslinked proteins become rigid and aggregated.
It is this process which the Company believes results in progressive loss of
function of certain organs, blood vessels and nerves. In healthy individuals
this process occurs naturally, though slowly, as the body ages. In diabetic
patients, the rate of A.G.E. accumulation and the extent of protein crosslinking
is accelerated. The Company believes that this is a major factor contributing to
diabetic complications. The Diabetes Control and Complications Trial ("DCCT"), a
multi-center investigation conducted under the auspices of the National
Institutes of Health, demonstrated that elevated blood
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glucose levels significantly increase the rate of progression of eye, kidney,
blood vessel and nerve complications from diabetes. More than 50% of people with
diabetes in the United States develop diabetic complications which range from
mild to severe.
Studies conducted in animal models at numerous independent
institutions worldwide suggest that A.G.E.s are responsible for diabetic
complications including kidney disease (nephropathy), eye disease (retinopathy),
nerve disease (neuropathy) and hardening of the arteries (atherosclerosis). More
recent studies implicate A.G.E.s in age-related disorders such as cardiovascular
disease, Alzheimer's disease and stroke. Alteon believes certain complications,
such as atherosclerosis, hypertension and the progressive decline in renal
function that occur eventually in non-diabetics, may also be A.G.E.-related, as
this pathological process is cumulative in effect over the lifetime of any
individual.
Alteon's lead compound, pimagedine, also has been shown to inhibit
certain inflammatory conditions. The Company believes that this is due to
pimagedine's inhibitory effect on one of the enzymes responsible for synthesis
of nitric oxide ("NO"), a naturally occurring molecule which, when overproduced,
may lead to or result in serious complications. There is increasing evidence
that NO plays a significant role in acute and chronic inflammation, and may play
a role in inflammatory diseases such as asthma, inflammatory skin conditions,
rheumatoid arthritis and inflammatory bowel disease. Inhibition of the inducible
enzyme responsible for formation of NO, inducible nitric oxide synthase
("iNOS"), has been shown in animal models to mitigate the inflammatory disease
process.
TECHNOLOGY
A.G.E.-Formation Inhibitors
Alteon's most advanced therapeutic program is the development of
drugs that inhibit A.G.E.-formation. These compounds are designed to prevent
major diabetic and age-related complications by blocking the formation of
A.G.E.s and subsequent crosslinking of A.G.E.s to other proteins. Alteon's lead
compound, pimagedine, has been shown to inhibit A.G.E.-formation and subsequent
crosslink formation in preclinical models. Data from Alteon's human clinical
trials provided evidence of this activity in humans. Alteon and its corporate
partners have been developing pimagedine to slow the progression of various
complications of diabetes, such as diabetic nephropathy.
Alteon is also engaged in research programs on second-generation
A.G.E.-formation inhibitors to identify compounds that have advantages over
pimagedine, such as increased efficacy or a more favorable safety profile. The
Company has proposed one compound, ALT-946, for further development.
A.G.E. Crosslink Breakers
The Company is developing the A.G.E. crosslink breaker class of
compounds for several therapeutic indications. Studies in animal models,
including primates, in several laboratories around the world have demonstrated
rapid reversal of impaired cardiovascular functions through a unique mechanism
of action. The breakers compounds reverse the stiffening of arteries as well as
stiffening of the heart that accompanies the development of diabetes and aging.
Reductions in blood pressure that have been observed suggest that crosslink
breakers may prove beneficial in the treatment of hypertension in the elderly.
The Company is also evaluating development of the breaker class for
reversing the stiffening and subsequent dehydration of skin through a topical
formulation. The crosslinking of matrix proteins in the dermis is believed to be
responsible for the deep wrinkling phenomenon of aging. The Company is also
pursuing investigations into the role of A.G.E. crosslinking in restricting the
flow of fluid through the eye, the consequence of which causes elevated
intraocular pressure which is central to the development of glaucoma.
Preliminary studies in aged primates demonstrates a persistent improvement in
fluid flow following a single intraocular injection.
Glucose Lowering Agents
The inability to utilize glucose effectively in Type II diabetes is
due to a defect in the response of glucose utilizing tissues (e.g. skeletal
muscle) to insulin. The Company has identified novel orally available compounds
that
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lower blood glucose and free fatty acid levels in preclinical models of
Type II diabetes. These compounds, collectively called Glucose Lowering Agents
("G.L.A."), are chemically distinct from and exhibit a different mechanism of
action than the thiazolidinedione compounds, a class of compounds that has been
the focus of many pharmaceutical companies because of potential beneficial
effects on glucose and triglyceride levels. Analysis of plasma lipids suggests
that the regulation of fat metabolism leads to improved glucose utilization and
may be an important feature in the mechanism of action for the G.L.A. class.
This series of compounds prevents weight gain in obese/diabetic animal models,
suggesting a possible role for use in the treatment of obesity. The Company is
actively pursuing preclinical studies with these compounds in order to advance
the most promising compound to clinical lead status.
The following chart illustrates the process of A.G.E.-formation and
crosslinking and is qualified by the more detailed description in the text. It
also highlights those areas within the A.G.E. cascade where Alteon is attempting
to offer chemical agents to intervene pharmaceutically.
[ NOTE: THE PRINTED COPY OF THIS FORM 10-K CONTAINS A ]
[ GRAPHICAL REPRESENTATION OF THE FOLLOWING. THE "||" ]
[ REPRESENT ARROWS POINTING FROM "GLUCOSE LOWERING ]
[ AGENTS" TO "GLUCOSE," FROM "A.G.E. FORMATION INHIBITORS" ]
[ TO "PROTEINS" AND "A.G.E.S," AND FROM "A.G.E. CROSSLINK ]
[ BREAKERS" TO "CROSSLINKED A.G.E.S" ]
[ ]
[ A.G.E. CASCADE ]
[ -------------- ]
[ ]
[ Glucose + Proteins ====} A.G.E.s ====} Crosslinked A.G.E.s ]
[ ' ' ' ' ]
[ || || || || ]
[ || || || || ]
[ Glucose Lowering A.G.E. A.G.E. ]
[ Agents Formation Inhibitors Crosslink ]
[ Breakers ]
[ ]
iNOS Technology
Pimagedine is a preferential inhibitor of iNOS in animal models,
thereby decreasing the formation of NO, a molecule which has been shown in
preclinical models to play a role in acute and chronic inflammation. Independent
researchers have reported that treatment with pimagedine reduces inflammation in
specific preclinical models. Pimagedine has also been shown to decrease the
migration of macrophages (inflammatory cells) to the site of tissue damage and
prevents the release of cytokines and consequent release of NO. The Company has
developed a topical formulation of pimagedine for the treatment of inflammatory
skin diseases.
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PRINCIPAL PRODUCTS UNDER DEVELOPMENT
The following table summarizes Alteon's principal products in research
and development:
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Product Candidate/ Mechanism DEVELOPMENT MARKETING
Target Indications Of Action STATUS(1) RIGHTS (2)
- ------------------------------------- ---------------------- ---------------------------- ----------------------------
Pimagedine Oral Genentech/
Diabetic Complications A.G.E. Yamanouchi/Gamida/
Overt Nephropathy (Type I) Completed Phase III IDEXX
End-Stage Renal Disease Phase III
- ------------------------------------- ---------------------- ---------------------------- ----------------------------
ALT-946 Alteon/
Diabetic Complications A.G.E. Preclinical Genentech
- ------------------------------------- ---------------------- ---------------------------- ----------------------------
A.G.E. Crosslink Breakers Alteon/
Cardiovascular Disease A.G.E. Phase I Yamanouchi
Ophthalmic A.G.E. Preclinical
Dermatological A.G.E. Preclinical
- ------------------------------------- ---------------------- ---------------------------- ----------------------------
Glucose Lowering Agents (4) Research Alteon
- ------------------------------------- ---------------------- ---------------------------- ----------------------------
Pimagedine Topical
Dermatological iNOS Alteon/
Allergic Contact Dermatitis Veterinary IDEXX(3)
- ------------------------------------- ---------------------- ---------------------------- ----------------------------
Pimagedine Intravenous (4) Alteon(3)/Genentech
Stroke IND Gamida
- ----------------------------------------------------------------------------------------------------------------------
Notes:
(1) "Completed Phase III" indicates that the trial has been completed and that
Alteon is continuing analysis of the results. "Phase III" clinical trials
indicate that Alteon is testing the compound in humans for safety and
efficacy in an expanded patient population at multiple clinical sites.
"Preclinical" includes toxicological and pharmacokinetics assessment of
candidate compounds as well as formulation of a product in an appropriate
dosage form. "Phase I" clinical trials indicate that the drug has been given
to human subjects and tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion and the Company is analyzing the
results. "Research" includes identification and evaluation of compounds in
vitro and in animal models. IND stands for Investigational New Drug. See "
-- Government Regulation."
(2) Where indicated, the Company's corporate partner, Genentech has rights to
market products in all areas of the world except for the territories
reserved to Yamanouchi and Gamida. The strategic alliance with Genentech
will terminate as of June 30, 1999 unless Genentech and the Company agree to
amend their contractual arrangements before that date. Yamanouchi has
rights, or under certain circumstances the option to acquire rights, to
market products in Japan, South Korea, Taiwan and The People's Republic of
China. Where indicated, the Company's corporate partner Gamida has rights to
market products in Israel, Jordan, South Africa, Cyprus and Bulgaria. Where
indicated, the Company's corporate partner IDEXX has rights to develop and
market pimagedine and A.G.E. diagnostics for certain veterinary uses. See "
-- Corporate Strategic Alliances."
(3) In June 1995, Alteon obtained a license from Washington University, St.
Louis, for patents covering the use of pimagedine to inhibit iNOS. Alteon
and Yamanouchi are currently determining marketing rights for certain
potential products based upon this mechanism of action.
(4) Mechanism not fully elucidated.
- --------------------------------------------------------------------------------
The Company incurred research and development expenditures of $18,720,000,
$23,264,000, $24,592,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. Expenditures were reduced by reimbursements from corporate
partners in 1996 in the amount of $1,226,000. No amounts were reimbursed in 1997
and 1998.
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Pimagedine Oral
Diabetic Kidney Disease. Kidney disease is a significant cause of
morbidity and mortality in patients with Type I and Type II diabetes. It is a
chronic and progressive disease. One of the early signs of kidney damage is
microalbuminuria (characterized by leakage of small amounts of protein into the
urine) which progresses to overt nephropathy (characterized by leakage of large
amounts of protein into the urine) and ultimately to end-stage renal disease
(advanced renal disease requiring dialysis). Approximately 35% of patients with
Type I diabetes and approximately 10-15% of patients with Type II diabetes
develop nephropathy. As of 1995, there were approximately 1,000,000 diabetics
diagnosed with kidney disease in the United States. The only product approved to
treat nephropathy in patients with Type I diabetes is the anti-hypertensive
captopril, an angiotensin-converting enzyme ("A.C.E.") inhibitor. The Company
believes that pimagedine acts through a mechanism different from captopril and
therefore if used in conjunction with captopril may have a complementary
therapeutic effect. The Company believes the results of the ACTION I trial
support this conclusion. See "--Competition."
Overt Nephropathy. The Company conducted a randomized double-blind,
placebo-controlled, multi-center, Phase III clinical trial to evaluate the
safety and efficacy of pimagedine in Type I diabetic patients with overt
nephropathy, the ACTION I trial. The trial was initiated in January 1994. The
primary objective of the trial was to evaluate the safety and efficacy of
pimagedine in preserving renal function in Type I patients. Enrollment in the
trial was completed in August 1996 with 690 patients from 56 investigational
sites in the United States and Canada. Patients were treated for a minimum of
two years and received twice daily oral doses of pimagedine, adjusted for kidney
function. Under this protocol, pimagedine treatment was in addition to the best
available therapeutic regimen chosen by the treating physicians.
In November 1998, the Company announced results of a preliminary
analysis of data from the ACTION I trial. Although the results showed that
pimagedine reduced the risk of doubling of serum creatinine, the study's primary
endpoint, the data did not reach statistical significance. Pimagedine therapy
resulted in significant improvements in several key measurements: reduced
urinary protein, reduced LDL cholesterol and triglycerides, reduced diastolic
blood pressure and reduced progression of retinopathy. Additional data suggested
a trend toward improvements in other measures of renal function including
estimated creatinine clearance and glomerular filtration rate. The drug was
generally well tolerated.
Medical and clinical consultants have advised the Company to continue
evaluation of pimagedine. Based on an ongoing in-depth analysis of the Phase III
ACTION I trial results, the Company is preparing a comprehensive pre-NDA data
package on pimagedine to submit to the FDA. Based upon its evaluation of the
ACTION I trial results and the outcome of its communications with the FDA, the
Company will decide whether to file an NDA for pimagedine in the treatment of
overt nephropathy in Type I diabetes, conduct additional trials, or terminate
the development of pimagedine as a therapy for overt nephropathy in Type I
diabetics. The FDA has notified the Company that should an NDA for pimagedine
ever be filed, it will receive a fast track designation.
A second Phase III trial of pimagedine, in patients with Type II
diabetes and overt nephropathy (ACTION II), was initiated in July 1995 and used
a trial design similar to the ACTION I trial. The objective of this study was to
evaluate the safety and efficacy of pimagedine in preserving renal function in
Type II patients. In March 1998, the Company discontinued this trial because of
an insufficient risk/benefit ratio based upon data then available.
End-Stage Renal Disease (ESRD). As kidneys fail, there is a significant
increase in circulating A.G.E.s because of the patient's inability to clear
these compounds. This occurs to a greater degree in diabetic patients because of
their more rapid rate of A.G.E.-formation. A.G.E.s are not removed to a
significant degree by dialysis in part due to the large size of certain A.G.E.
proteins. The high A.G.E. burden in diabetic patients is thought to be
responsible for the rapid progression of diabetic complications in dialysis
patients. The Company believes that elevated A.G.E. levels also contribute to
higher levels of cardiovascular morbidity and mortality in diabetic patients.
Approximately 50,000 diabetics develop ESRD annually in the United States.
Diabetics with ESRD have a cardiovascular mortality (myocardial infarction and
cerebral vascular mortality) which is higher than other patient groups with
renal failure. Erythropoietin ("EPO") is often used to treat the anemia
resulting from the loss of kidney function and there is no known agent useful
for treatment of ESRD.
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The Company is conducting a randomized, double-blind,
placebo-controlled, multi-center, Phase III clinical trial to evaluate the
safety and efficacy of pimagedine in diabetic patients with ESRD on
hemodialysis, a form of dialysis used by approximately 80% of dialysis patients
in the United States. This clinical trial was initiated as a Phase II study in
January 1996, with an enrollment of approximately 120 patients who received oral
doses of pimagedine three times per week in conjunction with their dialysis
treatment. Interim analyses performed after 90 patients were in the study for a
minimum of six months revealed a positive trend in the survival of treated
patients versus placebo patients and a positive effect on certain lipid
measurements. In addition, the drug appeared well tolerated in this very ill
patient population. Based on discussions with Alteon's end-stage renal disease
consultants and with the FDA, Alteon converted the trial into a pivotal Phase
III evaluation, focusing on all-cause mortality as the primary endpoint. An
independent External Review Committee has been established to assess on a
periodic basis the ongoing risk/benefit ratio and the clinical results of this
pivotal study. Alteon is evaluating this program as part of its overall
evaluation of further development of pimagedine.
Pimagedine Intravenous
Stroke. Every year approximately 500,000 patients in the United States
suffer a stroke and approximately one-third of these individuals die, making
stroke the third leading cause of death by disease. According to the American
Heart Association, in 1994 the economic cost of stroke due to health care
expense and loss of productivity was estimated to be nearly $30 billion.
Individuals at increased risk for stroke include those with hypertension,
smokers, obese individuals, diabetics and those with hyperlipidemia. Currently,
several pharmaceutical and biopharmaceutical companies are conducting
preclinical studies and clinical trials on numerous compounds for the treatment
of stroke.
Animal studies have demonstrated that pimagedine, when given prior to
or after indication of stroke by occlusion of the middle cerebral artery,
reduced the volume of tissue death by 30%.
Alteon has completed acute toxicity studies in animals with an
intravenous formulation of pimagedine. The Company has filed an IND with the
FDA.
Pimagedine Topical
Inflammatory Skin Disease. Nitric oxide ("NO") has been shown to play a
role in the inflammatory disease process. Preclinical studies with pimagedine
have shown a significant reduction in both NO production as well as skin
inflammation. Based on these findings, the Company believes that pimagedine
could have a beneficial effect in certain inflammatory diseases such as contact
dermatitis and eczema. Currently, topical steroids are the treatment of choice
for these indications but are contraindicated for prolonged use. A topical
formulation of pimagedine has been developed. The Company has filed an IND for
these indications.
A.G.E. Crosslink Breakers
Several classes of novel compounds have been identified which are
capable of breaking the crosslinks formed as a result of A.G.E. accumulation.
These compounds are currently under evaluation in various animal models to
assess their potential for treatment of a variety of diseases including
cardiovascular disease, certain ophthalmic disease states and certain skin
conditions. The most promising drug candidate, ALT-711, has recently completed a
series of Phase I human safety trials. In preclinical studies, ALT-711 has been
shown, in primates, to restore large artery elasticity and reverse aorta
stiffness by catalytically breaking the A.G.E. crosslinks between proteins,
potentially leading to a reversal of the deterioration of the cardiovascular
system.
Glucose Lowering Agents
The Company is currently investigating the glucose lowering potential
of several compounds initially identified from a natural product screening
program. These compounds, which are structurally different from the
thiazolidinediones, have been identified as having activity similar to the
thiazolidinediones without the same side effect profile. Additional mechanistic
studies on these compounds are currently under way, as is additional preclinical
testing designed to identify a potential lead compound for future clinical
development.
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Diagnostic Programs
Alteon is utilizing its A.G.E. technology to develop diagnostic tests
that may be used to assess A.G.E. levels and monitor drug therapy in diabetic
patients. Because the levels of circulating and tissue-bound A.G.E.s are
correlated with the pathology of diabetes and aging, measurement of A.G.E.
levels could provide valuable information on the stage of disease prior to the
appearance of clinical signs. The Company believes these tests, if developed,
will complement its drug products by enabling physicians to better diagnose and
treat patients with the potential to develop significant diabetic complications
before progression of their disease to a more advanced state.
STATUS OF CLINICAL TRIALS
Completed Trials for Pimagedine
The Company began clinical trials in 1987. Seven Phase I clinical
trials have been completed to assess the safety and pharmacokinetics of
pimagedine. Single and multiple-dose studies were conducted. Pimagedine was
administered to a total of 127 human subjects in this program, including healthy
subjects, diabetic patients with normal renal function, diabetic patients with
varying degrees of renal impairment and diabetic patients in hemodialysis
programs. No serious side effects were reported. The most commonly observed side
effects were headaches, heartburn, nausea, lightheadedness and drowsiness.
In addition, in 1989, two 28-day safety studies were completed in
diabetic patients with varying degrees of renal insufficiency as well as in
healthy subjects. Thirty-seven patients received pimagedine. The most common
side effects reported were nausea, vomiting and other gastro-intestinal
disturbances.
As a result of the gastro-intestinal side effects seen in preclinical
toxicology studies and earlier trials, the FDA required the Company to modify
its original Phase II/III protocol to include certain gastric function tests,
including endoscopy. In August 1994, based on such tests in the first 31
patients receiving pimagedine, an independent safety committee recommended and
the FDA allowed removal of the routine endoscopy requirement. At the same time,
the FDA permitted the inclusion of women of childbearing potential in the trial.
In April 1997, Alteon and Gamida completed a randomized, double-blind,
placebo-controlled, Phase II clinical trial to evaluate the effect of pimagedine
on plasma lipid levels and A.G.E.s in patients with diabetes and elevated serum
cholesterol levels. Dyslipidemia is a condition characterized by an abnormal
lipid profile. The elevation of one lipid component, low-density lipoprotein, is
known to be a significant risk factor in cardiovascular disease. Diabetic
patients are twice as likely as nondiabetic individuals to die from coronary
artery disease, and the annual incidence of cardiovascular complications is
increased significantly in patients with Type II diabetes. This Phase II
clinical trial enrolled 89 patients in Israel who were treated for a minimum of
three months and who received twice daily oral doses of pimagedine, adjusted for
kidney function. The primary objective of this study was to evaluate the safety
and efficacy of pimagedine in reducing levels of low-density lipoproteins
("LDLs") in Type II diabetic patients with varying degrees of renal function and
elevated LDLs.
A comprehensive statistical report of the trial after audit of the
results concluded: "Comparisons of percentage change from baseline of lipid
parameters between pimagedine and placebo treatment arms shows steeper decreases
in the pimagedine arm almost in all parameters, all populations. In cholesterol,
triglycerides and VLDL the decreases are significant by "last observation
carried forward" analysis. In LDL, the decrease in the pimagedine group is
significant at the 8th week."
While not an endpoint of the Israeli trial, albumin in the urine was
also reduced in patients identified as having albuminuria (excretion of more
than 30 mg of albumin in 24 hours).
In July 1997, the Company announced that its Phase II trial evaluating
pimagedine in diabetic patients with end-stage renal disease was being extended
into a pivotal Phase III trial focusing on mortality as the primary endpoint.
This decision was based upon an interim analysis of the ongoing Phase II trial,
which revealed a positive trend in the survival of treated patients versus
placebo patients. Interim analysis also showed a positive effect on certain
lipid measurements, similar to those seen in other studies. In addition, the
drug appeared to be well tolerated in this patient population.
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The Company also conducted a randomized double-blind,
placebo-controlled, multi-center, Phase III clinical trial to evaluate the
safety and efficacy of pimagedine in Type I diabetic patients with overt
nephropathy, the ACTION I trial. The trial was initiated in January 1994. The
primary objective of the trial was to evaluate the safety and efficacy of
pimagedine in preserving renal function in Type I patients. Enrollment in the
trial was completed in August 1996 with 690 patients from 56 investigational
sites in the United States and Canada. Patients were treated for a minimum of
two years and received twice daily oral doses of pimagedine, adjusted for kidney
function.
In November 1998, the Company announced results of a preliminary
analysis of data from the ACTION I trial. A preliminary analysis of the primary
endpoint showed that pimagedine reduced the risk of doubling of serum
creatinine, the study's primary endpoint, but the data did not reach statistical
significance. Pimagedine therapy resulted in significant improvements in several
key measurements: reduced urinary protein, reduced LDL cholesterol and
triglycerides, reduced diastolic blood pressure and reduced progression of
retinopathy. Additional data suggested a trend toward improvements in other
measures of renal function including estimated creatinine clearance and
glomerular filtration rate. The drug was generally well tolerated. In-depth
analysis of the ACTION I trial results is ongoing.
Completed Trials for ALT-711
Phase I human safety trials of ALT-711, the Company's lead A.G.E.
crosslink breaker, were initiated in June 1998. The single dose and multiple
dose studies have been completed and data analysis is ongoing.
Ongoing Clinical Trials
As of December 31, 1998, approximately 209 patients have been enrolled
in the Company's expanded pivotal Phase III clinical trial in end-stage renal
disease. See "--End-Stage Renal Disease."
In 1996, the Company retained Quintiles, Inc. to provide clinical trial
services to support the Phase III ACTION trials. The major areas of service
include project management, NDA preparation, clinical site monitoring and data
management.
CORPORATE STRATEGIC ALLIANCES
Genentech, Inc.
In December 1997, Alteon and Genentech entered into a stock purchase
agreement and a development collaboration and license agreement providing for
the development and marketing of pimagedine and second-generation
A.G.E.-formation inhibitors. In December 1997, Genentech purchased Common Stock
and Series G Preferred Stock for an aggregate purchase price of $15,000,000. The
use of these funds was unrestricted to the Company. The agreement provided for
Genentech to fund the continued development of pimagedine and support possible
additional clinical trials for expanded indications of the drug through the
periodic purchase of up to $48,000,000 in Series H Preferred Stock. As of
October 1998, Genentech had purchased $22,544,000 of Series H Preferred Stock.
The agreements also provide for Genentech to fund agreed-upon development costs
for second-generation A.G.E.-formation inhibitors.
Pursuant to the development collaboration and license agreement, Alteon
granted Genentech an exclusive license to use and sell pimagedine in all areas
of the world except for Japan, China, South Korea and Taiwan, territories
covered under Alteon's agreement with Yamanouchi, and Israel, Jordan, Bulgaria,
Cyprus and South Africa, territories covered under Alteon's agreement with
Gamida (the "Genentech Territory"). Alteon also granted Genentech an exclusive
license to use and sell second-generation A.G.E.-formation inhibitor products
(and any future Alteon compounds in this class), to be selected by Genentech
after review of Alteon's A.G.E-formation inhibitor portfolio, in the Genentech
Territory. The license provided that Alteon receive cash payments from Genentech
upon meeting certain milestones and royalties on net sales of pimagedine and
second-generation A.G.E.-formation products within the Genentech Territory.
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By letter agreement dated February 11, 1999, Alteon and Genentech
agreed that the development collaboration and license agreement will terminate
effective June 30, 1999 unless prior to that date the parties agree to amend the
agreement. The parties further agreed that Genentech's obligations to purchase
shares of stock of Alteon, pursuant to the stock purchase agreement, terminated
effective December 31, 1998. The letter agreement provides that Genentech will
continue to provide funding (in cash rather than through purchases of Series H
Preferred Stock) for agreed-upon development costs for pimagedine until June 30,
1999.
Yamanouchi Pharmaceutical Co., Ltd.
In July 1989, Alteon and Yamanouchi entered into a series of agreements
pursuant to which the parties formed a strategic alliance to develop and
commercialize Alteon's A.G.E.-related technology in Japan, South Korea, Taiwan
and The People's Republic of China (the "Yamanouchi Territory"). Under this
arrangement, the parties agreed to collaborate on further research and
development, Yamanouchi purchased shares of Alteon stock and Alteon granted to
Yamanouchi an exclusive license to commercialize Alteon's technology in the
Yamanouchi Territory in exchange for royalty payments on net sales, if any.
Yamanouchi has the right to terminate the agreement upon 90 days' prior written
notice to Alteon. This license expires as to each product in each licensed
country upon the later of 15 years from the date of the agreement, the
expiration of the last patent applicable to the product or five years after the
first commercial sale of the product in the country.
Pursuant to the license agreement, Alteon granted Yamanouchi the right
to manufacture pimagedine bulk material for sale in the Yamanouchi Territory.
With respect to certain second-generation A.G.E.-formation inhibitors, Alteon
has the option to supply all of Yamanouchi's reasonable requirements of active
ingredient bulk materials for sale within the Yamanouchi Territory.
Alteon and Yamanouchi also entered into a research and development
collaboration agreement to provide for joint collaboration on further research
and development, specifically Alteon's A.G.E.-formation and protein crosslinking
technology. Yamanouchi also agreed to fund preclinical studies, including most
toxicology studies on pimagedine and any other products that the parties jointly
agree to develop including a second-generation A.G.E.-formation inhibitor and a
macrophage stimulator. The collaboration agreement provides that any joint
development program is terminable by either party upon 60 days' prior written
notice. The agreement terminates in June 1999, unless otherwise extended. In
September 1992, Alteon and Yamanouchi amended the research and development
collaboration agreement to clarify their relative responsibilities for patent
prosecution and payment thereof.
Pursuant to the agreement, Yamanouchi has provided financial support
for most of the preclinical toxicity studies and has completed Phase I clinical
trials on pimagedine in Japan. Yamanouchi has not yet initiated Phase II
clinical trials in Japan.
Roche Diagnostics
In December 1994, the Company entered into an exclusive licensing
arrangement with Roche for Alteon's technology for diagnostic applications.
Under this alliance, Alteon will be entitled to receive royalties based on net
sales of research and commercial assays developed by Roche and based on Alteon's
A.G.E. technology. Roche will receive exclusive worldwide rights to the
technology for diagnostic applications outside the territory covered by the
agreement with Yamanouchi for the Yamanouchi Territory.
Under the agreement, Roche has agreed to develop immunoassays to detect
A.G.E.-hemoglobin, ApoB-A.G.E. and A.G.E.-serum protein/peptides. Development of
reagents and formats for the A.G.E. competitive ELISA and a procedure for
measuring hemoglobin-A.G.E. was completed in 1998. Continuation of the program
to adapt these reagents to automated clinical assays is contingent upon FDA
approval of pimagedine and will advance along with any product launch of
pimagedine.
The agreement gives Roche discretion over commercial development. Roche
may terminate the license agreement upon 90 days' prior written notice.
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Gamida
In November 1995, the Company entered into clinical testing and
distribution agreements with Gamida. Under these agreements, Gamida conducted,
at its own expense, a Phase II multi-site clinical trial in Israel, in
accordance with the protocol developed by Alteon, to evaluate pimagedine in
patients with diabetes and elevated serum cholesterol levels. Gamida will
receive the exclusive right to distribute pimagedine, if successfully developed
and approved for marketing, in Israel, Bulgaria, Cyprus, Jordan and South
Africa. The distribution agreement is for a term ending 10 years after the date
of regulatory approval for the sale of pimagedine in Israel; thereafter, it will
be automatically renewed for successive three-year periods unless terminated by
either party on the last day of the initial or renewal term. See "--Status of
Clinical Trials."
IDEXX
In June 1997, Alteon entered into a license and supply agreement with
IDEXX pursuant to which Alteon licensed to IDEXX pimagedine as a potential
therapeutic in companion animals (dogs, cats and horses) and its A.G.E.
diagnostics technology for companion animal use. IDEXX will be responsible for
the development, licensing and marketing of pimagedine and A.G.E. diagnostics
for such use on a worldwide basis. Alteon will be entitled to receive milestone
payments and royalties on sales of the licensed products.
The Company anticipates that during 1999 it will review with its
corporate partners their arrangements in light of the Company's current
development plans and priorities.
ACADEMIC RESEARCH AND LICENSE AGREEMENTS
Washington University, St. Louis
In June 1995, the Company obtained an exclusive, worldwide,
royalty-bearing license from Washington University for patents covering the use
of pimagedine as an inhibitor of iNOS. The agreement requires the Company to pay
certain licensing fees upon the attainment of development milestones as well as
a royalty on net sales or a share of sub-licensing profits on products covered
by the patents. The license also covers patents developed through any subsequent
research collaboration between the parties which Alteon agrees to fund.
Cerami Consulting Corporation and Warren Laboratories
On April 1, 1998 the Company entered into an agreement with Cerami
Consulting Corporation ("Cerami Consulting"), a corporation of which Dr. Anthony
Cerami, a founder and a member of the Board of Directors of the Company, is the
President, pursuant to which Cerami Consulting has provided consulting services
to the Company. Additionally, on April 1, 1998, the Company entered into a
research agreement with Kenneth S. Warren Laboratories, Inc. ("Warren
Laboratories") pursuant to which Warren Laboratories agreed to conduct research
and development of such of the Company's technology as the parties may agree
upon. Warren Laboratories is a non-profit corporation of which Dr. Cerami is a
trustee and the President. Both agreements provided for termination by either
party on six month's notice. On November 17, 1998, the Company notified Cerami
Consulting and Warren Laboratories of its intention to terminate the agreements
effective May 17, 1999. The Company is in negotiations with Cerami Consulting
and Warren Laboratories regarding the restructuring of these agreements.
The Rockefeller University
Pursuant to an agreement with Rockefeller University, Alteon has
exclusive, worldwide and perpetual rights to the technology and inventions
relating to A.G.E.s and other protein crosslinking, including those relating to
the complications of diabetes and aging. See "--Patents, Trade Secrets and
Licenses."
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The Picower Institute for Medical Research
Pursuant to an agreement with The Picower Institute, a not-for-profit
biomedical science institution of which Dr. Cerami was the President, the
Company has received an exclusive worldwide, royalty-bearing license for certain
commercial health care applications of A.G.E.-related inventions. See
"--Patents, Trade Secrets and Licenses."
MANUFACTURING
The Company has no manufacturing facilities for either production of
bulk chemicals or the manufacturing of pharmaceutical dosage forms. The Company
relies on third party contract manufacturers to produce the raw materials and
chemicals used as the active drug ingredients in its pharmaceutical products and
to perform the tasks necessary to process, package and distribute these products
in finished form. In September 1997, Alteon entered into an agreement with Ganes
Chemicals Inc. to provide a portion of the Company's requirements of bulk
pimagedine. The Company has established relationships with other companies for
the spray drying, tableting, packaging and commercial distribution of
pimagedine.
Such third party contractors will be inspected by the Company and its
consultants to confirm compliance with current Good Manufacturing Practice
("cGMP") required for pharmaceutical products. The Company believes it will be
able to obtain sufficient quantities of bulk chemical at reasonable prices to
satisfy anticipated needs. There can be no assurance, however, that the Company
can continue to meet its needs for supply of bulk chemicals or that
manufacturing limitations will not delay clinical trials or possible
commercialization. See "--Corporate Strategic Alliances."
MARKETING AND SALES
Alteon plans to market and sell its products, if successfully developed
and approved, directly or through co-promotion or other licensing arrangements
with third parties. Such arrangements may be exclusive or nonexclusive and may
provide for marketing rights worldwide or in a specific market.
For certain of its products Alteon has licensed exclusive marketing
rights, formed joint marketing arrangements or granted distribution rights
within specified territories with its corporate partners, Yamanouchi, Roche,
Gamida, IDEXX and Genentech. See "--Corporate Strategic Alliances."
PATENTS, TRADE SECRETS AND LICENSES
Proprietary protection for the Company's product candidates, processes
and know-how is important to its business. Alteon aggressively files and
prosecutes patents covering its proprietary technology, and, if warranted, will
defend its patents and proprietary technology. As appropriate, the Company seeks
patent protection for its proprietary technology and products in the United
States and Canada and in key commercial European and Asia/Pacific countries. The
Company also relies upon trade secrets, know-how, continuing technological
innovation and licensing opportunities to develop and maintain its competitive
position.
Pimagedine is not a novel compound and is not protected by a
composition-of-matter patent. In 1992, a United States patent on the use of
pimagedine was issued to Rockefeller University and subsequently exclusively
licensed to Alteon with claims relating to the inhibition of A.G.E.-formation.
The patent claims the new use of a known agent for the treatment of the
complications of diabetes and aging. In 1994, corresponding patents were granted
in France, Germany, Italy, the United Kingdom and other European countries. A
corresponding patent was issued in Japan in 1995. The Company continues to
pursue and patent chemical analogs of known A.G.E.-formation inhibitors, as well
as novel compounds having potential inhibitory properties.
Alteon obtained several patents covering certain novel compounds in the
A.G.E. crosslink breaker category. These compounds have the ability to break
what were previously believed to be permanent, A.G.E.-mediated bonds between
proteins. The use of these compounds offers the possibility of the first
therapeutic approach to the removal of A.G.E. crosslinks.
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The Company believes that its licensed and owned patents provide a
substantial proprietary base that will allow Alteon and its collaborative
partners to commercialize products in this field. There can be no assurance,
however, that pending or future applications will issue, that the claims of any
patents which do issue will provide any significant appreciation of the
Company's technology, or that the Company's directed discovery research will
yield compounds and products of therapeutic and commercial value.
In 1987, the Company acquired an exclusive, royalty-free, worldwide
license (including the right to sub-license to others) to issued patents, patent
applications and trade secrets from Rockefeller University relating to the
A.G.E.-formation and crosslinking technology currently under development at
Alteon. The investors of the patented technology include Drs. Michael A.
Brownlee, Anthony Cerami and Helen Vlassara, members of Alteon's Scientific
Advisory Board, and Dr. Peter C. Ulrich, formerly the Company's Director of
Chemistry and now an employee of Cerami Consulting. Additional patent
applications have since been filed on discoveries made in support of the
technology from research conducted at Rockefeller University, The Picower
Institute and the Company's laboratories.
Pursuant to the Company's agreement with The Picower Institute, certain
patentable inventions and discoveries relating to A.G.E. technology have been
licensed exclusively to the Company. In consultation with the Company, The
Picower Institute is responsible for the worldwide filing and prosecution of
patent applications and maintenance of patents for such inventions. Alteon will
contribute 50% of the cost of such activities.
As of December 31, 1998, the Company's patent estate of owned and/or
licensed patent rights consisted of 91 issued patents or allowed United States
patent applications, none of which expire prior to 2001, and 22 pending patent
applications in the United States, the majority of which are A.G.E.-related.
Included in Alteon's patent estate are two issued United States patents on the
use of pimagedine for inhibition of iNOS, licensed from Washington University.
Alteon also owns or has exclusive rights to over 25 issued or granted non-United
States patents and has over 67 patent applications pending in Europe, Japan,
Australia and Canada.
The Company intends to continue to focus its research and development
efforts on the synthesis of novel compounds and on the search for additional
therapeutic applications to expand and broaden the Company's rights within its
technological and patent base. The Company is also prepared to in-license
additional technology that may be useful in building its proprietary position.
Where appropriate, the Company utilizes trade secrets and unpatentable
improvements to enhance its technology base and improve its competitive
position. Alteon requires all employees, scientific consultants and contractors
to execute confidentiality agreements as a condition of engagement by the
Company. There can be no assurance, however, that the Company can limit
unauthorized or wrongful disclosures of unpatented trade secret information.
The Company believes that its estate of licensed and owned issued
patents, if upheld, and pending applications, if granted and upheld, will be a
substantial factor in the Company's success. The patent positions of
pharmaceutical firms, including Alteon, are generally uncertain and involve
complex legal and factual questions. Consequently, even though Alteon is
currently prosecuting such patent applications in the United States and foreign
patent offices, the Company does not know whether any of such applications will
result in the issuance of any additional patents or, if any additional patents
are issued, whether the claims thereof will provide significant proprietary
protection or will be circumvented or invalidated.
Competitors or potential competitors have filed for or have received
United States and foreign patents and may obtain additional patents and
proprietary rights relating to compounds or processes competitive with those of
the Company. Accordingly, there can be no assurance that the Company's patent
applications will result in patents being issued or that, if issued, the claims
of the patents will afford protection against competitors with similar
technology; nor can there be any assurance that others will not obtain patents
that the Company would need to license or circumvent. See "--Competition."
The Company's success will depend, in part, on its ability to obtain
patent protection for its products, preserve its trade secrets and operate
without infringing on the proprietary rights of third parties. There can be no
assurance that the Company's current patent estate will enable the Company to
prevent infringement by third parties
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or that competitors will not develop competitive products outside the protection
that may be afforded by the claims of such patents. To the extent the Company
relies on trade secrets and unpatented know-how to maintain its competitive
technological position, there can be no assurance that others may not develop
independently the same or similar technologies. Failure to maintain its current
patent estate or to obtain requisite patent and trade secret protection, which
may become material or necessary for product development, could delay or
preclude the Company or its licensees or marketing partners from marketing their
products and could thereby have a material adverse effect on the Company's
business, financial condition and results of operations.
GOVERNMENT REGULATION
The Company and its products are subject to comprehensive regulation by
the FDA in the United States and by comparable authorities in other countries.
These national agencies and other federal, state and local entities regulate,
among other things, the preclinical and clinical testing, safety, effectiveness,
approval, manufacture, labeling, marketing, export, storage, record keeping,
advertising and promotion of the Company's products.
The process required by the FDA before the Company's products may be
approved for marketing in the United States generally involves (i) preclinical
new drug laboratory and animal tests, (ii) submission to the FDA of an IND,
which must become effective before clinical trials may begin, (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the drug for its intended indication, (iv) submission to the FDA of an NDA, and
(v) FDA review of the NDA in order to determine, among other things, whether the
drug is safe and effective for its intended uses. There is no assurance that the
FDA review process will result in product approval on a timely basis, if at all.
Preclinical tests include laboratory evaluation of product chemistry
and formulation, as well as animal studies to assess the potential safety and
efficacy of the product. Certain preclinical tests are subject to FDA
regulations regarding current Good Laboratory Practices. The results of the
preclinical tests are submitted to the FDA as part of an IND and are reviewed by
the FDA prior to the commencement of clinical trials or during the conduct of
the clinical trials, as appropriate.
Clinical trials are conducted under protocols that detail such matters
as the objectives of the study, the parameters to be used to monitor safety and
the efficacy criteria to be evaluated. Each protocol must be submitted to the
FDA as part of the IND. Further, each protocol must be reviewed and approved by
an institutional review board.
Clinical trials are typically conducted in three sequential phases,
which may overlap. During Phase I, when the drug is initially given to human
subjects, the product is tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion. Phase II involves studies in a limited
patient population to (i) evaluate preliminarily the efficacy of the product for
specific, targeted indications, (ii) determine dosage tolerance and optimal
dosage, and (iii) identify possible adverse effects and safety risks. Phase III
trials are undertaken in order to further evaluate clinical efficacy and to
further test for safety within an expanded patient population. The FDA may
suspend clinical trials at any point in this process if it concludes that
clinical subjects are being exposed to an unacceptable health risk.
FDA approval of the Company's products, including a review, for the
appropriate indication(s), of the manufacturing processes and facilities used to
produce such products, will be required before such products may be marketed in
the United States. The process of obtaining approvals from the FDA can be
costly, time consuming and subject to unanticipated delays. There can be no
assurance that approvals of the Company's proposed products, processes, or
facilities will be granted on a timely basis, if at all. Any delay or failure to
obtain such approvals would have a material adverse effect on the Company's
business, financial condition and results of operations. Moreover, even if
regulatory approval is granted, such approval may include significant
limitations on indicated uses for which a product could be marketed.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's manufacturing procedures conform to cGMP
requirements, which must be followed at all times. In complying with those
requirements, manufacturers (including a drug sponsor's third party contract
manufacturers) must continue to expend time, money and effort in the area of
production and quality control to ensure compliance. Domestic manufacturing
establishments are subject to periodic inspections by the FDA in order to
assess, among other things,
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cGMP compliance. To supply a product for use in the United States, foreign
manufacturing establishments must comply with cGMP and are subject to periodic
inspection by the FDA or by regulatory authorities in certain of such countries
under reciprocal agreements with the FDA.
Both before and after approval is obtained, a product, its
manufacturer, and the holder of the NDA for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements at any
stage, including the preclinical and clinical testing process, the approval
process, or thereafter (including after approval) may result in various adverse
consequences, including the FDA's delay in approving or refusal to approve a
product, withdrawal of an approved product from the market, and/or the
imposition of criminal penalties against the manufacturer and/or NDA holder. In
addition, later discovery of previously unknown problems may result in
restrictions on such product, manufacturer, or NDA holder, including withdrawal
of the product from the market. Also, new government requirements may be
established that could delay or prevent regulatory approval of the Company's
products under development.
The FDA has implemented accelerated approval procedures for certain
pharmaceutical agents that treat serious or life-threatening diseases and
conditions, especially where no satisfactory alternative therapy exists. The
Company believes that certain of its products in development may qualify for
accelerated approval. The FDA has advised the Company that any NDA filed for
pimagedine based on the ACTION trials will qualify for accelerated approval
procedures. The Company cannot predict the ultimate impact, however, of the
FDA's accelerated approval of procedures on the timing or likelihood of approval
of any of its potential products or those of any competitor. In addition, the
approval of a product under the accelerated approval procedures may be subject
to various conditions, including the requirement to verify clinical benefit in
post-marketing studies, and the authority on the part of the FDA to withdraw
approval under streamlined procedures if such studies do not verify clinical
benefit.
For marketing outside the United States, the Company will be subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and diagnostic products. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country. The Company does not currently have any
facilities or personnel outside of the United States.
In addition to regulations enforced by the FDA, the Company also is
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local regulations. The Company's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company 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, the Company could be held liable for any damages that result and any
such liability could exceed the resources of the Company.
COMPETITION
A number of companies are pursuing the research and development of
pharmaceutical agents to treat the complications of diabetes and age-related
diseases. The Company is not aware of any other pharmaceutical company
developing an A.G.E.-formation inhibitor which has reached the clinical
development stage and it has no knowledge of any company pursuing a product to
break crosslinked A.G.E. proteins. Conversely, Alteon is aware of many companies
which are pursuing research and development of compounds for the lowering of
glucose levels and the selective inhibition if iNOS.
Many of the Company's potential competitors have substantially greater
financial, technical and human resources than the Company and may be
better-equipped to develop, manufacture and market products. In addition, many
of these companies have extensive experience in preclinical testing and human
clinical trials. These companies may develop and introduce products and
processes competitive with or superior to those of the Company.
The Company's competition will be determined in part by the potential
indications for which the Company's compounds are developed and ultimately
approved by regulatory authorities. For certain of the Company's potential
products, an important factor in competition may be the timing of market
introduction of its or
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its competitors' products. Accordingly, the relative speed with which Alteon can
develop products, complete the clinical trials and approval processes and supply
commercial quantities of the products to the market are important competitive
factors. The Company expects that competition among products approved for sale
will be based on, among other things, product efficacy, safety, reliability,
availability, price and patent position.
Competitive drugs based on other therapeutic mechanisms may be
efficacious in treating diabetic complications. The development by others of
non-A.G.E.-related treatment modalities for diabetic complications could render
pimagedine and other Alteon products in the diabetic field non-competitive or
obsolete. Therapeutic approaches being pursued include curing diabetes via gene
therapy or islet cell transplantation, as well as pharmaceutical intervention
with agents such as the aldose reductase inhibitors.
Results of the DCCT showed that tight glucose control reduced the
incidence of diabetic complications. Numerous companies are pursuing other
methods to manage glucose control and to reduce the incidence of diabetic
complications. In addition, several companies have initiated research with drugs
that inhibit vascularization as a potential treatment of diabetic retinopathy.
In the event one or more of these initiatives are successful, the market for the
Company's products may be reduced or eliminated.
The treatment of diabetic complications with use of existing agents
such as lipid lowering agents or A.C.E. inhibitors also appears beneficial. The
A.C.E. inhibitor, captopril, has been approved by the FDA for patients with
diabetic nephropathy. Alteon's clinical trials were designed assuming patients'
baseline therapy would include A.C.E. inhibitor treatment. The patent covering
captopril expired in March 1996. Other pharmaceutical companies have chosen to
market and sell this drug which has led to a significant decrease in its price.
Sales of captopril may reduce or eliminate the market for any product developed
by the Company for this indication.
The Company is aware of the development by several pharmaceutical
companies of thiazolidinedione derivatives ("glitazones") for treatment of Type
II diabetes. In January 1997, Warner-Lambert Company was given approval and
clearance by the FDA for the marketing of Rezulin (TM) (troglitazone), an
anti-diabetic drug designed to target insulin resistance in Type II diabetes.
The Company's competitive position also depends upon its ability to
attract and retain qualified personnel, obtain protection or otherwise develop
proprietary products or processes and secure sufficient capital resources.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board consists of individuals with
recognized expertise in the medical complications of diabetes and aging,
biochemistry and pharmaceutical science and related fields who advise the
Company about present and long-term scientific planning, research and
development. Members of the Scientific Advisory Board consult and meet with
Company management informally on a frequent basis. All members of the Scientific
Advisory Board are employed by employers other than the Company and may have
commitments to, or consulting or advisory agreements with, other entities that
may limit their availability to the Company. These companies may also be
competitors of Alteon. The members of the Scientific Advisory Board have agreed,
however, not to provide any services to any other entities that might conflict
with the activities that they provide as members of the Scientific Advisory
Board. Each member also has executed a confidentiality agreement for the benefit
of the Company. Although members of the Scientific Advisory Board may devote
significant time and energy to the affairs of the Company, except for members of
the Scientific Advisory Board with consulting contracts with Alteon, no members
are expected to devote more than a small portion of their time to Alteon.
The following persons are members of Alteon's Scientific Advisory
Board:
Anthony Cerami, Ph.D., President of Cerami Consulting
Corporation.
Michael A. Brownlee, M.D., Anita and Jack Saltz Chair of
Diabetes Research at the Albert Einstein College of Medicine,
and a Professor in the Department of Medicine and Co-Director of
the Diabetes Research Center.
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Helen Vlassara, M.D., Director, Division of Experimental
Diabetes and Aging, Department of Geriatrics at the Mount Sinai
Medical Center.
Scott M. Grundy, M.D., Ph.D., Chairman of the Department of
Clinical Nutrition and Director of the Center for Human
Nutrition at the University of Texas Southwestern Medical Center
at Dallas, Texas, and a Professor of Internal Medicine and
Biochemistry.
Bruce Merrifield, Ph.D., a Nobel Laureate and the John D.
Rockefeller Professor Emeritus at Rockefeller University.
Leslie Z. Benet, Ph.D., Professor and Chairman, Department of
Biopharmaceutical Sciences, University of California, San
Francisco.
Richard Bucala, M.D., Ph.D., Professor and Head, Laboratory of
Medical Biochemistry at The Picower Institute.
EMPLOYEES
As of March 31, 1999, Alteon employed 47 persons (13 of whom held a
Ph.D., M.D. or other advanced degree), of whom 33 were engaged in research and
development and 14 were engaged in administration and management. A significant
number of the Company's management and professional employees have had prior
experience with pharmaceutical, biotechnology or medical product companies.
Alteon believes that it has been successful in attracting skilled and
experienced personnel. None of the Company's employees are covered by collective
bargaining agreements and all employees are covered by confidentiality
agreements. The Company believes that its relationship with its employees is
good.
FORWARD-LOOKING STATEMENTS
Statements in this Form 10-K that are not statements or descriptions of
historical facts are "forward-looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by the Company or its representatives are based on a number of
assumptions. The words "believes," "expects," "anticipates," "intends,"
"estimates" or other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements as they involve risks and uncertainties, and
actual results could differ materially from those currently anticipated due to a
number of factors, including those set forth in this section and elsewhere in,
or incorporated by reference into, this Form 10-K. These factors include, but
are not limited to, the risks set forth below. The forward-looking statements
represent the Company's judgment and expectations as of the date of this Report.
The Company assumes no obligation to update any such forward-looking statements.
Need for Future Funding; Uncertainty of Access to Capital
Alteon anticipates that its existing available cash and cash
equivalents and short-term investments will be adequate to satisfy its working
capital requirements for its current and planned operations into 2000. Alteon
will require substantial new funding in order to continue the research, product
development, preclinical testing and clinical trials of its product candidates,
including pimagedine if the Company decides to continue its development and
ALT-711, the Company's lead A.G.E. crosslink breaker candidate. The Company will
also require additional funding for operating expenses, the pursuit of
regulatory approvals for its product candidates and the establishment of
marketing and sales capabilities. The Company's future capital requirements will
depend on many factors, including continued scientific progress in its research
and development programs, the size and complexity of these programs, progress
with preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
establishment of additional collaborative arrangements, the cost of
manufacturing arrangements, commercialization activities, and the cost of
product in-licensing and strategic acquisitions, if any. There can be no
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assurance that the Company's cash reserves and other liquid assets, including
funding that may be received from the Company's corporate partners and equity
sales and interest income earned thereon, will be adequate to satisfy its
capital and operating requirements.
Alteon intends to seek funding initially through arrangements with
corporate collaborators. It may in the future seek funding through public or
private sales of the Company's securities, including equity securities, when and
if conditions permit. In addition, the Company may pursue opportunities to
obtain debt financing, including capital leases, in the future. There can be no
assurance, however, that additional funding will be available on reasonable
terms, if at all. Any additional equity financing would be dilutive to the
Company's stockholders. If adequate funds are not available, Alteon may be
required to curtail significantly or eliminate one or more of its research and
development programs. If Alteon obtains funds through arrangements with
collaborative partners or others, it may be required to relinquish rights to
certain of its technologies or product candidates.
Uncertainties Related to the Early Stage of Development;
Technological Uncertainties
All of the Company's product candidates are in the research or
development stage, and all revenues to date have been generated from
collaborative research agreements and financing activities, or interest income
earned on these funds. No revenues have been generated from product sales. There
can be no assurance that product revenues can be realized on a timely basis, if
at all.
Alteon has not yet requested or received regulatory approval for any
product from the FDA or any other regulatory body. Before obtaining regulatory
approvals for the commercial sale of any of its products under development, the
Company must demonstrate through preclinical studies and clinical trials that
the product is safe and effective for use in each target indication. The results
from preclinical studies and early clinical trials may not be predictive of
results that will be obtained in large-scale testing, and there can be no
assurance that any clinical trials undertaken by the Company will demonstrate
sufficient safety and efficacy to obtain the requisite regulatory approvals or
will result in marketable products.
There can be no assurance that Alteon will succeed in the development
and marketing of any therapeutic or diagnostic product. To achieve profitable
operations, the Company must, alone or with others, successfully identify,
develop, introduce and market proprietary products. Such products will require
significant additional investment, development and preclinical and clinical
testing prior to potential regulatory approval and commercialization.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Potential products may be found ineffective or cause harmful side
effects during preclinical testing or clinical trials, fail to receive necessary
regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. There can be no
assurance that the Company will undertake additional clinical trials or that the
Company's product development efforts will be successfully completed, that
required regulatory approvals can be obtained or that any products, if
introduced, will be successfully marketed or achieve customer acceptance.
Commercial availability of any Alteon products, including pimagedine, is not
expected for a number of years, if at all.
Uncertainty of Future Profitability
At December 31, 1998, the Company had an accumulated deficit of
$107,856,621. The Company anticipates that it will incur substantial,
potentially greater losses in the future. There can be no assurance that the
Company's products under development will be successfully developed or that its
products, if successfully developed, will generate revenues sufficient to enable
the Company to earn a profit. Alteon expects to incur substantial additional
operating expenses over the next several years as its research, development and
clinical trial activities increase. Alteon does not expect to generate revenues
from the sale of products, if any, for a number of years. The Company's ability
to achieve profitability depends in part on its ability to enter into agreements
for product development, obtain regulatory approval for its products and develop
the capacity, or enter into agreements, for the manufacture, marketing and sale
of any products. There can be no assurance that Alteon will obtain required
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regulatory approvals, or successfully develop, manufacture, commercialize and
market product candidates or that the Company will ever achieve product revenues
or profitability.
Dependence on Collaborative Relationships
The Company's strategy for development and commercialization of certain
of its products is dependent upon entering into various arrangements with
research collaborators, corporate partners and others and upon the subsequent
success of these third-parties in performing their obligations.
Alteon has established collaborative arrangements with Yamanouchi,
Gamida, Roche, IDEXX and Genentech with respect to the development of drug
therapies and diagnostics utilizing the Company's scientific platforms. The
arrangement with Genentech will terminate on June 30, 1999 unless the parties
agree to amend their arrangements. The Company anticipates that during 1999 it
will review with its corporate partners their arrangements in light of the
Company's current development plans and priorities. Alteon is seeking to
establish new collaborative relationships to provide the funding necessary for
continuation of its product development but there can be no assurance that such
effort will be successful. The Company will, in some cases, be dependent upon
these outside partners to conduct preclinical testing and clinical trials and to
provide adequate funding for the Company's development programs. Under certain
of these arrangements, the Company's corporate partners may have all or a
significant portion of the development and regulatory approval responsibilities.
Failure of the corporate partners to develop marketable products or to gain the
appropriate regulatory approvals on a timely basis, if at all, would have a
material adverse effect on the Company's business, financial condition and
results of operations.
In most cases, the Company cannot control the amount and timing of
resources which its corporate partners devote to the Company's programs or
potential products. If any of the Company's corporate partners breach or
terminate their agreements with the Company or otherwise fail to conduct their
collaborative activities in a timely manner, the preclinical or clinical
development or commercialization of product candidates or research programs will
be delayed, and the Company will be required to devote additional resources to
product development and commercialization or terminate certain development
programs. The termination of collaborative arrangements would have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that disputes will not arise in the future
with respect to the ownership of rights to any technology developed with
third-parties. These and other possible disagreements between collaborators and
the Company could lead to delays in the collaborative research, development or
commercialization of certain product candidates or could require or result in
litigation or arbitration, which would be time-consuming and expensive and would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Alteon's corporate partners may develop, either alone or with others,
products that compete with the development and marketing of the Company's
products. Competing products, either developed by the corporate partners or to
which the corporate partners have rights, may result in their withdrawal of
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
Uncertainties Related to Patents and Proprietary Technology
The Company's success will depend on its ability to obtain patent
protection for its products, preserve its trade secrets, prevent third-parties
from infringing upon its proprietary rights and operate without infringing upon
the proprietary rights of others, both in the United States and abroad.
The degree of patent protection afforded to pharmaceutical inventions
is uncertain and the Company's potential products are subject to this
uncertainty. Pimagedine is not a novel compound and is not covered by a
composition-of-matter patent. The patents covering pimagedine are use patents
containing claims covering therapeutic indications and the use of specific
compounds and classes of compounds to inhibit A.G.E. formation. Competitors may
develop and commercialize pimagedine or pimagedine-like products for indications
outside of the protection provided by the claims of the Company's use patents.
Physicians, pharmacies and wholesalers could then substitute for the Company's
pimagedine products. Substitution for the Company's pimagedine products would
have a material adverse effect on the Company's business, financial condition
and results of operations. Use patents may afford a lesser degree of protection
in certain foreign countries due to their patent laws. In addition, although the
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Company has several patent applications pending to protect proprietary
technology and potential products, there can be no assurance that these patents
will be issued, that the claims of any patents which do issue will provide any
significant protection of the Company's technology or products, or that the
Company will enjoy any patent protection beyond the expiration dates of its
currently issued patents.
There can be no assurance that competitors will not develop competitive
products outside the protection that may be afforded by the claims of the
Company's patents. The Company is aware that other parties have been issued
patents and have filed patent applications in the United States and foreign
countries with respect to other agents which impact A.G.E. or A.G.E. crosslink
formation.
The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to maintain, develop
and expand its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its corporate partners, collaborators, employees
and consultants. The Company also has invention or patent assignment agreements
with its employees and certain, but not all, corporate partners and consultants.
There can be no assurance that relevant inventions will not be developed by a
person not bound by an invention assignment agreement. There can be no assurance
that binding agreements will not be breached, that the Company would have
adequate remedies for such breach, or that the Company's trade secrets will not
otherwise become known to or be independently discovered by competitors.
Uncertainties Related to Government Regulation; No Assurance of
Regulatory Approval
Alteon's research, preclinical testing and clinical trials of its
product candidates are, and the manufacturing and marketing of its products will
be, subject to extensive and rigorous regulation by numerous governmental
authorities in the United States and in other countries where the Company
intends to test and market its product candidates.
Prior to marketing, any product developed by the Company must undergo
an extensive regulatory approval process. This regulatory process, which
includes preclinical testing and clinical trials, and may include post-marketing
surveillance, of each compound to establish its safety and efficacy, can take
many years and can require the expenditure of substantial resources. Data
obtained from preclinical and clinical activities are susceptible to varying
interpretations which could delay, limit or prevent regulatory approval. In
addition, delays or rejections may be encountered based upon changes in FDA
policy for drug approval during the period of product development and FDA
regulatory review of each submitted NDA. Similar delays may also be encountered
in foreign countries. There can be no assurance that regulatory approval will be
obtained for any drugs developed by the Company. Moreover, regulatory approval
may entail limitations on the indicated uses of the drug. Further, even if
regulatory approval is obtained, a marketed drug and its manufacturer are
subject to continuing review and discovery of previously unknown problems with a
product or manufacturer which may have adverse effects on the Company's
business, financial condition and results of operations, including withdrawal of
the product from the market. Violations of regulatory requirements at any stage,
including preclinical testing and clinical trials, the approval process or
post-approval, may result in various adverse consequences including the FDA's
delay in approving, or its refusal to approve, a product withdrawal of an
approved product from the market and the imposition of criminal penalties
against the manufacturer and NDA holder. Except for pimagedine, which has been
allowed to proceed into human clinical trials for diabetic patients with
nephropathy, end-stage renal disease, dyslipidemia and dermatological conditions
and an IND for treatment of stroke (intravenous), the Company has not submitted
any other IND application for any product candidate, and no products have been
approved for commercialization in the United States or elsewhere. No assurance
can be given that the Company will be able to obtain FDA approval for any
products. Failure to obtain requisite governmental approvals or failure to
obtain approvals of the scope requested will delay or preclude the Company or
its licensees or marketing partners from marketing the Company's products or
limit the commercial use of such products and will have a material adverse
effect on the Company's business, financial condition and results of operations.
Intense Competition and Risk of Technological Obsolescence; Alternate
Cures or Therapies for Diabetes
The Company is engaged in pharmaceutical fields characterized by
extensive research efforts and rapid technological progress. Many established
pharmaceutical and biotechnology companies with resources greater than those of
the Company are attempting to develop products that would be competitive with
the Company's products.
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Other companies may succeed in developing products that are safer, more
efficacious or less costly than any that may be developed by Alteon and may also
be more successful than Alteon in production and marketing. Rapid technological
development by others may result in the Company's products becoming obsolete
before the Company recovers a significant portion of the research, development
or commercialization expenses incurred with respect to those products.
Certain technologies under development by other pharmaceutical
companies could result in a cure for diabetes or the reduction of the incidence
of diabetes and its complications. For example, a number of companies are
investigating islet cell transplantation as a possible cure for Type I diabetes.
Results of a study conducted by the National Institutes of Health, known as the
DCCT, published in 1993, showed that tight glucose control reduced the incidence
of diabetic complications. Numerous companies are pursuing methods to control
glucose levels. In addition, several large companies have initiated or expanded
research, development and licensing efforts to build a diabetic pharmaceutical
franchise focusing on diabetic nephropathy, neuropathy, retinopathy and related
conditions. An example of this is research seeking anti-angiogenesis drugs for
the potential treatment of diabetic retinopathy. Furthermore, the Company is
aware of several pharmaceutical companies which are developing thiazolidinedione
derivatives ("glitazones") for the treatment of Type II diabetes. In January
1997, Warner-Lambert Company was given approval and clearance by the FDA for the
marketing of Rezulin(TM) (troglitazone), an anti-diabetic drug designed to
target insulin resistance in Type II diabetes. It is possible that one or more
of these initiatives may reduce or eliminate the market for the Company's
products.
In addition, captopril, a product marketed by Bristol-Myers Squibb
Company, has been approved for Type I diabetics with overt nephropathy. The
patent covering captopril expired in February 1996. Other pharmaceutical
companies have chosen to market and sell this drug, resulting in a substantial
decrease in price. This decline in price for captopril may significantly reduce
or eliminate the market for any product developed by the Company for this
indication.
Uncertainties Related to Pharmaceutical Pricing and Reimbursement
The Company's business, financial condition and results of operations
may be materially adversely affected by the continuing efforts of government and
third-party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing and/or profitability of
prescription pharmaceuticals are subject to government control. In the United
States, the Company expects that there will continue to be federal and state
initiatives to control and/or reduce pharmaceutical expenditures. In addition,
increasing emphasis on managed care in the United States will continue to put
pressure on pharmaceutical pricing. Cost control initiatives could decrease the
price that the Company receives for any products it may develop and sell in the
future and have a material adverse effect on the Company's business, financial
condition and results of operations. Further, to the extent that cost control
initiatives have a material adverse effect on the Company's corporate partners,
the Company's ability to commercialize its products may be adversely affected.
The Company's ability to commercialize pharmaceutical products may
depend in part on the extent to which reimbursement for the products will be
available from government health administration authorities, private health
insurers and other third-party payors. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and third-party
payors, including Medicare, are increasingly challenging the prices charged for
medical products and services. There can be no assurance that any third-party
insurance coverage will be available to patients for any products developed by
the Company. Government and other third-party payors are increasingly attempting
to contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products and by refusing in some cases to
provide coverage for uses of approved products for disease indications for which
the FDA has not granted labeling approval. If adequate coverage and
reimbursement levels are not provided by government and other third-party payors
for the Company's products, the market acceptance of these products would be
adversely affected.
Uncertainties Related to Marketing and Sales
For certain of its products, the Company has licensed exclusive
marketing rights to its corporate partners or formed collaborative marketing
arrangements within specified territories in return for royalties to be received
on sales, a share of profits or beneficial transfer pricing. These agreements
are terminable at the discretion of the
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Company's partners upon as little as 90 days' prior written notice. If the
licensee or marketing partner terminates an agreement or fails to market a
product successfully, the Company's business, financial condition and results of
operations may be adversely affected.
Alteon currently has no experience in marketing or selling
pharmaceutical products. In order to achieve commercial success for any approved
product, Alteon must either develop a marketing and sales force or, where
appropriate or permissible, enter into arrangements with third parties to market
and sell its products. There can be no assurance that Alteon will develop
successfully marketing and sales experience or that it will be able to enter
into marketing and sales agreements with others on acceptable terms, if at all,
or that any such arrangements, if entered into, will not be terminated. If the
Company develops its own marketing and sales capability, it will compete with
other companies that currently have experienced, well funded and larger
marketing and sales operations. To the extent that the Company enters into
co-promotion or other sales and marketing arrangements with other companies, any
revenues to be received by Alteon will be dependent on the efforts of others,
and there can be no assurance that their efforts will be successful.
No Manufacturing Experience; Reliance on Third-Party Manufacturing
The Company has no experience in manufacturing products for commercial
purposes and does not have manufacturing facilities. Consequently, the Company
is dependent on contract manufacturers for the production of products for
development and commercial purposes. The manufacture of the Company's products
for clinical trials and commercial purposes is subject to cGMP regulations
promulgated by the FDA. The Company has contracted or will be contracting with
third parties for the manufacture and distribution of pimagedine. However, in
the event that the Company is unable to obtain or retain third-party
manufacturing for its products, it will not be able to commercialize such
products as planned. There can be no assurance that the Company will be able to
enter into agreements for the manufacture of future products with manufacturers
whose facilities and procedures comply with cGMP and other regulatory
requirements. The Company's current dependence upon others for the manufacture
of its products may adversely affect its profit margin, if any, on the sale of
future products and the Company's ability to develop and deliver such products
on a timely and competitive basis.
Potential Product Liability; Uncertainties Related to Insurance
The use of any of the Company's potential products in clinical trials
and the sale of any approved products, including the testing and
commercialization of pimagedine, may expose the Company to liability claims
resulting from the use of products or product candidates. These claims might be
made directly by consumers, pharmaceutical companies or others. The Company
maintains product liability insurance coverage for claims arising from the use
of its products in clinical trials. However, coverage is becoming increasingly
expensive, and no assurance can be given that the Company will be able to
maintain insurance or, if maintained, that insurance can be acquired at a
reasonable cost or in sufficient amounts to protect the Company against losses
due to liability that could have a material adverse effect on the Company's
business, financial conditions and results of operations. There can be no
assurance that the Company will be able to obtain commercially reasonable
product liability insurance for any product approved for marketing in the future
or that insurance coverage and the resources of the Company would be sufficient
to satisfy any liability resulting from product liability claims. A successful
product liability claim or series of claims brought against the Company could
have a material adverse effect on its business, financial condition and results
of operations.
Attraction and Retention of Key Employees and Consultants
The Company is highly dependent on the principal members of its
management and scientific staff. The loss of services of any of these personnel
could impede the achievement of the Company's development objectives.
Furthermore, recruiting and retaining qualified scientific personnel to perform
research and development work in the future will also be critical to the
Company's success. There can be no assurance that the Company will be able to
attract and retain personnel on acceptable terms given the competition between
pharmaceutical and health care companies, universities and non-profit research
institutions for experienced scientists. In addition, the Company relies on
consultants and members of its Scientific Advisory Board to assist the Company
in formulating its research and development strategy. All of Alteon's
consultants and the members of the Scientific Advisory Board are
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employed outside the Company and may have commitments to or consulting or
advisory contracts with other entities that may limit their availability to the
Company.
Hazardous Materials
The Company's research and development activities involve the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of hazardous 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 an
accident, the Company could be held liable for any damages or fines that result.
Such liability could have a material adverse effect on the Company's business,
financial condition and results of operations.
ITEM 2. PROPERTIES.
The Company leases a 37,000 square foot building in Ramsey, New
Jersey, which contains its executive and administrative offices and research
laboratories. The lease, which commenced on November 1, 1993, has a 10-year
term. In addition, the lease has two five-year renewal options.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "ALTN." The following table sets forth, for the calendar
periods indicated, the range of high and low sale prices for the Common Stock of
the Company on the Nasdaq National Market:
High Low
------ ------
1997
----
First Quarter $6.625 $3.000
Second Quarter 5.125 2.250
Third Quarter 5.875 3.438
Fourth Quarter 9.188 4.500
1998
----
First Quarter $13.125 $4.563
Second Quarter 5.500 3.250
Third Quarter 5.000 2.188
Fourth Quarter 5.500 0.531
As of March 17, 1999, there were 342 holders of the Common Stock, with
beneficial stockholders in excess of 400. On March 17, 1999, the last sale price
reported on the Nasdaq National Market for the Common Stock was $0.875 per
share.
The Company has neither paid nor declared dividends on its Common Stock
since its inception and does not plan to pay dividends in the foreseeable
future. Any earnings which the Company may realize will be returned to finance
the growth of the Company.
In December 1997, the Company and Genentech entered into a stock
purchase agreement pursuant to which Genentech agreed to buy shares of Common
Stock, Series G Preferred Stock and Series H Preferred Stock (the "Securities").
On December 19, 1997 the Company sold to Genentech 837,314 shares of Common
Stock and
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939 shares of Series G Preferred Stock for an aggregate purchase price
of $15,000,000. On July 27, 1998 and October 1, 1998, Genentech purchased
$8,000,000 (800 shares) and $14,544,000 (1,454.37 shares) respectively of Series
H Preferred Stock. The Securities were offered and sold to a single accredited
investor in compliance with the requirements of Rule 506 under the Securities
Act of 1933, and accordingly the transaction was exempt from registration under
such Act. Each share of Series G Preferred Stock is convertible at any time into
a number of shares of Common Stock determined by dividing $10,000 by the average
of the closing sales price of the Common Stock, as reported on the Nasdaq
National Market, for the twenty business days immediately preceding the date of
conversion (the "Conversion Price"). The shares of Series H Preferred Stock will
be convertible on the same basis at any time after the earlier of (i) the
granting of approval by the FDA for the marketing and sale of any pimagedine
product specified in the development collaboration and license agreement between
the Company and Genentech, (ii) termination by Genentech of the development
collaboration and license agreement or, (iii) December 1, 2002. In addition,
subject to certain volume limitations, the Series H Preferred Stock may be
converted at any time when the Company's market capitalization is less than
twice the price paid by Genentech for all shares of Series G Preferred Stock and
Series H Preferred Stock then held by Genentech.
The market prices for securities of biotechnology and pharmaceutical
companies, including Alteon, have historically been highly volatile, and the
market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products by the
Company or others, clinical trial results, developments concerning agreements
with collaborators, governmental regulation, developments in patent or other
proprietary rights, public concern as to safety of drugs developed by the
Company or others, future sales of substantial amounts of Common Stock by
existing stockholders and general market conditions can have an adverse effect
on the market price of the Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below should be read in
conjunction with the audited financial statements and related notes included
elsewhere in this Annual Report on Form 10-K. The selected financial data for
the five years ended December 31, 1998 has been derived from the audited
financial statements of the Company.
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1994 1995 1996 1997 1998
-------- --------- --------- --------- ----------
(in thousands, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues:
Investment income........................ $ 1,797 $ 1,888 $ 2,295 $ 1,510 $ 1,321
Expenses:
Research and development................. 8,573 10,004 17,494 23,264 24,592
Elimination of previously accrued
loss contingency -- -- -- -- (1,771)
General and administrative............... 3,706 3,699 3,517 3,633 4,842
Interest................................. 43 68 47 25 4
-------- -------- -------- -------- --------
Total expenses......................... 12,322 13,771 21,058 26,922 27,667
-------- -------- -------- -------- --------
Net loss.................................... (10,525) (11,883) (18,763) (25,412) (26,346)
Preferred stock dividends
and discount amortization................ -- -- -- 1,091 2,207
-------- -------- -------- -------- --------
Net loss applicable to common
Stockholders............................. $(10,525) $(11,883) $(18,763) $(26,503) $(28,553)
======== ======== ======== ======== ========
Basic loss per share to common
Stockholders............................. $ (0.85) $ (0.90) $ (1.20) $ (1.60) $ (1.57)
======== ======== ======= ======== ========
Diluted loss per share to common
Stockholders............................. $ (0.85) $ (0.90) $ (1.20) $ (1.60) $ (1.57)
======== ======== ======= ======== ========
Weighted average common shares used
in computing basic and diluted loss
per share................................ 12,431 13,170 15,640 16,566 18,211
====== ====== ====== ====== ======
DECEMBER 31,
--------------------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- ---------
(in thousands)
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments ........... $ 36,435 $ 45,197 $ 34,500 $ 28,974 $ 24,132
Working capital ..................... 35,540 44,433 26,542 22,390 20,093
Total assets ........................ 43,612 52,216 40,139 33,508 27,652
Long-term capital lease obligations.. 750 467 162 -- --
Accumulated deficit ................. (22,154) (34,037) (52,800) (79,303) (107,857)
Stockholders' equity ................ 41,214 49,716 31,371 26,455 23,338
27
28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
OVERVIEW
Since its inception in October 1986, Alteon has devoted
substantially all of its resources to its research, drug discovery and
development programs. To date, Alteon has not generated any revenues from the
sale of products and does not expect to generate any such revenues for a number
of years, if at all. Alteon has incurred an accumulated deficit of $107,856,621
as of December 31, 1998 and expects to incur operating losses, potentially
greater than losses in prior years, for a number of years.
Alteon has financed its operations through proceeds from an initial
public offering of Common Stock in 1991, a follow-on offering of Common Stock
completed in 1995, and private placements of common and preferred equity
securities, revenue from its collaborations with HMRI and Yamanouchi,
reimbursement of certain of Alteon's research and development expenses by its
collaborative partners, and investment income earned on cash balances and
short-term investments.
In December 1997, Alteon and Genentech entered into a stock purchase
agreement and a development collaboration and license agreement providing for
the development and marketing of pimagedine and second-generation
A.G.E.-formation inhibitors. In December 1997, Genentech purchased Common Stock
and Series G Preferred Stock for an aggregate purchase price of $15,000,000. On
July 27, 1998 and October 1, 1998, Genentech purchased $8,000,000 and
$14,544,000 respectively, of Series H Preferred Stock.
By letter agreement dated February 11, 1999, Alteon and Genentech
agreed that Genentech's obligations to purchase shares of stock of Alteon
pursuant to the stock purchase agreement terminated effective December 31, 1998.
The letter agreement provides that Genentech will continue to provide funding
(in cash rather than through purchases of Series H Preferred Stock) for
agreed-upon development costs for pimagedine until June 30, 1999.
Although the Company anticipates increased expenditures in research
and development expenses as it develops products and conducts its clinical
trials, a portion of such development expenses are expected to be reimbursed by
Alteon's collaborative partners. Yamanouchi has agreed to fund preclinical
studies, including most toxicology studies, on pimagedine and any other products
that the parties jointly agree to develop, including a second generation
A.G.E.-formation inhibitor and a macrophage stimulator. Gamida conducted, at its
own expense, a Phase II clinical trial in Israel to evaluate pimagedine in
patients with diabetes and elevated serum cholesterol levels, which was
completed in April 1997. Yamanouchi and Gamida do not fund Alteon's research or
early product development expenses.
The Company anticipates that during 1999 it will review with its
corporate partners their arrangements in light of the Company's current
development plans and priorities.
The Company's business is subject to significant risks including,
but not limited to, (i) its ability to obtain funding, (ii) the risks inherent
in its research and development efforts, including clinical trials, (iii)
uncertainties associated both with obtaining and enforcing its patents and with
the patent rights of others, (iv) the lengthy, expensive and uncertain process
of seeking regulatory approvals, (v) uncertainties regarding government reforms
and product pricing and reimbursement levels, (vi) technological change and
competition, (vii) manufacturing uncertainties, and (viii) dependence on
collaborative partners and other third parties. Even if the Company's product
candidates appear promising at an early stage of development, they may not reach
the market for numerous reasons. Such reasons include the possibilities that the
products will prove ineffective or unsafe during clinical trials, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on a
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
28
29
RESULTS OF OPERATIONS
Years Ended December 1998, 1997, 1996
Revenues
Total revenues for 1998, 1997 and 1996 were $1,321,000, $1,510,000
and $2,295,000, respectively. Revenues in 1998, 1997 and 1996 were derived from
interest earned on cash and cash equivalents and short-term investments. The
decrease in investment income in 1998 over 1997 was attributed to the decrease
in cash and cash equivalents and short-term investment balances during most of
1998.
Operating Expenses
The Company's total expenses increased to $27,667,000 in 1998, from
$26,922,000 in 1997 and $21,058,000 in 1996 and consisted primarily of research
and development expenses offset by the elimination of a previously accrued loss
contingency. (See Note 6 of Notes to Financial Statements.) Research and
development expenses, net of reimbursements from its collaborative partners,
were $24,592,000 in 1998, $23,264,000 in 1997 and $17,494,000 in 1996. Research
and development expenses increased in 1998 from 1997 by $1,328,000, or 6%. This
increase was primarily due to increased expenses related to the A.G.E. crosslink
breaker program including Phase I clinical trial costs and the expansion of the
ESRD trial offset by a decrease in the ACTION trial costs due to the termination
of the ACTION II trial. Research and development expenses increased in 1997 from
1996 by $5,770,000, or 33.0% due to the costs associated with ACTION trials
throughout 1997. The Company was reimbursed $1,226,000 in 1996 by its
collaborative partners for research and development expenditures. No amounts
were reimbursed in 1997 and 1998.
General and administrative expenses were $4,842,000 in 1998 as
compared to $3,633,000 in 1997 and $3,517,000 in 1996. The increase in 1998 over
1997 was due to increased personnel related costs, consulting, investor
relations and insurance costs.
Interest expense was $4,000 in 1998, $25,000 in 1997 and $47,000 in
1996. The decrease in interest expense was primarily due to the amortization
schedule for the capital lease arrangement which commenced in June 1994 for
leasehold improvements on the Company's headquarters and research facility.
Net Loss
At December 31, 1998, the Company had available net operating tax
loss carryforwards, which expire in various amounts from the years 2006 through
2013, of approximately $98 million for income tax purposes. In addition, the
Company had research and development credit carryforwards of approximately $6
million. The Company had net losses of $26,346,000 in 1998, $25,412,000 in 1997
and $18,763,000 in 1996.
The Company does not believe that inflation has had a material
impact on the results of its operations.
LIQUIDITY AND CAPITAL RESOURCES
Alteon had cash and cash equivalents and short-term investments at
December 31, 1998 of $24,132,000 compared to $28,974,000 at December 31, 1997.
This is a decrease in cash and cash equivalents and short-term investments for
the twelve months ended December 31, 1998 of $4,842,000. This consisted of
$27,567,000 of cash used in operations consisting primarily of research and
development expenses, personnel and related costs and facility expenses and
$481,000 of capital expenditures. This was offset by $22,578,000 of financing
activities primarily related to the sale of Preferred Stock to Genentech and the
reclassification of restricted cash of $620,000. In June 1998, in accordance
with a new lease agreement the escrow funds were returned to the Company. As of
December 31, 1998, Alteon had invested $7,820,000 in capital equipment and
leasehold improvements.
The Company's research and development expenses, to date, have been
funded primarily by research and development collaborative arrangements and
sales of equity securities. In programs that are subject to joint development
agreements, the Company expects to incur substantial additional research and
development costs,
29
30
including costs related to drug discovery, preclinical research and clinical
trials. The Company anticipates that it will be able to offset a portion of its
research and development expenses and its clinical development expenses with
funding from its collaborative partners.
Alteon anticipates that its existing available cash and cash
equivalents and short term investments will be adequate to satisfy its working
capital requirements for its current and planned operations into 2000.
In December 1997, Alteon and Genentech entered into a stock purchase
agreement and a development collaboration and license agreement providing for
the development and marketing of pimagedine and second-generation
A.G.E.-formation inhibitors. In December 1997, Genentech purchased Common Stock
and Series G Preferred Stock for an aggregate purchase price of $15,000,000. On
July 27, 1998 and October 1, 1999, Genentech purchased $8,000,000 and
$14,544,000 respectively, of Series H Preferred Stock.
By letter agreement dated February 11, 1999, Alteon and Genentech
agreed that Genentech's obligations to purchase shares of stock of Alteon
pursuant to the stock purchase agreement terminated effective December 31, 1998.
The letter agreement provides that Genentech will continue to provide funding
(in cash rather than through purchases of Series H Preferred Stock) for
agreed-upon development costs for pimagedine until June 30, 1999.
The amount of the Company's future capital requirements will depend
on numerous factors, including the progress of the Company's research and
development programs, the conduct of preclinical tests and clinical trials, the
development of regulatory submissions, the costs associated with protecting
patents and other proprietary rights, the development of marketing and sales
capabilities and the availability of third party funding.
Because of the Company's long-term capital requirements, it may seek
access to the public or private equity markets whenever conditions are
favorable. The Company may also seek additional funding through corporate
collaborations and other financing vehicles, potentially including off-balance
sheet financing through limited partnerships or corporations. There can be no
assurance that such funding will be available at all or on terms acceptable to
the Company. If adequate funds are not available, the Company may be required to
curtail significantly one or more of its research or development programs. If
the Company obtains funds through arrangements with collaborative partners or
others it may be required to relinquish rights to certain of its technologies or
product candidates.
Alteon's corporate partners may develop, either alone or with
others, products that compete with the development and marketing of the
Company's products. Competing products, either developed by the corporate
partners or to which the corporate partners have rights, may result in their
withdrawal of support with respect to all or a portion of the Company's
technology, which would have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company's current priorities are the evaluation and possible
continued development of pimagedine and the development of ALT-711, its lead
A.G.E. crosslink breaker candidate. If the Company decides to continue the
development of pimagedine after its consultations with the FDA, it expects to
seek one or more corporate partners to provide necessary funding. The Company is
actively seeking one or more corporate partners to help fund the development of
ALT-711. The Company believes that additional development of this compound and
other product candidates will require the Company to find sources of funding.
The Company had received notification from the Nasdaq Stock Market,
Inc. ("Nasdaq") that the Company is not presently in compliance with the Nasdaq
maintenance standard which requires that the Company's Common Stock maintain a
closing bid price of greater than or equal to $1.00. Pursuant to the Nasdaq
rules the Company has ninety (90) calendar days in which to regain compliance
with this requirement. During this time the Company's Common Stock will continue
to be listed on Nasdaq. If within this period the Common Stock complies with the
closing bid price requirement for a minimum of ten (10) consecutive trading
days, the Common Stock will continue to be listed on Nasdaq at the end of the
ninety (90) day period. If the Company is unable to comply with this requirement
on or before the end of the ninety (90) day period ending June 22, 1999, the
Company's Common Stock will be delisted from Nasdaq effective at the opening of
business on June 24, 1999. No assurance can be given that the Common Stock will
meet the closing bid price requirement during this period. Delisting could have
30
31
a material adverse effect on the Company and its ability to raise additional
capital on favorable terms as well as on stockholder liquidity.
The Company is conducting a review of its computer systems to
identify any issues which may result from the year 2000 date recognition
problem, which is the result of computer programs being written using two digits
rather than four to define the applicable year. The Company believes that with
minor modifications to its systems, which it expects to complete before December
31, 1999, the year 2000 issue will not pose significant operation problems for
its internal computer systems as so modified. The year 2000 assessments and
modifications are generally being done in-house. Therefore, the primary costs
associated with this project are included in payroll expenditures.
The Company is assessing the possible effect on its operations of
year 2000 problems faced by its third party vendors. The Company believes that
the primary area in which its operations could be materially affected by year
2000 problems of its vendors relates to its use of contract research
organizations ("CROs") to provide services in connection with portions of its
clinical trials. The CROs have advised the Company that they are addressing the
year 2000 compliance issue and are in the process of assessing their systems
which may be vulnerable to the year 2000 issue. The Company continues to monitor
their readiness. However, if year 2000 problems prevent the CROs from performing
their work for the Company, the Company will not be able to develop internal
systems to replace the CROs and will have to find other CROs which are able to
perform. As a result, the Company could incur substantial delays in its clinical
trials. In addition, power failures caused by year 2000 problems faced by
utilities could compromise animal studies in progress at the Company's
facilities. This could cause material delays in the Company's research and
development programs.
The Company's operations and financial conditions could be adversely
and materially affected by other year 2000 problems including, without
limitation, (i) unexpected failures by third party vendors, (ii) failures by
governmental agencies causing delays in approval of new products, (iii) failures
in global banking systems and capital markets, and (iv) failures to identify
year 2000 problems in critical systems within the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment in marketable securities. The
Company does not use derivative financial instruments in its investments. The
Company's investments consist primarily of debt instruments of the U.S.
government, government agencies, financial institutions and corporations with
strong credit ratings. The table below presents principal amounts and related
weighted average interest rates expected by maturity date for the Company's
investment portfolio.
1999 2000 2001 2002 2003 Thereafter
---- ---- ---- ---- ---- ----------
Assets
------
Cash equivalents:
Fixed rate.................. $10,839,586 -- -- -- -- --
Average interest rate....... 5.38% -- -- -- -- --
Short-term investments:
Fixed rate.................. $13,292,666 -- -- -- -- --
Average interest rate....... 5.57% -- -- -- -- --
Total investment securities: $24,132,252 -- -- -- -- --
Average interest rate....... 5.48% -- -- -- -- --
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required to be filed pursuant to this Item 8
are appended to this Annual Report on Form 10-K. A list of the financial
statements filed herewith is found at "Index to Financial Statements and
Schedules" on page F-1.
31
32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
For information concerning this item, see the information under
"Election of Directors," "Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement to be filed
with respect to the Annual Meeting of Stockholders to be held on June 2, 1999,
which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
For information concerning this item, see the information under
"Executive Compensation" in the Company's Proxy Statement to be filed with
respect to the Annual Meeting of Stockholders to be held on June 2, 1999, which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information concerning this item, see the information under
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement to be filed with respect to the Annual Meeting of
Stockholders to be held on June 2, 1999, which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information concerning this item, see the information under
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement to be filed with respect to the Annual Meeting of Stockholders to be
held on June 2, 1999, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Financial Statements.
The Company's audited financial statements, financial statement
schedules and the Report of Independent Public Accountants are appended to this
Annual Report on Form 10-K. Reference is made to the Index to Financial
Statements and Schedules on page F-1.
(b) Reports on Form 8-K.
On November 16, 1998, the Company filed a current report on Form 8-K
under Item 5 which reported the preliminary analysis of data from the Company's
clinical trial of pimagedine in Type I diabetic patients with overt nephropathy.
(c) Exhibits.
The exhibits required to be filed are listed on the Index to Exhibits
attached hereto, which is incorporated herein by reference.
32
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 30th day of March
1999.
ALTEON INC.
By: /s/ Kenneth I. Moch
-------------------
Kenneth I. Moch
President and Chief Executive Officer
33
34
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Mark Novitch Chairman of the Board March 30 , 1999
- -----------------------
Mark Novitch
/s/ Kenneth I. Moch President and Chief Executive Officer March 30, 1999
- ----------------------- (principal executive officer)
Kenneth I. Moch
/s/ Elizabeth O'Dell Vice President, Finance and Administration, Secretary and March 30, 1999
- ----------------------- Treasurer (principal finance and accounting officer)
Elizabeth O'Dell
/s/ Marilyn G. Breslow Director March 30, 1999
- -----------------------
Marilyn G. Breslow
/s/ Robert N. Butler Director March 30, 1999
- -----------------------
Robert N. Butler
/s/ Anthony Cerami Director March 30, 1999
- -----------------------
Anthony Cerami
/s/ Alan J. Dalby Director March 30, 1999
- -----------------------
Alan J. Dalby
/s/ David McCurdy Director March 30, 1999
- -----------------------
David McCurdy
34
35
Form 10-K - Item 14(a) (1)
Alteon Inc.
List of Financial Statements
Page
The following financial statements of Alteon Inc. are included in Item 8:
Report of independent public accountants - Arthur Andersen LLP ..............F-2
Financial statements:........................................................F-3
Balance sheets as of December 31, 1997 and 1998.........................F-3
Statements of operations for the years ended December 31, 1996,
1997 and 1998...........................................................F-4
Statements of stockholders' equity for the period from December
31, 1996 to December 31, 1998...........................................F-5
Statements of cash flows for the years ended December 31, 1996,
1997 and 1998...........................................................F-6
Notes to financial statements ..................................F-7 -- F-14
F-1
36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Alteon Inc.:
We have audited the accompanying balance sheets of Alteon Inc. (a Delaware
corporation) as of December 31, 1997 and 1998, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. 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 Alteon Inc. as of December 31,
1997 and 1998, and the results of its operations and cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 16, 1999
F-2
37
ALTEON INC.
BALANCE SHEETS
DECEMBER 31,
---------------------------------
1997 1998
------------ -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................................... $ 20,423,675 $ 10,839,586
Short-term investments ........................................................ 8,550,063 13,292,666
Other current assets .......................................................... 468,680 274,145
------------ -------------
Total current assets ....................................................... 29,442,418 24,406,397
Property and equipment, net ..................................................... 3,183,362 2,985,156
Deposits and other assets ....................................................... 261,358 260,080
Restricted cash ................................................................. 620,400 --
------------ -------------
Total assets ................................................................. $ 33,507,538 $ 27,651,633
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................................. $ 921,637 $ 1,035,417
Accrued expenses .............................................................. 5,969,384 3,277,858
Obligations under capital leases .............................................. 161,581 --
------------ -------------
Total liabilities .......................................................... 7,052,602 4,313,275
------------ -------------
CONTINGENCIES AND COMMITMENTS (NOTES 3 AND 6)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,993,086 shares authorized
and 942 and 771 of Series G, 0 and 2,315 of Series H shares
issued and outstanding as of December 31, 1997 and
1998, respectively .......................................................... 9 31
Common stock, $.01 par value; 30,000,000 shares
authorized and 17,922,319 and 18,814,740 shares issued and
outstanding as of December 31, 1997 and 1998, respectively .................. 179,223 188,147
Additional paid-in capital .................................................... 105,585,019 131,005,033
Accumulated deficit ........................................................... (79,303,374) (107,856,621)
Accumulated other comprehensive income/(loss) ................................. (5,941) 1,768
------------ -------------
Total stockholders' equity ................................................. 26,454,936 23,338,358
------------ -------------
Total liabilities and stockholders' equity ...................................... $ 33,507,538 $ 27,651,633
============ =============
See accompanying notes to financial statements
F-3
38
ALTEON INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 1998
------------ ------------ ------------
Revenues:
Investment income ................................ $ 2,295,394 $ 1,510,673 $ 1,320,538
Expenses:
Research and development ......................... 17,494,193 23,264,385 24,591,769
Elimination of previously accrued loss
contingency.................................... -- -- (1,770,975)
General and administrative ....................... 3,516,599 3,632,917 4,842,176
Interest ......................................... 47,394 25,061 3,610
------------ ------------ ------------
Total expenses ................................ 21,058,186 26,922,363 27,666,580
------------ ------------ ------------
Net loss ........................................... (18,762,792) (25,411,690) (26,346,042)
------------ ------------ ------------
Preferred stock dividends and discount amortization -- 1,091,401 2,207,205
------------ ------------ ------------
Net loss applicable to common stockholders ......... $(18,762,792) $(26,503,091) $(28,553,247)
============ ============ ============
Basic loss per share to common stockholders ........ $ (1.20) $ (1.60) $ (1.57)
============ ============ ============
Diluted loss per share to common stockholders ...... $ (1.20) $ (1.60) $ (1.57)
============ ============ ============
Weighted average common shares used in
computing basic and diluted loss per share ..... 15,640,399 16,566,290 18,210,902
============ ============ ============
See accompanying notes to financial statements
F-4
39
ALTEON INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock
-------------------- ---------------------------
Shares Amount Shares Amount
-------- ------- ---------- -------------
Balance, December 31, 1995 ................. -- -- 15,387,985 $153,880
Net loss ............................... -- -- -- --
Change in unrealized losses ............ -- -- -- --
Comprehensive loss ..................... -- -- -- --
Exercise of employee stock options ..... -- -- 314,840 3,148
Deferred compensation expense in
connection with the issuance
of non-qualified stock options ..... -- -- -- --
----- ----- ---------- --------
Balance, December 31, 1996 ................. -- -- 15,702,825 157,028
Net loss ............................... -- -- -- --
Change in unrealized losses ............ -- -- -- --
Comprehensive loss ..................... -- -- -- --
Issuance of 6%, cumulative preferred
stock valued at $1,000 per share,
net of transaction costs ........... 5,000 50 -- --
Conversion of all 6%, cumulative
convertible preferred
stock to common stock .............. (5,000) (50) 1,203,099 12,031
Preferred stock discount
amortization ....................... -- -- -- --
Issuance of Series G preferred stock
valued at $10,000 per share to
Genentech, Inc., net of
transaction costs .................. 939 9 -- --
Issuance of Series G preferred
stock dividends .................... 3 -- -- --
Issuance of common stock to
Genentech, Inc. ................... -- -- 837,314 8,373
Exercise of employee stock options ..... -- -- 179,081 1,791
Deferred compensation expense in
connection with the issuance of
non-qualified stock options
and options granted to non-employees -- -- -- --
----- ----- ---------- --------
Balance, December 31, 1997 ................. 942 9 17,922,319 179,223
Net loss ............................... -- -- -- --
Change in unrealized losses ............ -- -- -- --
Comprehensive loss ..................... -- -- -- --
Issuance of Series H preferred stock
valued at $10,000 per share to
Genentech, Inc., net of
transaction costs .................. 2,254 23 -- --
Issuance of Series G and H preferred
stock dividends .................... 133 1 -- --
Conversion of Series G preferred
stock to common stock .............. (243) (2) 822,204 8,222
Preferred stock discount
amortization ....................... -- -- -- --
Exercise of employee stock options ..... -- -- 70,217 702
Deferred compensation expense in
connection with the issuance of
non-qualified stock options
and options granted to
non-employees ...................... -- -- -- --
----- ----- ---------- --------
Balance, December 31, 1998 ................. 3,086 $ 31 18,814,740 $188,147
===== ===== ========== ========
40
ALTEON INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
Accumulated
Additional Other Total
Paid-in Accumulated Comprehensive Stockholders'
Capital Deficit Income/(Loss) Equity
------------- ------------- -------------- -------------
Balance, December 31, 1995 ................. $ 83,607,054 $ (34,037,491) $ (7,706) $ 49,715,737
Net loss ............................... -- (18,762,792) -- (18,762,792)
Change in unrealized losses ............ -- -- 3,989 3,989
-------------
Comprehensive loss ..................... -- -- -- (18,758,803)
-------------
Exercise of employee stock options ..... 381,560 -- -- 384,708
Deferred compensation expense in
connection with the issuance
of non-qualified stock options ..... 29,532 -- -- 29,532
------------ ------------- ------ -----------
Balance, December 31, 1996 ................. 84,018,146 (52,800,283) (3,717) 31,371,174
Net loss ............................... -- (25,411,690) -- (25,411,690)
Change in unrealized losses ............ -- -- (2,224) (2,224)
-------------
Comprehensive loss ..................... -- -- -- (25,413,914)
-------------
Issuance of 6%, cumulative preferred
stock valued at $1,000 per share,
net of transaction costs ........... 4,812,277 -- -- 4,812,327
Conversion of all 6%, cumulative
convertible preferred
stock to common stock .............. (12,014) -- -- (33)
Preferred stock discount
amortization ....................... 1,065,161 (1,065,161) -- --
Issuance of Series G preferred stock
valued at $10,000 per share to
Genentech, Inc., net of
transaction costs .................. 9,266,313 -- -- 9,266,322
Issuance of Series G preferred
stock dividends .................... 26,240 (26,240) -- --
Issuance of common stock to
Genentech, Inc. ................... 5,601,627 -- -- 5,610,000
Exercise of employee stock options ..... 119,165 -- -- 120,956
Deferred compensation expense in
connection with the issuance of
non-qualified stock options
and options granted to non-employees 688,104 -- -- 688,104
------------ ------------- ------ -----------
Balance, December 31, 1997 ................. 105,585,019 (79,303,374) (5,941) 26,454,936
Net loss ............................... -- (26,346,042) -- (26,346,042)
Change in unrealized losses ............ -- -- 7,709 7,709
-------------
Comprehensive loss ..................... -- -- -- (26,338,333)
-------------
Issuance of Series H preferred stock
valued at $10,000 per share to
Genentech, Inc., net of
transaction costs .................. 22,543,706 -- -- 22,543,729
Issuance of Series G and H preferred
stock dividends .................... 1,327,768 (1,327,768) -- 1
Conversion of Series G preferred
stock to common stock .............. (8,220) -- -- --
Preferred stock discount
amortization ....................... 879,437 (879,437) -- --
Exercise of employee stock options ..... 195,451 -- -- 196,153
Deferred compensation expense in
connection with the issuance of
non-qualified stock options
and options granted to
non-employees ...................... 481,872 -- -- 481,872
------------ ------------- ------ -----------
Balance, December 31, 1998 ................. $131,005,033 $(107,856,621) $1,768 $23,338,358
============ ============= ====== ===========
See accompanying notes to financial statements
F-5
41
ALTEON INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1996 1997 1998
-------------- -------------- -------------
Cash Flows from Operating Activities:
Net loss ................................................... $ (18,762,792) $ (25,411,690) $ (26,346,042)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................ 790,770 711,839 678,773
Amortization of deferred compensation ................ 29,532 688,104 481,872
Changes in operating assets and liabilities:
Receivables from corporate partner ................ 602,999 -- --
Other current assets .............................. 18,216 180,489 194,535
Other assets ...................................... (13,674) 5,613 1,278
Accounts payable and accrued expenses ............. 6,550,303 (1,409,900) (2,577,746)
------------- ------------- -------------
Net cash used in operating activities ............. (10,784,646) (25,235,545) (27,567,330)
------------- ------------- -------------
Cash Flows from Investing Activities:
Capital expenditures ....................................... (376,624) (21,187) (480,566)
Purchases of marketable securities ......................... (104,285,343) (105,272,696) (115,976,783)
Sales and maturities of marketable securities .............. 132,292,363 112,934,079 111,241,889
Restricted cash ............................................ 103,400 103,400 620,400
------------- ------------- -------------
Net cash provided by (used in) investing activities 27,733,796 7,743,596 (4,595,060)
------------- ------------- -------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock ..................... 384,708 5,730,956 196,153
Proceeds from issuance of preferred stock .................. -- 14,078,616 22,543,729
Payments under capital lease obligations ................... (282,990) (305,317) (161,581)
Proceeds from sales-leaseback financing .................... 254,975 125,516 --
------------- ------------- -------------
Net cash provided by financing activities ......... 356,693 19,629,771 22,578,301
------------- ------------- -------------
Net (decrease)/increase in cash and cash equivalents ......... 17,305,843 2,137,822 (9,584,089)
Cash and cash equivalents, beginning of period ............... 980,010 18,285,853 20,423,675
------------- ------------- -------------
Cash and cash equivalents, end of period ..................... $ 18,285,853 $ 20,423,675 $ 10,839,586
============= ============= =============
Supplemental disclosures of cash flow information:
Cash paid for interest ............................ $ 47,394 $ 25,061 $ 3,610
============= ============= =============
See accompanying notes to financial statements
F-6
42
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Alteon Inc. (the "Company") was founded in 1986 and is engaged in the
discovery and development of novel therapeutic and diagnostic products to treat
the complications of diabetes and age-related diseases. The Company conducts its
business in one operating segment. The Company's products are designed to
inhibit, measure and reverse damage to cells, tissues and organs caused by
Advanced Glycosylation End-product ("A.G.E.") formation and cross-linking
resulting from glucose in the body's circulatory system. All of the Company's
products are in research or development, and no revenues have been generated
from product sales. The Company is currently conducting a pivotal Phase III
clinical trial evaluating pimagedine as a treatment for diabetic end-stage renal
disease. In addition, in November 1998, the Company announced that a preliminary
analysis of the Phase III ACTION I trial of pimagedine in Type I diabetic
patients with overt nephropathy showed that the data from the trial's primary
endpoint did not reach statistical significance on an intent to treat analysis.
The Company is continuing its evaluation of pimagedine and expects to hold
discussions with the FDA about the future status of the compound. The Company's
lead A.G.E. crosslink breaker, ALT-711, is expected to begin Phase II clinical
trials in 1999.
The Company's business is subject to significant risks including, but
not limited to, (i) its ability to obtain funding, (ii) the risks inherent in
its research and development efforts, including clinical trials, (iii)
uncertainties associated both with obtaining and enforcing its patents and with
the patent rights of others, (iv) the lengthy, expensive and uncertain process
of seeking regulatory approvals, (v) uncertainties regarding government reforms
and product pricing and reimbursement levels, (vi) technological change and
competition, (vii) manufacturing uncertainties, and (viii) dependence on
collaborative partners and other third parties. Even if the Company's product
candidates appear promising at an early stage of development, they may not reach
the market for numerous reasons. Such reasons include the possibilities that the
products will prove ineffective or unsafe during clinical trials, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on a
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
Pervasiveness 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 those estimates.
Cash and Cash Equivalents and Short-Term Investments
Cash and cash equivalents include cash and highly liquid investments
which have a maturity of less than three months at the time of purchase.
Short-term investments are recorded at fair market value. As of December 31,
1998, short-term investments were invested in debt instruments of the U.S.
government, government agencies, financial institutions and corporations with
strong credit ratings. They consist of the following:
DECEMBER 31,
------------
1997 1998
---- ----
U.S. Government Agency Funds ... $ 8,550,063 $ 8,107,933
Corporate Obligations .......... -- 5,184,733
----------- -----------
$ 8,550,063 $13,292,666
=========== ===========
These amounts represent market value of the short-term investments at
December 31, 1997 and December 31, 1998. The amortized cost of these short-term
investments was $8,552,658 and $13,291,910 at December 31, 1997 and December 31,
1998, respectively.
F-7
43
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed using the straight-line method over the useful lives
of owned assets which range from three to five years. Leasehold improvements and
equipment under capital leases are amortized using the straight-line method over
the shorter of the lease term or the useful life of the assets.
Patent Costs
Patent costs are expensed as incurred.
Research and Development
Expenditures for research and development are charged to operations as
incurred. Research and development expenditures were $17,494,000, $23,264,000
and $24,592,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. The Company was reimbursed $1,226,000 in 1996 by its collaborative
partners for research and development expenditures. No amounts were reimbursed
in 1997 and 1998. (See Note 4.)
Net Loss Per Share
Basic loss per share is based on the average numbers of shares
outstanding during the year. Diluted loss per share is the same as basic loss
per share, as the inclusion of common stock equivalents would be antidilutive.
New Accounting Pronouncements
In June 1998, SFAS No. 133 - "Accounting for Derivative Instruments and
Hedging Activities" was issued and is effective for fiscal years beginning after
June 15, 1999 although earlier application is permitted. SFAS No. 133 is not
expected to have a material impact on the Company's financial position or
results of operations. In February 1998, Statement of Position (SOP) 98-1 -
"Accounting for Costs of Computer Software Developed or Purchased for Internal
Use" was issued and is effective for fiscal years beginning after December 15,
1998. SOP 98-1 is not expected to have a material impact on the Company's
financial position or results of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to current
year presentation. Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standard (SFAS) No. 130 - Reporting Comprehensive Income.
This standard increased financial reporting disclosures and had no impact on the
Company's financial position or results of operations. Certain reclassifications
have been made to the December 31, 1997 and 1996 Consolidated Financial
Statements to conform with the financial reporting requirements of SFAS No. 130.
NOTE 2 -- PROPERTY AND EQUIPMENT
DECEMBER 31,
------------
1997 1998
---- ----
Laboratory equipment ......................... $ 1,225,485 $ 1,324,828
Furniture and equipment ...................... 675,965 681,362
Computer equipment ........................... 548,779 598,920
Leasehold improvements ....................... 4,908,545 5,215,069
----------- -----------
7,358,774 7,820,179
Less: Accumulated depreciation & amortization (4,175,412) (4,835,023)
----------- -----------
$ 3,183,362 $ 2,985,156
=========== ===========
F-8
44
NOTE 2 -- PROPERTY AND EQUIPMENT (CONTINUED)
Laboratory equipment and furniture include approximately $1,136,000
under capital leases at December 31,1997. Accumulated amortization relating to
leased assets totaled approximately $432,000 at December 31, 1997. (See Note 5.)
NOTE 3 -- COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENTS
Genentech, Inc. ("Genentech")
In December 1997, Alteon and Genentech entered into a stock purchase
agreement and a development collaboration and license agreement providing for
the development and marketing of pimagedine and second-generation
A.G.E.-formation inhibitors. In December 1997, Genentech purchased Common Stock
and Series G Preferred Stock for an aggregate purchase price of $15,000,000. The
use of these funds was unrestricted to the Company. The agreement provided for
Genentech to fund the continued development of pimagedine and support possible
additional clinical trials for expanded indications of the drug through the
periodic purchase of up to $48,000,000 in Series H Preferred Stock. As of
October 1998, Genentech had purchased $22,544,000 of Series H Preferred Stock.
The agreements also provide for Genentech to fund agreed-upon development costs
for second-generation A.G.E.-formation inhibitors.
Pursuant to the development collaboration and license agreement, Alteon
granted Genentech an exclusive license to use and sell pimagedine in all areas
of the world except for Japan, China, South Korea and Taiwan, territories
covered under Alteon's agreement with Yamanouchi, and Israel, Jordan, Bulgaria,
Cyprus and South Africa, territories covered under Alteon's agreement with
Gamida (the "Genentech Territory"). Alteon also granted Genentech an exclusive
license to use and sell second-generation A.G.E.-formation inhibitor products
(and any future Alteon compounds in this class), to be selected by Genentech
after review of Alteon's A.G.E-formation inhibitor portfolio, in the Genentech
Territory. The license provided that Alteon receive cash payments from Genentech
upon meeting certain milestones and royalties on net sales of pimagedine and
second-generation A.G.E.-formation products within the Genentech Territory.
By letter agreement dated February 11, 1999, Alteon and Genentech
agreed that the development collaboration and license agreement will terminate
effective June 30, 1999 unless prior to that date the parties agree to amend the
agreement. The parties further agreed that Genentech's obligations to purchase
shares of stock of Alteon, pursuant to the stock purchase agreement, terminated
effective December 31, 1998. The letter agreement provides that Genentech will
continue to provide funding (in cash rather than through purchases of Series H
Preferred Stock) for agreed-upon development costs for pimagedine until June 30,
1999.
NOTE 4 -- OTHER DEVELOPMENT AGREEMENTS
In 1989, the Company and Yamanouchi Pharmaceutical Co., Ltd.
("Yamanouchi") formed a strategic alliance to develop and commercialize the
Company's A.G.E. technology. Under this arrangement, the parties agreed to
collaborate on further research and development, and the Company granted to
Yamanouchi an exclusive license to commercialize the Company's technology in
Japan, South Korea, Taiwan and The People's Republic of China.
In December 1994, the Company entered into an exclusive licensing
arrangement for Alteon's diagnostic technology with Roche Diagnostic GmbH,
formerly Corange International Limited, acting through its subsidiary Boehringer
Mannheim Diagnostics ("Roche"). Under the agreement, Roche received exclusive
worldwide rights to Alteon's technology for diagnostics application, subject to
an option held by Yamanouchi for Japan, South Korea, Taiwan and The People's
Republic of China. Yamanouchi is Alteon's exclusive licensee for its A.G.E.
technology in the aforementioned countries. Pursuant to the agreement, Alteon
received an initial payment in January 1995, and will be entitled to receive
ongoing royalties based on net sales of research test kits and commercial assays
developed by Roche which are based on Alteon's A.G.E. technology.
F-9
45
NOTE 4 -- OTHER DEVELOPMENT AGREEMENTS (CONTINUED)
In June 1995, the Company obtained an exclusive, worldwide,
royalty-bearing license from Washington University for patents covering the use
of pimagedine as an inhibitor of inducible nitric oxide synthase. The agreement
requires the Company to pay certain licensing fees upon the attainment of
development milestones as well as a royalty on net sales or a share of
sub-licensing profits of products covered by the patents. The license also
covers patents developed through any subsequent research collaboration between
the parties which is funded by Alteon.
In November 1995, the Company entered into clinical testing and
distribution agreements with Gamida for Life ("Gamida"), formerly Eryphile BV.
Under these agreements, Gamida conducted, at its own expense, a Phase II
multi-site clinical trial in Israel, in accordance with the protocol developed
by Alteon, evaluating pimagedine in patients with diabetes and elevated serum
cholesterol levels. Gamida will receive the exclusive right to distribute
pimagedine, if successfully developed and approved for marketing, in Israel,
Bulgaria, Cyprus, Jordan and South Africa. The distribution agreement is for a
term ending 10 years after the date of regulatory approval for the sale of
pimagedine in Israel; thereafter, it will be automatically renewed for
successive three-year periods unless terminated by either party on the last day
of the initial or a renewal term.
In June 1997, Alteon entered into a license and supply agreement with
IDEXX Laboratories, Inc. ("IDEXX") pursuant to which Alteon licensed to IDEXX
pimagedine as a potential therapeutic in companion animals (dogs, cats and
horses) and its A.G.E. diagnostics technology for companion animal use. IDEXX
will be responsible for the development, licensing and marketing of pimagedine
and A.G.E. diagnostics for such use on a worldwide basis. Alteon will be
entitled to receive milestone payments and royalties on sales of the licensed
products.
The Company anticipates that during 1999 it will review with its
corporate partners their arrangements in light of the Company's current
development plans and priorities.
Alteon's commercial partners may develop, either alone or with others,
products that compete with the development and marketing of the Company's
products. Competing products, either developed by the commercial partners or to
which the commercial partners have rights, may result in their withdrawal of
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has also entered into various arrangements with independent
research laboratories to conduct studies in conjunction with the development of
the Company's technology. The Company receives certain rights to inventions or
discoveries that may arise from this research. (See Note 9.)
NOTE 5 -- ACCRUED EXPENSES
DECEMBER 31,
------------
1997 1998
---- ----
Accrued clinical trial expense (See Note 6) $4,515,983 $1,958,457
Accrued payroll and related expenses ...... 429,316 670,946
Accrued consultants/contracts ............. 338,737 16,767
Accrued rent .............................. 320,323 265,410
Accrued professional ...................... 151,445 197,161
Accrued patent ............................ 140,252 48,215
Accrued relocation ........................ 12,203 --
Other ..................................... 61,125 120,902
---------- ----------
$5,969,384 $3,277,858
========== ==========
The Company's headquarters and research facility rent is being expensed
on a straight-line basis over the ten-year lease period. (See Note 6.)
F-10
46
NOTE 6 -- CONTINGENCIES AND COMMITMENTS
Contingencies
In December 1990, the Company and Marion Merrell Dow, Inc., which was
subsequently acquired by an affiliate of Hoechst AG and renamed Hoechst Marion
Roussel, Inc. ("HMRI"), formed a strategic alliance to develop and commercialize
the Company's A.G.E. technology for therapeutics in the areas of diabetic and
aging complications. In 1996, HMRI ended the collaboration as a result of HMRI's
continuing prioritization of its new product pipeline, and the Company regained
all rights granted to HMRI covering the Company's technology. In June 1998, the
Company and HMRI resolved various open issues arising from the termination of
their collaboration. As a result, the previously established accrual in the
amount of $1.8 million has been eliminated and credited to the Statement of
Operations.
Commitments
The Company leases its headquarters and research facility and related
equipment and furniture under non-cancelable operating leases. As of December
31, 1998 future minimum rentals under operating leases that have initial or
remaining non-cancelable terms in excess of one year are as follows:
OPERATING
LEASES
---------
1999 ................................... $ 743,258
2000 ................................... 599,410
2001 ................................... 536,500
2002 ................................... 536,500
2003 ................................... 447,083
Thereafter ............................. --
----------
$2,862,751
==========
Rent expense for each of the years in the three-year period ended
December 31, 1998, was $570,612, $573,962 and $584,510, respectively. In 1994,
the Company entered into a sales-leaseback transaction for certain headquarters
and research facility assets (principally, leasehold improvements) generating
proceeds of $1,136,037. The related lease was accounted for as a capital lease
payable over four years with 7.6% interest. In June 1998, the Company exercised
its purchase option on this lease.
As of December 31, 1997, the Company had restricted cash of $620,400
which represented the escrow amount related to the Company's leased headquarters
and research facility. In June 1998, in accordance with a new lease agreement
the escrow funds were returned to the Company.
NOTE 7 -- STOCKHOLDERS' EQUITY
Common/Preferred Stock Issuances
On November 1, 1991, the Company completed an initial public offering
of Common Stock with net proceeds to the Company of $47,406,581. In conjunction
with the offering, all of the then outstanding shares of Preferred Stock were
converted into 6,725,627 shares of Common Stock.
In October and November 1995, the Company completed a follow-on
offering of Common Stock, which included the sale of 2,000,000 shares and
300,000 shares, respectively, at a price of $9.00 per share which provided net
proceeds to the Company of $19,035,000.
On April 24, 1997, the Company raised $4.8 million net of offering
costs, through the issuance of 5,000 shares of its $0.01 par value, 6%
Cumulative Convertible Preferred Stock ("Preferred Stock"). This stock was
convertible at a discount to market. In connection with this issuance, the
Company issued to the purchasers,
F-11
47
NOTE 7 -- STOCKHOLDERS' EQUITY (CONTINUED)
warrants to purchase 60,000 shares of its Common Stock at an exercise price of
$4.025 per share. As of December 1997, all the Preferred Stock has been
converted and approximately $1,065,000 of Preferred Stockholder Dividends were
recorded which included the amortization of the conversion discount and
warrants, and the 6% preferred dividends.
In December 1997, the Company and Genentech entered into a stock
purchase agreement pursuant to which Genentech agreed to buy shares of Common
Stock, Series G Preferred Stock and Series H Preferred Stock. (See Note 3.) In
December 1997, Genentech purchased Common Stock and Series G Preferred Stock for
an aggregate purchase price of $15,000,000. On July 27, 1998 and October 1,
1998, Genentech purchased $8,000,000 and $14,544,000 respectively, of Series H
Preferred Stock. As of December 31, 1998, approximately $2,207,000 of Preferred
Stockholder Dividends and amortization of Preferred Stock conversion discount
were recorded. Series G Preferred Stock and Series H Preferred Stock Dividends
are payable quarterly in shares at a rate of 8.5%. Each share of Series G
Preferred Stock is convertible at any time into a number of shares of Common
Stock determined by dividing $10,000 by the average of the closing sales price
of the Common Stock, as reported on the Nasdaq National Market for the twenty
business days immediately preceding the date of conversion (the "Conversion
Price"). The shares of Series H Preferred Stock will be convertible on the same
basis at any time after the earlier of (i) the granting of approval by the U.S.
Food and Drug Administration for the marketing and sale of any pimagedine
product specified in the Development Collaboration and License Agreement between
the Company and Genentech, (ii) termination by Genentech of the Development
Collaboration and License Agreement or, (iii) December 1, 2002. In addition,
subject to certain volume limitations, the Series H Preferred Stock may be
converted at any time when the Company's market capitalization is less than
twice the price paid by Genentech for all shares of Series G Preferred Stock and
Series H Preferred Stock then held by Genentech.
Stock Option Plan
The Company has established two stock option plans for its employees,
officers, directors, consultants and independent contractors. Options to
purchase up to 4,192,000 shares of Common Stock may be granted under the first
plan and options to purchase up to 2,000,000 million shares of common stock may
be granted under the second plan.
The plans are administered by a committee of the Board of Directors,
which may grant either non-qualified or incentive stock options. The committee
determines the exercise price and vesting schedule at the time the option is
granted. Options vest over various periods and may expire no later than 10 years
from date of grant. Each option entitles the holder to purchase one share of
Common Stock at the indicated exercise price. The plans also provide for certain
antidilution and change in control rights, as defined.
The following table summarizes the activity in the Company's stock
options:
WEIGHTED AVERAGE
EXERCISE PRICE EXERCISE PRICE
OPTIONS PER SHARE PER SHARE
------- --------- ---------
Balance, December 31, 1995 3,104,631
Granted .................. 418,083 $1.00 - 15.00 $6.83
Exercised ................ (314,840) 0.30 - 10.25 1.22
Canceled ................. (47,079) 4.36 - 15.00 8.16
---------- -----
Balance, December 31, 1996 3,160,795 $6.44
Granted .................. 852,110 3.88 - 6.56 5.60
Exercised ................ (179,081) 0.30 - 6.56 .68
Canceled ................. (174,384) 0.89 - 14.13 6.75
---------- -----
Balance, December 31, 1997 3,659,440 $6.51
Granted .................. 1,232,950 0.88 - 8.50 1.98
Exercised ................ (70,217) 0.30 - 8.63 2.79
Canceled ................. (22,913) 3.88 - 15.00 8.72
---------- -----
Balance, December 31, 1998 4,799,260 $5.39
==========
F-12
48
NOTE 7 -- STOCKHOLDERS' EQUITY (CONTINUED)
In December 1998, the Company issued 800,000 options at $.875 per share
of which 310,383 were in excess of shares available to grant under the Company's
stock option plans. The Company intends to request an increase in its authorized
stock option plan shares at its June 1999 Shareholders Meeting. In January 1999,
395,003 options were canceled due to the resignation and retirement of two
executive officers. On March 16, 1999, 600,000 of the options granted in
December 1998 were canceled and replaced with new options which included 310,983
of the options canceled due to such resignations. (See Note 11.) The March 1999
date establishes for accounting purposes the measurement date for these options.
Since the fair market value per share of Common Stock on the measurement date
was less than the option price per share, no compensation expense will be
recorded.
At December 31, 1998, 2,878,212 options were exercisable at a weighted
average price of $6.37 per share. The weighted average fair value of the options
granted was $4.13, $2.89 and $1.71 during 1996, 1997 and 1998, respectively. The
outstanding stock options at December 31, 1998 have a weighted average remaining
contractual life of 6.6 years. Included in options at December 31, 1998, are
920,004 options granted to certain executives with option prices ranging from
$0.875 per share to $11.15 per share. Such options vest upon the earlier of 10
years after grant or upon achievement of certain Company milestones.
The Company accounts for its stock option plans under APB Opinion No.
25, under which no compensation cost (excluding those options granted below fair
market value) has been recognized. Had compensation costs for these plans been
determined consistent with FASB Statement No. 123, the Company's pro forma net
loss and loss per share applicable to common stockholders for 1996, 1997 and
1998 would have been $19.4 million, $28.0 million and $30.5 million and, $1.24,
$1.74 and $1.67, respectively. Because FASB Statement No. 123 has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
Under FASB Statement No. 123, the fair value of each stock option grant
is estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions used for grants in 1996, 1997 and 1998,
respectively: risk free interest rates ranging 5.38% to 6.64%, 5.73% to 6.78%
and 4.32% to 5.63%, respectively; expected life of 2.02 years over the vesting
periods; and expected volatility of 70%.
In February 1999, the Board of Directors approved the repricing of
stock options outstanding as of February 2, 1999.
NOTE 8 -- SAVINGS AND RETIREMENT PLAN
The Company maintains a savings and retirement plan under Section
401(k) of the Internal Revenue Code which allows eligible employees to annually
contribute a portion of their annual salary to the plan. In 1998, the Company
began making discretionary contributions at a rate of 25% of an employee's
contribution up to a maximum of 5% of their base salary. The Company made
contributions of $57,000 as of December 31, 1998. No contributions were made
during 1996 or 1997.
NOTE 9 -- RELATED PARTY TRANSACTIONS
Since the Company's inception, the Company has entered into certain
collaborative agreements with organizations with which Dr. Anthony Cerami, the
Chairman of the Company's Scientific Advisory Board and member of the Company's
Board of Directors, was affiliated. These organizations included The Picower
Institute for Medical Research ("The Picower Institute"), The Rockefeller
University, Cerami Consulting Corporation and the Kenneth S. Warren
Laboratories. The Company paid to the organizations $1,006,000, $284,000 and
$731,000 in 1996, 1997, and 1998, respectively. In addition, the Company paid
patent maintenance fees for technology related to the organizations of $137,000,
$168,000 and $207,000 in 1996, 1997 and 1998, respectively. Although the Company
has terminated its collaborative relationship with The Picower Institute, the
Company has a royalty obligation on all net sales and other revenues associated
with certain technologies developed.
F-13
49
NOTE 9 -- RELATED PARTY TRANSACTIONS (CONTINUED)
The Chairman of the Company's Scientific Advisory Board and two other
Scientific Advisory Board members provide consulting services to the Company.
Consulting fees paid to these members totaled $178,000, $136,000 and $89,000 in
1996, 1997 and 1998, respectively.
In 1993, a former Company officer (see Note 11) received a loan which
bore interest at a rate equal to the prime rate as published in the Wall Street
Journal, adjusted quarterly, for the purpose of purchasing a home. The loan is
secured by a second mortgage on the premises purchased by the officer. In
January 1999, the terms of the loan were amended so that if the residence is
sold, the principal amount and interest will be paid in full; otherwise,
interest will stop accruing as of July 1999 and the principal and interest shall
be paid in equal installments in January 2000, July 2000, and July 2001. In the
event an installment is not paid when due, interest shall accrue at a rate of
one percent per month until payment is made. The loan and accrued interest
balance was $261,946, $259,925 and $257,264 as of December 31, 1996, 1997, and
1998, respectively. In 1997 and 1998 interest payments of $25,000 were made.
NOTE 10 -- INCOME TAXES
At December 31, 1998, the Company had available net operating tax loss
carryforwards, which expire in the years 2006 through 2013, of approximately $98
million for income tax purposes. In addition, the Company has research and
development credit carryforwards of approximately $6 million. The amount of net
operating loss and research and development credit carryforwards which can be
utilized in any one period may become limited by Federal income tax regulations
if a cumulative change in ownership of more than 50% occurs within a three year
period.
The components of the deferred tax assets and the valuation allowance
are as follows:
DECEMBER 31,
------------
1997 1998
---- ----
NOL carryforwards ............. $ 30,000,000 $ 39,200,000
Research and development credit 4,000,000 5,900,000
Other temporary differences ... 2,400,000 3,000,000
------------ ------------
Gross deferred tax assets ..... 36,400,000 48,100,000
Valuation allowance ........... (36,400,000) (48,100,000)
------------ ------------
Net-deferred tax assets ....... $ -- $ --
============ ============
A valuation allowance was established since the realization of the
deferred tax assets is uncertain.
NOTE 11 -- KEY EMPLOYEES
The Chairman and Chief Executive Officer resigned from the Company
effective December 31, 1998 and the President and Chief Operating Officer
retired from the Company effective January 31, 1999. In December 1998, the
Senior Vice President, Finance and Business Development and Chief Financial
Officer was elected to the Board of Directors and to the office of President and
Chief Executive Officer. A member of the Board of Directors was elected to the
position of Chairman.
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50
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- ------- ----------------------
3.1 Restated Certificate of Incorporation. (Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File
Number 33-42574) which became effective on November 1, 1991).
3.2 Certificate of the Voting Powers, Designations, Preference and Relative
Participating, Optional and Other Special Rights and Qualifications,
Limitations or Restrictions of Series F Preferred Stock of the Company.
(Incorporated by reference to Exhibit 4.2 to the Company's Current
Report on Form 8-K filed on August 4, 1995).
3.3 Certificate of Designations of Series G Preferred Stock of Alteon Inc.
(Incorporated by reference to Exhibit 3.4 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
3.4 Certificate of Amendment of Certificate of Designations of Series G
Preferred Stock of Alteon Inc. (Incorporated by reference to Exhibit
3.4 to the Company's Report on Form 10-Q filed on August 14, 1998).
3.5 Certificate of Designations of Series H Preferred Stock of Alteon Inc.
(Incorporated by reference to Exhibit 3.5 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
3.6 Amended Certificate of Designations of Series H Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.6 to the Company's
Report on Form 10-Q filed on August 14, 1998).
3.7 By-laws, as amended. (Incorporated by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed on April 22, 1996).
4.1 Stockholders' Rights Agreement dated as of July 27, 1995 between Alteon
Inc. and Registrar and Transfer Company, as Rights Agent. (Incorporated
by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K
filed on August 4, 1995).
4.2 Amendment to Stockholders' Rights Agreement dated as of April 24, 1997
between Alteon Inc. and Registrar and Transfer Company, as Rights
Agent. (Incorporated by reference to Exhibit 4.4 to the Company's
Current Report on Form 8-K filed on May 9, 1997).
4.3 Registration Rights Agreement dated as of April 24, 1997 between Alteon
Inc. and the investors named on the signature page thereof.
(Incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed on May 9, 1997).
4.4 Form of Common Stock Purchase Warrant. (Incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K filed on
May 9, 1997).
4.5 Amendment to Stockholders' Rights Agreement dated as of December 1,
1997 between Alteon Inc. and Registrar and Transfer Company, as Rights
Agent. (Incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K filed on December 10, 1997).
10.1+ Amended and Restated 1987 Stock Option Plan. (Incorporated by reference
to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997).
10.2+ Amended 1995 Stock Option Plan. (Incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996).
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51
10.3 Form of Employee's or Consultant's Invention Assignment, Confidential
Information and Non-Competition Agreement executed by all key employees
and consultants as employed or retained from time to time.
(Incorporated by Reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (File Number 33-42574) which became
effective on November 1, 1991).
10.4 Amendment and Assignment of Research and Option Agreement dated as of
September 25, 1987 among Telos Development Corporation ("Telos"), The
Rockefeller University ("The Rockefeller"), the Company and Anthony
Cerami. (Incorporated by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-1 (File Number 33-42574) which became
effective on November 1, 1991).
10.5 License Agreement dated as of September 25, 1987 among Telos, Applied
Immune Sciences, Inc., the Company and The Rockefeller as amended by
letter agreement dated September 25, 1987 and letter agreement dated
August 15, 1991. (Incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (File Number 33-42574)
which became effective on November 1, 1991).
10.6* License Agreement dated as of June 16, 1989 between the Company and
Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi"). (Incorporated by
reference to Exhibit 10.17 to the Company's Registration Statement on
Form S-1 (File Number 33-42574) which became effective on November 1,
1991).
10.7* Research and Development Collaboration Agreement dated as of June 16,
1989 between the Company and Yamanouchi. (Incorporated by reference to
Exhibit 10.18 to the Company's Registration Statement on Form S-1 (File
Number 33-42574) which became effective on November 1, 1991).
10.8* Research and License Agreement dated as of September 5, 1991 between
the Company and The Picower Institute for Medical Research.
(Incorporated by reference to Exhibit 10.29 to the Company's
Registration Statement on Form S-1 (File Number 33-42574) which became
effective on November 1, 1991).
10.9 Amendment dated as of September 17, 1992 to the Research and
Development Collaboration Agreement dated as of June 16, 1989, between
the Company and Yamanouchi. (Incorporated by reference to Exhibit 10.31
to the Company's Annual Report on Form 10-K for the year ended December
31, 1992).
10.10 Lease Agreement dated January 11, 1993 between Ramsey Associates and
the Company. (Incorporated by reference to Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992).
10.11+ Employment Agreement dated July 13, 1993 between the Company and Jere
E. Goyan. (Incorporated by reference to Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993).
10.12+ Employment Agreement dated as of February 28, 1994 between the Company
and James J. Mauzey. (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on March 9, 1994).
10.13* License Agreement dated as of December 30, 1994 between the Company and
Corange International Limited. (Incorporated by reference to Exhibit
10.38 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.14+ Employment Agreement dated as of February 27, 1995 between the Company
and Kenneth I. Moch. (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on March 20, 1995).
10.15+ Employment Agreement dated as of March 27, 1995 between the Company and
Kenneth Cartwright. (Incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995).
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52
10.16* Research Collaboration and License Agreement dated as of June 2, 1995
between Washington University and the Company. (Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q filed on August 11, 1995).
10.17 Distribution Agreement dated September 25, 1995 between the Company and
Eryphile BV. (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on November 24, 1995).
10.18 Clinical Testing Agreement dated September 25, 1995 between the Company
and Eryphile BV. (Incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed on November 24, 1995).
10.19+ Employment Agreement dated as of October 21, 1995 between the Company
and Elizabeth O'Dell. (Incorporated by reference to Exhibit 10.42 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1995).
10.20+ Alteon Inc. Change in Control Severance Benefits Plan. (Incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
filed on March 13, 1996).
10.21+ Letter Agreement dated July 10, 1996 between the Company and Jere E.
Goyan amending Employment Agreement dated July 13, 1993. (Incorporated
by reference to Exhibit 10.30 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997).
10.22+ Letter Agreement dated January 29, 1997 between the Company and Kenneth
Cartwright amending Employment Agreement dated March 27, 1995.
(Incorporated by reference to Exhibit 10.31 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.23+ Letter Agreement dated January 29, 1997 between the Company and
Elizabeth A. O'Dell amending Employment Agreement dated October 21,
1995. (Incorporated by reference to Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.24+ Letter Agreement dated January 30, 1997 between the Company and James
J. Mauzey amending Employment Agreement dated February 28, 1994.
(Incorporated by reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.25+ Letter Agreement dated March 27, 1997 between the Company and Kenneth
Cartwright amending Employment Agreement dated March 27, 1995, as
amended. (Incorporated by reference to Exhibit 10.34 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.26* Clinical Services Agreement dated as of August 11, 1996 between the
Company and Quintiles, Inc. (Incorporated by reference to Exhibit 10.35
to the Company's Annual Report on Form 10-K for the year ended December
31, 1996).
10.27 Preferred Stock Investment Agreement dated as of April 24, 1997 between
Alteon Inc. and the investors named on the signature page thereof.
(Incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on May 9, 1997).
10.28* License and Supply Agreement dated June 17, 1997 between IDEXX
Laboratories, Inc. and Alteon Inc. (Incorporated by reference to
Exhibit 10.1 to the Company's Report on Form 10-Q filed on August 13,
1997).
10.29* Supply Agreement dated September 12, 1997 between Ganes Chemicals Inc.
and Alteon Inc. (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on October 3, 1997).
10.30+ Letter Agreement dated September 15, 1997 between the Company and
Kenneth I. Moch amending Employment Agreement dated February 27, 1995.
(Incorporated by reference to Exhibit 10.35 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
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53
10.31+ Letter Agreement dated October 21, 1997 between the Company and
Elizabeth A. O'Dell amending Employment Agreement dated October 21,
1995, as amended. (Incorporated by reference to Exhibit 10.2 to the
Company's Report on Form 10-Q filed on November 12, 1997).
10.32 Stock Purchase Agreement dated as of December 1, 1997 between Alteon
Inc. and Genentech, Inc. (Incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on December 10, 1997).
10.33* Development Collaboration and License Agreement dated as of December 1,
1997 between Alteon Inc. and Genentech, Inc. (Incorporated by reference
to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on
December 10, 1997).
10.34+ Letter Agreement dated February 24, 1998 between the Company and Jere
E. Goyan amending Employment Agreement dated July 13, 1993, as amended.
(Incorporated by reference to Exhibit 10.39 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.35* Letter Agreement dated as of April 1, 1998 between Alteon Inc. and
Cerami Consulting Corporation. (Incorporated by reference to Exhibit
10.1 to the Company's Report on Form 10-Q filed on August 14, 1998).
10.36* Letter Agreement dated as of April 1, 1998 between Alteon Inc. and
Kenneth S. Warren Laboratories, Inc. (Incorporated by reference to
Exhibit 10.2 to the Company's Report on Form 10-Q filed on August 14,
1998).
10.37 Amendment to Stock Purchase Agreement and Development Collaboration and
License Agreement dated as of April 29, 1998 between Alteon Inc. and
Genentech, Inc. (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on May 6, 1998).
10.38 Letter Agreement dated June 30, 1998 between Alteon Inc. and Hoechst
Marion Roussel, Inc. (Incorporated by reference to Exhibit 10.4 to the
Company's Report on Form 10-Q filed on August 14, 1998).
10.39** Amendment to Clinical Services Agreement dated as of July 15, 1998
between the Company and Quintiles, Inc.
10.40 Letter Agreement dated February 11, 1999 between Alteon Inc. and
Genentech, Inc. (Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on February 19, 1999).
27 Financial Data Schedule.
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* Confidentiality has been granted for a portion of this exhibit.
** Confidential treatment has been requested for a portion of this
exhibit.
+ Denotes a management contract or compensatory plan or arrangement
required to be filed as an exhibit pursuant to Item 14(c) to this
Form 10-K.
E-4