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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
AMENDMENT NO. 3
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 0-23272
NPS PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 87-0439579
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification
No.)
420 CHIPETA WAY, SALT LAKE CITY, 84108-1256
UTAH
(Address of principal executive (Zip Code)
offices)
(801) 583-4939
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001
Par Value
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 at least 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. /X/ To the best of the Company's knowledge, there have been no
delinquent filers.
The approximate aggregate market value of the Common Stock held by
nonaffiliates of the Registrant was $47,898,779 as of March 31, 1996, based upon
the closing price of $12.75 for the shares of the Company's Common Stock
reported on The Nasdaq Stock Market.(1)
The number of shares of Common Stock outstanding as of March 31, 1996 was
8,187,232.
DOCUMENTS INCORPORATED BY REFERENCE: None
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(1) Excludes 4,849,819 shares of Common Stock held by directors, officers and
other affiliates as of March 31, 1996.
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REGISTRANT HEREBY AMENDS PART I, ITEM 1 BUSINESS; PART II, ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AS FOLLOWS:
WHEN USED IN THIS REPORT, THE WORDS "ESTIMATE," "PROJECT," "INTEND" AND
"EXPECT" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. FOR A DISCUSSION OF CERTAIN OF SUCH
RISKS, SEE "BUSINESS -- RISK FACTORS." READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE UPDATES OR
REVISIONS TO THESE STATEMENTS.
PART I
ITEM 1 BUSINESS.
GENERAL
NPS Pharmaceuticals is engaged in the discovery and development of orally
active, small molecule drugs that target cell surface receptors and ion
channels. The Company's most advanced product candidate, Norcalcin-TM- for the
treatment of hyperparathyroidism ("HPT"), arose from the Company's pioneering
work on a new class of cell surface receptors which detect levels of
extracellular calcium involved in numerous bodily functions. To date, the
Company has conducted two Phase I and two Phase I/II clinical trials of
Norcalcin to test its safety and initial efficacy. The Company is also applying
its calcium receptor technology to the development of therapies for
osteoporosis. The Company's other main programs involve the development of
orally active, small molecule drugs which have neuroprotectant properties and
target certain calcium channels in order to provide treatments for stroke, head
trauma, chronic pain and epilepsy. Additionally, the Company is pursuing several
discovery programs which are extensions of its discoveries in calcium receptors
and ion channels.
NPS has established research collaborations and license arrangements with
the pharmaceutical division of Kirin Brewery Company, Limited ("Kirin") and
SmithKline Beecham Corporation ("SmithKline Beecham") in the fields of HPT and
osteoporosis, respectively, and has established a license arrangement with Amgen
Inc. ("Amgen") in the field of HPT. Kirin, SmithKline Beecham and Amgen are
referred to herein as the "Licensees." The Licensees are responsible for all
costs of product development in their respective territories and fields. As part
of these arrangements, the Licensees have paid to NPS an aggregate of $21.0
million in non-refundable license fees and Amgen and an affiliate of SmithKline
Beecham have purchased $14.5 million of the Company's Common Stock. In addition,
the Licensees have or have agreed to make up to $56.0 million in milestone
payments, of which $3.0 million has been paid to the Company to date under the
SmithKline Beecham agreement. SmithKline Beecham and Kirin are also obligated to
pay an aggregate of approximately $11.3 million in research support payments.
Each of the Licensees is obligated to pay royalties to NPS on any product sales.
See "Risk Factors -- Dependence on Collaborative Research and License
Relationships" and "Business -- Collaborative Research and License Agreements."
HPT is a growing medical concern and is typically characterized as being
either primary or secondary. Primary HPT is an age-related disorder that results
from excessive secretion of parathyroid hormone ("PTH"), leading to elevated
levels of calcium in the blood. Symptoms may include bone loss, muscle weakness,
depression and cognitive dysfunction. Approximately 100,000 new patients are
diagnosed with primary HPT in the United States each year. There are currently
no pharmaceutical therapies for the treatment of primary HPT, with surgery being
the only effective treatment. Secondary HPT results from other disease states
and is most often associated with renal dysfunction. Symptoms of secondary HPT
include excessive bone loss, bone pain, and chronic, severe itching. It is
estimated that approximately 80% of the patients in the United States who rely
on kidney dialysis, or approximately 140,000 patients, suffer from the effects
of secondary HPT. The Company believes that current drug therapy treatments for
secondary HPT, such as phosphate binders and calcitriol have certain
disadvantages.
1
The Company's preliminary analysis of the data from its four clinical trials
of Norcalcin indicates that Norcalcin was safe and well tolerated in these
studies and that the administration of Norcalcin resulted in an expected
dose-dependent decrease in the level of PTH in the blood. The higher doses used
in the Phase I studies and in the Phase I/II dialysis study resulted in a
decrease in the level of calcium in the blood. The Company expects to complete
the formal analysis from all four trials and to report its findings in
appropriate forums during the latter half of 1996. Amgen is currently
formalizing its clinical strategy for the continued development of Norcalcin and
the Company believes Kirin will begin Phase I clinical trials of Norcalcin in
Japan in 1996. There can be no assurance that the clinical trials will proceed
as indicated or that Norcalcin will prove safe and effective, meet applicable
regulatory standards or be successfully marketed. See "Risk Factors -- Early
Stage of Product Development; Dependence on Norcalcin" and "-- Dependence on
Collaborative Research and License Relationships."
In conjunction with SmithKline Beecham, NPS is also applying its calcium
receptor technology to the development of orally active therapeutics for the
treatment of osteoporosis. Osteoporosis is an age-related disorder affecting
more than 200 million people worldwide and is characterized by reduced bone
density and an increased susceptibility to fractures. Among the elderly in
particular, osteoporosis is a major cause of morbidity and mortality. The
Company is pursuing two approaches for the treatment of osteoporosis,
stimulation of bone formation and suppression of bone resorption. Most
osteoporosis patients are first diagnosed only after they have already lost
significant bone mass. As a result, the Company believes that a therapy that not
only halts further bone loss, but also builds new bone, would constitute a
significant advancement in the treatment of osteoporosis. Under its
collaboration with SmithKline Beecham, research efforts are being conducted by
NPS concurrently on both approaches to osteoporosis. In January 1996, the
Company received a milestone payment of $3.0 million from SmithKline Beecham for
progress made in its osteoporosis program.
The Company is developing a new class of orally active compounds which
modulate certain calcium channels for neuroprotection in stroke and head trauma
and also for chronic pain and epilepsy. The influx of calcium through glutamate
receptor-operated calcium channels has been linked to a number of neurological
disorders, including nerve cell death following stroke and head trauma, and also
to certain types of chronic pain and epilepsy. The Company's proprietary
compounds antagonize the NMDA (N-methyl-D-aspartate) subtype of glutamate
receptor-operated calcium channels ("NMDA receptor-channels"), thereby reducing
the influx of calcium. The Company believes that these compounds work through a
novel mechanism and exhibit potentially advantageous pharmacological properties.
These compounds demonstrated neuroprotectant activity in preclinical animal
models of stroke and head trauma and palliative activity in animal models of
chronic pain and epilepsy. The Company has designated one of these compounds,
NPS 1506, for preclinical development on a time line which currently anticipates
an Investigational New Drug ("IND") filing with the United States Food and Drug
Administration ("FDA") in the first half of 1997. However, there can be no
assurance that the IND will be filed in this time frame.
The Company is actively engaged in several discovery programs which seek to
identify molecular targets for the development of new drugs. Among these, the
Company believes it has made significant discoveries with regard to metabotropic
glutamate receptors ("mGluRs"), having identified small molecules active at
these receptors. The Company believes that drugs acting at specific mGluRs may
provide relevant therapies for a number of neurological disorders.
2
STRATEGY
The Company's strategy is to utilize its proprietary technologies and
expertise in cell surface receptors and ion channels to develop and
commercialize small molecule therapeutics. Currently, the Company is focused on
product development programs for HPT, osteoporosis, stroke, head trauma, pain
and epilepsy. Key elements of the Company's strategy include the following:
- THROUGH AMGEN AND KIRIN, CONFIRM SAFETY AND ESTABLISH CLINICAL EFFICACY
AND COMMERCIALIZATION OF NORCALCIN FOR THE TREATMENT OF HPT. The Company
has granted Amgen an exclusive license to complete the development of and
to manufacture and commercialize Norcalcin and certain related compounds
worldwide, excluding the territories covered by the Kirin license. The
Company has granted a similar license to Kirin in Japan, China, Korea and
Taiwan. Amgen is currently formalizing its clinical strategy for the
continued development of Norcalcin and the Company believes that Kirin
will begin Phase I clinical trials in Japan in 1996.
- IDENTIFY CLINICAL CANDIDATES FOR THE TREATMENT OF OSTEOPOROSIS AND ADVANCE
ONE OR MORE LEAD COMPOUNDS INTO CLINICAL TRIALS IN CONJUNCTION WITH ITS
COLLABORATOR, SMITHKLINE BEECHAM. In conjunction with SmithKline Beecham,
the Company is pursuing two approaches for the treatment of osteoporosis,
stimulation of bone formation and suppression of bone resorption. In
January 1996, the Company received a $3.0 million milestone from
SmithKline Beecham as part of its collaboration.
- INITIATE CLINICAL TRIALS OF NPS 1506 FOR NEUROPROTECTION. NPS is
developing a new class of proprietary small molecule NMDA receptor-channel
antagonists which the Company believes may be effective neuroprotectants
as well as effective in the treatment of chronic pain and epilepsy. NPS
has demonstrated neuroprotectant activity with these compounds in
preclinical animal models of stroke and head trauma, and palliative
activity in animal models of chronic pain and epilepsy. The Company has
identified NPS 1506 as a lead compound for neuroprotection and estimates
that it will file an IND for NPS 1506 in the first half of 1997.
- CONTINUE DISCOVERY AND DEVELOPMENT ACTIVITIES TO EXPAND THE COMPANY'S
PRODUCT PIPELINE. The Company is actively engaged in several discovery
programs which seek to identify new molecular targets for the development
of new drugs. Among these, the Company believes it has made significant
discoveries with regard to mGluRs, which may lead to relevant therapies
for a number of neurological disorders.
- ESTABLISH COLLABORATIONS WHICH PROVIDE ENHANCED OPPORTUNITIES FOR DRUG
DEVELOPMENT AND COMMERCIALIZATION. The Company generally has conducted the
development of its product candidates at least through the preclinical
research phase and has used collaborations to supplement its internal
research, preclinical and clinical development resources. The Company has
established alliances with pharmaceutical companies to conduct clinical
trials, prepare regulatory submissions and market and sell the Company's
products in exchange for license fees, milestone payments, research
support payments and royalties. Under future collaborations, the Company
expects to retain strategically important development, manufacturing or
marketing rights in order to enhance the value of its drug development
opportunities.
PRODUCT DEVELOPMENT PROGRAMS
The Company is currently developing orally active compounds that target
calcium receptors as drug therapies for HPT and osteoporosis. The Company is
also developing orally active compounds that target NMDA receptor-channels as
neuroprotectants to reduce neurological damage associated with stroke and head
trauma and additionally for the treatment of chronic pain and epilepsy.
Calcium levels in the blood are tightly regulated and a modest increase or
decrease in circulating calcium can be life-threatening. Calcium receptors are
the basis of a newly discovered mechanism by which certain cells detect and
respond to small changes in extracellular calcium. One key role of
3
calcium receptors is to regulate circulating levels of PTH and calcitonin, two
hormones which play opposing roles in bone and mineral metabolism. The Company
believes that manipulation of PTH and calcitonin levels could be beneficial in
the treatment of various bone and mineral-related disorders, such as HPT and
osteporosis. The Company has utilized its expertise in certain functional
screening technologies and its proprietary recombinant cell lines to discover
and develop orally active compounds which are novel in that they can directly
manipulate the levels of PTH and calcitonin by modulating the activities of
calcium receptors. Compounds which mimic the effect of calcium at calcium
receptors are referred to as "calcimimetics" (agonists) while those which block
the effect of calcium are referred to as "calcilytics" (antagonists).
NMDA receptor-channels play critical roles in normal excitatory
neurotransmission and are also recognized for their major role in events which
lead to much of the neurological damage associated with stroke and head trauma.
Several pharmaceutical companies have recognized the potential of NMDA
receptor-channels as molecular targets for the development of drugs to treat
neurological disorders and have identified various lead compounds.
Unfortunately, NMDA receptor-channels are also the site of action of
phencyclidine ("PCP") and most compounds which target NMDA receptor-channels
exhibit undesirable PCP-like side effects such as inducing symptoms of
psychosis. The Company has utilized its expertise in certain functional
screening technologies to discover and develop orally active compounds which
antagonize NMDA receptor-channels by binding to a novel site, distinct from the
PCP binding site. The Company's compounds have not exhibited PCP-like effects in
a variety of IN VITRO and IN VIVO studies in animals intended to identify
PCP-like effects.
The following chart summarizes the Company's product development programs:
DEVELOPMENT PROGRAM MOLECULAR TARGET COMPOUND/STATUS COMMERCIAL RIGHTS
- -------------------- -------------------- -------------------- --------------------
HYPERPARATHYROIDISM
Primary HPT Parathyroid Norcalcin-TM-/Phase Amgen, Kirin
calcium receptor I/II(1)
Secondary HPT Parathyroid Norcalcin-TM-/Phase Amgen, Kirin
calcium receptor I/II(1)
OSTEOPOROSIS
Stimulation of Parathyroid Preclinical SmithKline
bone formation calcium receptor Research(2) Beecham(4)
Suppression of C-cell and Preclinical SmithKline
bone resorption osteoclast calcium Research(2) Beecham(4)
receptors
NEUROPROTECTION
Stroke, Head NMDA NPS 1506/Preclinical NPS
Trauma receptor-channel
Development(3)
CHRONIC PAIN NMDA Preclinical NPS
receptor-channel Research(2)
EPILEPSY NMDA Preclinical NPS
receptor-channel Research(2)
- ------------------------------
(1) See "Business -- Hyperparathyroidism Program -- Norcalcin-TM- -- Status of
Clinical Trials."
(2) "Preclinical Research" refers to one or more active compounds or series of
related active compounds which have met predetermined activity criteria in
various IN VITRO and/or IN VIVO models. More extensive evaluation of the lead
compounds is undertaken to determine if they have the requisite properties to
enter preclinical development.
(3) "Preclinical Development" refers to ongoing research in the areas of efficacy,
pharmacology and toxicology studies in animal models necessary to support an
application to the FDA to commence human clinical testing.
(4) NPS has certain co-promotion rights in the United States. See "Business --
Collaborative Research and License Agreements -- SmithKline Beecham Corporation."
4
HYPERPARATHYROIDISM PROGRAM -- NORCALCIN-TM-
OVERVIEW. HPT is a growing medical concern and is typically characterized
as being either primary or secondary. Primary HPT is an age-related disorder
that results from excessive secretion of parathyroid hormone, leading to
elevated calcium levels in the blood. Symptoms may include bone loss, muscle
weakness, depression and cognitive dysfunction. Approximately 100,000 new
patients are diagnosed with primary HPT in the United States each year. There
are currently no pharmaceutical therapies for the treatment of primary HPT, with
surgery to remove the affected parathyroid gland(s) from the neck region being
the only effective treatment.
Secondary HPT results from other disease states and is most often associated
with renal dysfunction. Symptoms of secondary HPT include excessive bone loss,
bone pain, and chronic, severe itching. It is estimated that approximately 80%
of the patients in the United States who rely on kidney dialysis, or
approximately 140,000 patients, suffer the effects of secondary HPT. Studies
have also shown that there is a correlation between kidney dysfunction among
patients not on dialysis and elevated PTH levels in the blood. Accordingly, the
Company believes that some of these patients may also suffer from secondary HPT.
Current treatments for secondary HPT involve drug therapy with phosphate binders
and/or calcitriol. The Company believes that these therapies have certain
disadvantages. For example, phosphate binders are not well tolerated by many
people and calcitriol often leads to hypercalcemia and hyperphosphatemia which
can exacerbate the underlying disease. In severe cases, surgery may be required
to remove all or part of the parathyroid glands.
Based on its research and preclinical and clinical trials to date, the
Company believes that Norcalcin could prove to be effective in treating both
types of HPT. PTH secretion is normally regulated by changes in the circulating
level of calcium. The parathyroid glands secrete PTH which triggers metabolic
changes in bone and the kidney that increase calcium levels in the blood.
Increased levels of circulating calcium activate the parathyroid cell calcium
receptor, which then suppresses the secretion of PTH. In HPT, however, PTH
levels remain elevated. Norcalcin is a calcimimetic (a calcium receptor
agonist), which mimics the action of calcium at the calcium receptor on
parathyroid cells, thereby reducing the secretion of PTH. The Company has
entered into agreements with Amgen and Kirin relating to the development and
commercialization of Norcalcin. See "Business -- Collaborative Research and
License Agreements."
[LOGO]
IN HPT, EXCESS PTH TRIGGERS PATHOLOGICAL CALCIMIMETIC DRUGS, SUCH AS NORCALCIN,
CHANGES IN BONE AND IN THE KIDNEY, THEREBY ACTIVATE CALCIUM RECEPTORS LEADING TO
INCREASING THE LEVEL OF CALCIUM IN THE BLOOD. SUPPRESSION OF PTH SECRETION. IN PATIENTS
WITH HPT, CALCIMIMETIC DRUGS ARE EXPECTED TO
AMELIORATE SYMPTOMS CAUSED BY EXCESS PTH AND
HIGH CALCIUM LEVELS.
The Company's studies in animals have shown that Norcalcin offers a novel
and direct means of regulating PTH secretion. In animal tests conducted by the
Company, orally administered Norcalcin reduced circulating levels of PTH in a
dose-dependent manner. This reduction of PTH further
5
resulted in decreases in levels of calcium in the blood. The Company has also
completed, and is continuing to analyze the data from, a six-month toxicology
study of Norcalcin in rats and a 12-month toxicology study in dogs.
STATUS OF CLINICAL TRIALS. The chart below summarizes the Company's
Norcalcin clinical trials conducted to date:
PRELIMINARY
ANALYSIS OF
RESULTS NUMBER OF
CLINICAL TRIAL PROTOCOL DAILY DOSE ANNOUNCED SUBJECTS
- ---------------- ---------------- ---------------- -------------- ----------------
Phase I Placebo-controlled, 10-400 June 1994 18 healthy,
(single-site) double blinded, milligrams post- menopausal
single dose, women over the
dose escalation age of 40
Phase I Placebo-controlled, 20-400 January 1996 48 healthy men
(single-site) double blinded, milligrams and women over
multiple dose, the age of 40
dose escalation
PhaseI/II Placebo-controlled, 4-160 milligrams January 1996 20 women with
(multi-site) double blinded, mild, primary
single dose, HPT
dose escalation
Phase I/II Open label, 40-200 April 1996 8 male dialysis
(single-site) single dose, milligrams patients with
dose escalation, secondary HPT
on and off
dialysis
Since filing its IND for Norcalcin in December 1993, the Company has
conducted four clinical trials of Norcalcin. As indicated in the table above,
these include two Phase I safety and tolerance studies, a multi-site, Phase I/II
study in women with mild, primary HPT and a Phase I/II study in kidney dialysis
patients with secondary HPT. The Company's preliminary analysis of the data from
these studies indicates that Norcalcin was safe and well tolerated in these
studies and that the administration of Norcalcin resulted in an expected
dose-dependent decrease in the level of PTH in the blood. The higher doses used
in the Phase I studies and in the Phase I/II dialysis study resulted in a
decrease in the level of calcium in the blood. The observed adverse events in
these trials were consistent with the underlying diseases and the Company
believes that the adverse events are unrelated to Norcalcin. Blood and urine
samples collected from each of the four clinical trials are currently being
analyzed in a pharmacokinetic study. The Company expects to complete the formal
analysis of the data from all four trials and to report its findings in
appropriate forums during the latter half of 1996. Amgen is currently
formalizing its clinical strategy for continued development of Norcalcin, and
the Company believes Kirin will begin Phase I clinical trials in Japan in 1996.
There can be no assurance that clinical trials will proceed as indicated or that
Norcalcin will prove safe and effective, meet applicable regulatory standards or
be successfully marketed. See "Risk Factors -- Early Stage of Product
Development; Dependence on Norcalcin" and "-- Dependence on Collaborative
Research and License Relationships."
OSTEOPOROSIS PROGRAM
OVERVIEW. Osteoporosis is an age-related disorder which affects more than
200 million people worldwide and is characterized by reduced bone density and an
increased susceptibility to fractures. Osteoporosis is a major cause of
morbidity and mortality among the elderly. It has been estimated that the United
States market for osteoporosis treatments will more than triple by the end of
the decade.
6
Throughout life, bone undergoes constant remodeling involving anabolic
processes leading to bone formation and catabolic processes leading to bone
resorption. The balance between these two processes determines whether there is
net bone loss, net bone formation or no net change. In osteoporosis, this
balance has shifted in favor of bone resorption, resulting in net bone loss.
Current drugs approved for the treatment of osteoporosis include estrogen,
injectable calcitonin, and alendronate (a bisphosphonate). These drugs are
anti-resorptives and act to suppress bone resorption. The Company believes that
each of these therapies presents one or more disadvantages. For example, use of
estrogen is believed to be associated with increased risk of breast cancer,
calcitonin is expensive and cannot currently be administered orally and
bisphosphonates have been associated with side effects such as gastrointestinal
distress. Moreover, long-term studies on bisphosphonates have not yet been
performed. In contrast, anabolic agents stimulate new bone formation. While no
anabolic agents are currently available for the treatment of osteoporosis, the
FDA's Endocrinologic and Metabolic Drugs Advisory Committee has recently
recommended that slow-release fluoride, an anabolic agent, be approved for the
treatment of osteoporosis in post-menopausal patients who have suffered a
fracture.
Most osteoporosis patients are first diagnosed after they have already lost
significant bone mass. As a result, the Company believes that a therapy that not
only halts further bone loss but also builds new bone would constitute a
significant advancement in the treatment of osteoporosis. Under its
collaboration with SmithKline Beecham, research efforts are being conducted by
NPS concurrently on both stimulation of bone formation and suppression of bone
resorption. Both of these approaches are focused on the development of orally
active molecules that are particularly suitable for long-term therapy.
BONE FORMATION. NPS's primary approach to the treatment of osteoporosis is
currently focused on calcilytic compounds (calcium receptor antagonists) which
block the action of calcium at calcium receptors and thus are expected to have
effects opposite to those of calcimimetic compounds. The Company believes that
this novel approach, which is intended to manipulate the body's own PTH
reserves, could provide an effective anabolic therapy for osteoporosis,
stimulating new bone formation to replace bone which has already been lost to
the disease.
While chronically high levels of PTH are known to cause bone loss as in HPT,
PTH levels fluctuate daily and this is thought to play a key role in regulating
the normal balance between bone resorption and bone formation. Recent studies in
animals and in humans have shown that frequent (usually daily) injections of
exogenous PTH sufficient to cause intermittent increases in circulating PTH
levels result in significant stimulation of new bone formation. Several
published animal studies have evaluated the structure of the newly formed bone
and have found that the increases in bone mass achieved with PTH injections are
accompanied by improvements in biomechanical strength and in certain indices of
bone structure thought to be related to biomechanical strength.
Although the anabolic effects of PTH on bone were first noted over 60 years
ago, evaluation of the therapeutic potential of PTH treatment has only recently
begun. Because of its potential as an effective anabolic therapy for
osteoporosis, certain other companies are currently conducting clinical trials
of injectible PTH or PTH analogs for osteoporosis. However, PTH is currently
expensive to manufacture and cannot be administered orally. The Company believes
that orally administered, calcilytic drugs acting on the parathyroid cell
calcium receptor to increase PTH release from the body's own PTH reserves could
provide a cost-effective means of intermittently increasing PTH levels and could
lead to greater patient compliance and therefore greater acceptance.
7
[LOGO]
THE COMPANY IS WORKING IN COLLABORATION WITH SMITHKLINE BEECHAM TO
DEVELOP CALCILYTIC DRUGS THAT, BY BLOCKING THE PARATHYROID CELL
CALCIUM RECEPTOR, WOULD STIMULATE LOW-LEVEL, INTERMITTENT SECRETION OF
PARATHYROID HORMONE, THEREBY STIMULATING NEW BONE FORMATION.
The Company has demonstrated in IN VIVO animal studies that intermittent
increases in circulating levels of PTH can be obtained by regulating the
activity of calcium receptors on the parathyroid cells. Increased levels of PTH
achieved by this mechanism are equivalent to levels of PTH achieved by an
injection of PTH sufficient to cause bone growth. These studies provide support
for the underlying premise that the body's own internal reserves of releasable
PTH are sufficient to cause bone growth.
SUPPRESSION OF BONE RESORPTION. Bone resorption is the function of
specialized bone cells called osteoclasts. NPS is pursuing new anti-resorptive
therapies which involve calcimimetic drugs acting either directly on osteoclasts
or indirectly via C-cells of the thyroid. The Company believes that orally
active calcimimetic drugs could provide cost-effective alternatives to current
anti-resorptive drugs and could potentially lead to greater patient compliance.
When bone is broken down by the osteoclast, calcium is released and
accumulates in very high concentrations near the osteoclast. High concentrations
of extracellular calcium inhibit further bone resorption by the osteoclast. NPS
believes that the effect of extracellular calcium may be mediated by a cell
surface calcium receptor on the osteoclast. NPS scientists are currently working
to identify this receptor and to develop compounds that mimic the effects of
extracellular calcium to directly suppress osteoclastic bone resorption.
[LOGO]
IN RESORBING BONE, OSTEOCLASTS ATTACH TIGHTLY TO THE SURFACE OF BONE AND
SECRETE ENZYMES AND PROTONS. THE ENZYMES DEGRADE THE ORGANIC MATRIX OF
BONE (MOSTLY COLLAGEN), AND THE PROTONS CREATE AN ACIDIC ENVIRONMENT
THAT DISSOLVES THE INORGANIC MATRIX OF BONE. AS THE MINERALIZED MATRIX
IS DISSOLVED, CALCIUM ACCUMULATES TO VERY HIGH LEVELS NEAR THE
OSTEOCLAST.
8
C-cells of the thyroid produce the protein hormone, calcitonin. Osteoclasts
are known to possess cell membrane receptors for calcitonin which acts to
suppress osteoclastic bone resorption. Studies in animals and in humans have
shown that repetitive injections of calcitonin (usually daily) are effective at
inhibiting bone resorption, and injectable calcitonin is currently used in some
countries as a therapy for osteoporosis. The Company's novel approach is to
develop orally active drugs which can be used to manipulate the body's own
internal reserves of calcitonin in order to achieve a similar effect.
NPS and its collaborators at Brigham and Women's have confirmed that calcium
receptors are present on C-cells of the thyroid and that activation of C-cell
calcium receptors induces calcitonin secretion. In animal studies, the Company
has demonstrated that oral administration of calcimimetic compounds stimulates
secretion of calcitonin and can lead to increased circulating calcitonin levels.
Further IN VIVO studies are necessary to determine if this approach will result
in a significant decrease in bone resorption.
[LOGO]
CALCIMIMETIC DRUGS THAT ACTIVATE C-CELL CALCIUM RECEPTORS INCREASE
CALCITONIN LEVELS IN THE BLOOD. CALCITONIN ACTS DIRECTLY ON OSTEOCLAST
CALCITONIN RECEPTORS TO SUPPRESS BONE RESORPTION ACTIVITY. CALCIMIMETIC
DRUGS ACTING ON A DISTINCT OSTEOCLAST CALCIUM RECEPTOR THAT NPS IS
WORKING TO IDENTIFY WOULD MIMIC THE EFFECT OF EXTRACELLULAR CALCIUM,
DIRECTLY SUPPRESSING BONE RESORPTION ACTIVITY.
PRECLINICAL RESEARCH STATUS. NPS has made significant progress on both of
its approaches to osteoporosis. In January 1996, the Company received the first
milestone payment of $3.0 million from SmithKline Beecham for progress made in
its osteoporosis program. Medicinal chemistry efforts at NPS are being applied
to various lead compounds with the goal of identifying proprietary clinical
development candidates. NPS has produced a human cell line that expresses the
parathyroid and C-cell calcium receptors and serves as a proprietary tool for
the high throughput screening of compounds to identify new drug candidates. The
Company continues to screen SmithKline Beecham and NPS compound libraries to
identify additional compounds with calcilytic or calcimimetic activity. There
can be no assurance that lead compounds will be identified as proprietary
clinical development candidates,
9
that preclinical and clinical trials will proceed as indicated or that such
candidates will prove safe and effective, meet applicable regulatory standards
or be successfully marketed. See "Risk Factors -- Early Stage of Product
Development; Dependence on Norcalcin."
NEUROPROTECTION PROGRAM -- NPS 1506
OVERVIEW. Stroke is the third leading cause of death in the United States,
with over 500,000 cases reported each year. In stroke, a blood vessel becomes
blocked, leading to inadequate blood supply (ischemia) to the brain. While many
stroke victims survive, approximately 100,000 to 150,000 per year are left
severely and permanently disabled by nerve damage resulting from stroke. Much of
this damage occurs within the first 24 to 48 hours after the incident and is
caused by the excessive release of glutamate and the resultant influx of calcium
into nerve cells. Published research in animals has shown that much of this
damage can be prevented by blocking the influx of calcium into cells, especially
the influx which results from the activation of NMDA receptor-channels. Calcium
influx resulting from the activation of NMDA receptor-channels also appears to
cause neuronal damage associated with head trauma. Approximately two million
traumatic brain injuries occur each year in the United States, with 25% of such
injuries requiring hospitalization and about one percent resulting in death.
Certain medical procedures are associated with an increased risk of stroke.
For example, strokes occur in three to seven percent of coronary artery bypass,
carotid endarterectomy and heart valve replacement surgeries. Mild to severe
central nervous system dysfunction occurs in up to 80% of such procedures. This
is thought to result from multiple micro-strokes caused by the release into the
circulation of numerous tiny blood clots. The Company believes that it might be
possible to lessen the severity of neuronal damage and cognitive dysfunction
occurring as a result of such procedures by prophylactic treatment with certain
of the Company's neuroprotective compounds.
Because of the importance of glutamate receptor-operated calcium influx in
various neurological disorders, a number of companies are attempting to develop
antagonists of NMDA receptor-channels as therapeutics. Most of these compounds
have been associated with significant adverse side effects such as symptoms of
psychosis. There are currently no effective neuroprotective therapeutics
available that act to slow or stop the progression of brain damage once a stroke
or head trauma has occurred.
PRECLINICAL DEVELOPMENT STATUS. Systemic administration of the Company's
proprietary class of lead compounds, particularly NPS 1506, has demonstrated
significant neuroprotectant activity in certain animal models of ischemic stroke
and head trauma. In these animal studies, significant neuroprotectant activity
was still observed when administration of the compound was delayed for two hours
following the ischemic event. In addition, the Company's compounds have not
exhibited PCP-like effects in a variety of IN VITRO and IN VIVO animal studies
intended to identify PCP-like effects. The Company is currently conducting
preclinical efficacy, pharmacology and toxicology studies and estimates that it
will file an IND for NPS 1506 in the first half of 1997. There can be no
assurance that the IND will be filed, or that NPS 1506 or any of the other lead
compounds will prove safe and effective, meet applicable regulatory standards or
be successfully marketed. See "Risk Factors -- Early Stage of Product
Development; Dependence on Norcalcin."
CHRONIC PAIN PROGRAM
It is estimated that up to 30% of the populations of industrialized
countries experience some degree of recurring or chronic pain. Chronic pain can
be defined as that pain which persists a month or longer past the normal time of
healing or which recurs at intervals for months or years. Although
10
chronic pain often results secondarily from a cause of acute pain, such as an
injury, the underlying mechanisms causing chronic pain are believed to be
different from those causing acute pain. The majority of medications used
currently to treat chronic pain are the same as those used to treat acute pain:
conventional analgesics, including narcotic analgesics such as morphine.
Tricyclic antidepressants and anticonvulsant drugs are also sometimes used to
treat chronic pain. Many of the more effective of these drugs have been
associated with undesirable side effects including drowsiness, constipation,
cognitive changes and potential addiction.
Glutamate receptor-operated calcium channels, particularly NMDA
receptor-channels, have been shown in published studies to play a major role in
transmitting neuronal activity associated with chronic pain. The Company has
tested certain of its NMDA receptor-channel antagonist compounds in several
widely used animal models of pain. These compounds have demonstrated palliative
activity, specifically in animal models of chronic pain. In preclinical animal
studies of the Company's NMDA receptor-channel antagonists, the compounds did
not exhibit the PCP-like side effects which are often associated with many other
NMDA receptor-channel antagonists. The Company is conducting preclinical
research with its lead compounds with the goal of identifying a candidate for
preclinical development. There can be no assurance that lead compounds will be
identified as proprietary clinical development candidates, that preclinical and
clinical trials will be conducted, or that such candidates will prove safe and
effective, meet applicable regulatory standards or be successfully marketed. See
"Risk Factors -- Early Stage of Product Development; Dependence on Norcalcin."
EPILEPSY PROGRAM
Approximately 2.5 million Americans have been diagnosed with epilepsy. It
has been estimated that at least 25% of all patients with epilepsy are not
controlled adequately by existing medications. In addition, severe side effects
are commonly associated with currently available drugs, including drowsiness,
depression, memory loss and a decrease in mental acuity.
Glutamate, which is the major excitatory transmitter in the brain, has long
been suspected to play a major role in seizure activity and to contribute to
epilepsy. Preclinical studies conducted by the Company have demonstrated that
the systemic administration of certain of its proprietary NMDA receptor-channel
antagonists provides significant anticonvulsant activity in a variety of animal
models of epilepsy. In addition these compounds are active following oral
administration, as would be required for an anticonvulsant drug being utilized
on a chronic basis. Similarly, in these preclinical animal studies, the NPS
compounds did not exhibit PCP-like side effects typically associated with other
NMDA receptor-channel antagonists. NPS is conducting preclinical research with
its lead compounds with the goal of identifying a candidate for preclinical
development. There can be no assurance that lead compounds will be identified as
proprietary clinical development candidates, that preclinical and clinical
trials will be conducted, or that such candidates will prove safe and effective,
meet applicable regulatory standards or be successfully marketed. See "Risk
Factors -- Early Stage of Product Development; Dependence on Norcalcin."
DISCOVERY PROGRAMS
The Company is actively engaged in several other discovery programs which
seek to identify new molecular targets for the development of new drugs. These
discovery programs are extensions of the Company's discoveries in calcium
receptors and ion channels.
METABOTROPIC GLUTAMATE RECEPTORS
Metabotropic glutamate receptors ("mGluRs") are distinct from glutamate
receptor-operated calcium channels and are uniquely related in structure and
function to the parathyroid cell calcium
11
receptor. The Company believes that its experience in the discovery and
development of drug candidates which act at calcium receptors provides the
Company with certain advantages in the mGluR field. mGluRs are involved in the
regulation of a number of important brain functions, and the Company believes
that drugs which target specific mGluRs may be useful in treating various
neurological disorders, including neurodegenerative disorders such as
Alzheimer's disease, cognitive dysfunction, anxiety and certain psychiatric
disorders.
NPS scientists have discovered proprietary small molecules which are active
at mGluRs. In addition, NPS scientists have cloned a novel mGluR and have
developed proprietary assays, cell lines and chimeric receptors for use in the
Company's mGluR program. The Company's compounds have substantially different
structures than existing compounds active at mGluRs which the Company believes
could allow them to reach the brain more efficiently. Medicinal chemistry
efforts with these lead compounds are ongoing at the Company.
ADDITIONAL CALCIUM RECEPTOR THERAPEUTICS
The Company has established that it is possible to preferentially target
calcium receptors in distinct tissues. Norcalcin, for example, has been shown in
animals to be about 40 times more potent at affecting PTH secretion than at
affecting calcitonin secretion. Norcalcin thus acts preferentially at the
parathyroid as compared to the C-cells of the thyroid. The Company has further
established that calcium receptors are not only present on parathyroid cells and
on C-cells but are also present on several other cell types, including certain
cells in the kidney, intestine, pituitary gland, pancreas and brain. Calcium
receptors on such cells represent potential drug targets for the treatment of
diseases
other than HPT and osteoporosis.
The Company is actively pursuing drug candidates which target calcium
receptors in distinct tissues for the treatment of several disorders. In the
kidney, for example, NPS and its collaborators at Brigham and Women's have shown
that calcium receptors are abundantly expressed in certain cells which regulate
the excretion and reabsorption of calcium, magnesium and certain electrolytes.
Calcium receptors are also expressed in cells that regulate excretion and
reabsorption of water in the kidney. The Company believes that these calcium
receptors participate in the regulation of mineral, electrolyte and fluid
balance in the body and that drugs which target calcium receptors in the kidney
may provide therapies for abnormal states of ion and water retention. Such
abnormal states occur in congestive heart failure, for example, and in
nephrolithiasis (kidney stone formation).
INORGANIC ION RECEPTORS
The Company believes that calcium receptors are representative of a new and
important class of cell surface receptors, receptors that are able to detect and
respond to changes in the concentration of inorganic ions such as sodium,
chloride, potassium and phosphate. It has been known for some time that many
different tissues respond to changes in the level of such ions. For example,
Vitamin D synthesis and certain critical kidney functions are regulated in part
by changes in circulating phosphate ion concentrations. Similarly, certain
functions of the adrenal gland are affected by changes in potassium levels, and
the maintenance of fluid concentrations by the brain may depend on the
activation of sodium receptors. Therapeutic agents that act directly on
receptors for other ions could provide effective treatments for many disease
states. As a result, inorganic ion receptors are attractive targets for the
development of novel therapeutic agents. The Company's scientists and its
collaborators at Brigham and Women's are actively engaged in research to clone
new inorganic ion receptors, to determine their roles in human physiology, and
to discover new drug candidates which act selectively on such inorganic ion
receptors.
12
NEURONAL ION CHANNELS
The Company has isolated, from its unique library of arthropod venoms,
various peptides that target neuronal ion channels, in particular, certain
calcium channels and certain potassium channels. The Company believes that its
discoveries of such peptide leads provide the Company with opportunities for the
discovery of drugs to treat various neurological disorders. For example, one
such peptide modulates a particular neuronal potassium channel by binding at a
previously unknown site on this channel. Blocking this potassium channel in
nerve cells is known to enhance specific neural activities, especially the
prolongation of neuronal signals that may have a potential palliative effect in
disorders such as Parkinson's disease, Alzheimer's disease and multiple
sclerosis.
DRUG DISCOVERY TECHNOLOGIES
The Company's approach to the discovery of novel drugs is to identify new
drug targets and to identify small molecules which modulate the activities of
these targets (or of previously identified targets) in ways that provide unique
and effective therapies. NPS has pioneered the use of various whole cell and
tissue functional screens in its drug discovery programs. The Company believes
that its functional screens substantially enhance its abilities to discover new
receptors and ion channels and new drug candidates which modulate the activities
of specific receptors or ion channels through novel mechanisms. Functional
screens were of critical importance, for example, in the Company's discovery of
Norcalcin and related molecules that modulate calcium receptor function by an
unusual mechanism.
In its drug discovery programs, the Company utilizes a unique library of
invertebrate venoms. These venoms are isolated from a wide variety of species of
spiders, scorpions, centipedes, parasitic wasps and other invertebrates
collected from around the world. Lead molecules from this library have been
useful in the discovery phases of many of the Company's programs. Examples
include the first-generation, small molecule Araxin-TM- ("arachnid toxin")
compounds which identified a novel site on NMDA receptor-channels, peptide leads
being used in the Company's ion channel discovery efforts, and early calcium
receptor agonist leads. The Company believes this library represents a
collection of compounds with unusual biological activities and is a significant
resource to the Company.
COLLABORATIVE RESEARCH AND LICENSE AGREEMENTS
NPS is pursuing research and product development both on an independent
basis and in collaboration with others. NPS currently has collaborative research
and/or license agreements with Amgen, Kirin, SmithKline Beecham and with Brigham
and Women's. See "Risk Factors -- Dependence on Collaborative Relationships."
AMGEN INC.
In March 1996, the Company entered into a development and license agreement
with Amgen effective December 1995 (the "Amgen Agreement") which grants Amgen
the exclusive right to develop and commercialize Norcalcin and certain other
compounds for the treatment of HPT and indications other than osteoporosis
worldwide, excluding Japan, China, Korea and Taiwan (the "Kirin Territory").
Under the terms of the Amgen Agreement, NPS may receive from Amgen up to an
aggregate of $43.5 million and royalties from any future product sales in
exchange for exclusive rights to develop, manufacture and sell Norcalcin and
certain other compounds for the treatment of HPT worldwide, excluding the Kirin
Territory. Amgen has assumed full control, authority and responsibility for
conducting funding and pursuing all aspects of the development, submissions for
regulatory approvals, manufacture and commercialization of Norcalcin and certain
related compounds in the Amgen Territory, including conducting clinical trials
and making regulatory submissions. Amgen has paid NPS an initial non-refundable
license fee of $10.0 million and purchased one million shares of
13
Common Stock at the price of the Company's Common Stock in November 1995 when
the Amgen Agreement was negotiated for an aggregate purchase price of $7.5
million. The balance of the $43.5 million includes up to $26.0 million payable
to NPS upon the achievement of specific development milestones. NPS has the
option to participate with Amgen, under the direction of Amgen, in the
development of Norcalcin for HPT and Amgen is required to reimburse NPS for such
participation which is limited to a total cost of $400,000 per year for a
maximum time period of five years. Amgen may terminate the Amgen Agreement for
any reason upon 90 days written notice. Termination of the license agreement
with Kirin, Amgen would receive worldwide rights to develop and commercialize
Norcalin. Termination of the Amgen Agreement will result in the reversion to NPS
of its technology, patent and commercialization rights in the Amgen Territory.
There can be no assurance that Amgen will not terminate the Amgen Agreement.
Upon a termination of the license agreement with Kirin, Amgen would receive
worldwide rights to develop and commercialize Norcalcin. See "Risk Factors --
Dependence on Collaborative Research and License Relationships."
KIRIN BREWERY COMPANY, LIMITED
In June 1995, the Company entered into a five-year collaborative research
and license agreement with Kirin (the "Kirin Agreement") to develop and
commercialize the Company's Norcalcin and other compounds for the treatment of
HPT in the Kirin Territory. Under the terms of the Kirin Agreement, NPS may
receive from Kirin up to an aggregate of $25.0 million and royalties from any
future product sales in exchange for exclusive rights to develop, manufacture
and sell Norcalcin and certain other compounds for the treatment of HPT in the
Kirin Territory. Kirin is responsible for conducting clinical trials and
obtaining regulatory approvals of Norcalcin in the Kirin Territory. Kirin has
paid NPS an initial, non-refundable license fee of $5.0 million and committed to
make $7.0 million in research payments for the development of back-up compounds
over the next five years. Of this $7.0 million, a total of $2.0 million is
payable by the end of the first year of the Kirin Agreement. The remaining $13.0
million will be payable to NPS upon achievement of specific development
milestones in the United States and the Kirin Territory. Kirin is required to
pay all costs of developing and commercializing products within the Kirin
Territory and will pay royalties to NPS on any product sales. Kirin may
terminate the Kirin Agreement after June 1996 for any reason upon 90 days
written notice. Termination of the Kirin Agreement will result in the reversion
to NPS of its technology, patent and commercialization rights in the Kirin
Territory. There can be no assurance that Kirin will not terminate the Kirin
Agreement. See "Risk Factors -- Dependence on Collaborative Research and License
Relationships."
SMITHKLINE BEECHAM CORPORATION
In November 1993, NPS entered into a three-year collaborative research and
license agreement with SmithKline Beecham (the "SmithKline Agreement") to
collaborate on the discovery, development and marketing of drugs to treat
osteoporosis and other bone metabolism disorders. Under the SmithKline
Agreement, SmithKline Beecham has the exclusive license to develop and market
worldwide any calcium receptor-active compounds developed under the SmithKline
Agreement that are useful for treating osteoporosis and other bone metabolism
disorders, excluding HPT. In addition, SmithKline Beecham has a six-month right
of first negotiation of a research and license agreement with NPS with respect
to any compounds relating to osteoporosis not covered under the SmithKline
Agreement. Once compounds have been selected for development, SmithKline Beecham
has agreed to conduct and fund all development of such products, including all
human clinical trials and regulatory submissions. NPS has the right to
co-promote (up to 20% in the United States territory) with SmithKline Beecham
any resulting products in the United States. In 1992, S.R. One, an affiliate of
SmithKline Beecham, purchased $2.0 million of the Company's Preferred Stock. In
1993, at the time NPS entered into the SmithKline Agreement, S.R. One purchased
an additional $7.0 million in equity
14
of the Company and it acquired $495,000 of Common Stock in the Company's initial
public offering. All of the Preferred Stock was converted into Common Stock upon
the closing of the Company's initial public offering.
Under the terms of the SmithKline Agreement, in addition to the $7.0 million
equity purchase, SmithKline Beecham paid the Company a $6.0 million
non-refundable license fee and agreed to make additional payments to the Company
upon the achievement of specific milestones. A $3.0 million milestone payment
was made in January 1996. In July 1995 the Company began receiving payments from
SmithKline Beecham to support the Company's research efforts, and such payments
are expected to be approximately $4.3 million through the scheduled expiration
of the research term in October 1996. NPS is entitled to royalties on sales of
products for osteoporosis and other bone metabolism disorders developed by
SmithKline Beecham under the SmithKline Agreement and a share of the profits
from any co-promotion of such products. The SmithKline Agreement may be
terminated by SmithKline Beecham upon 30 days written notice, with NPS having
the right to extend the SmithKline Agreement for an additional period of time,
provided that drug marketing has commenced. Funded research under the SmithKline
Agreement will terminate in October 1996. Under certain circumstances, NPS has
the right to terminate the SmithKline Agreement after October 1997. Termination
of the SmithKline Agreement will result in reversion to NPS of its technology,
commercialization and patent rights in the licensed field of osteoporosis and
other bone and mineral disorders as well as all additional technology developed
in the course of the collaboration. There can be no assurance that SmithKline
Beecham will not terminate the SmithKline Agreement or that funded research will
be extended upon its termination in October 1996. See "Risk Factors --
Dependence on Collaborative Research and License Relationships."
THE BRIGHAM AND WOMEN'S HOSPITAL, INC.
In February 1993, NPS entered into two agreements with Brigham and Women's,
a sponsored collaborative research agreement (the "Brigham Research Agreement")
and a patent license agreement (the "Brigham License Agreement"). Brigham and
Women's, an affiliate of Harvard University Medical School, is a leading
research group in the area of calcium receptors. During the three-year period
from February 1993 through January 1996, NPS paid license fees and made research
support and milestone payments to Brigham and Women's totaling approximately
$1.0 million. In February 1996, the Company reached an agreement with Brigham
and Women's to extend the Brigham Research Agreement. Under the terms of the
extension, NPS has agreed to continue funding research on calcium receptors and
other inorganic ion receptors at Brigham and Women's for an additional two
years. The extended Brigham Research Agreement calls for NPS to make research
support and advance royalty payments of $810,000 to Brigham and Women's during
the period from February 1996 through February 1998. Of this, a $100,000 prepaid
royalty was paid in February 1996 incident to the agreed extension. The Brigham
License Agreement grants NPS an exclusive license to calcium receptor and
inorganic ion receptor technology arising under the Brigham Research Agreement.
The Brigham Research Agreement also grants NPS a right of first negotiation for
exclusive license rights to any other patentable subject matter arising out of
the sponsored research. NPS also has agreed to pay Brigham and Women's a royalty
on sales of any products covered by an issued patent under the Brigham License
Agreement and to promote sales of any licensed products for HPT for which the
Company receives regulatory approval.
PATENTS AND PROPRIETARY TECHNOLOGY
Periodically the Company files patent applications to protect technology,
inventions and improvements which the Company believes are important to the
development of its business. The Company also relies on trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain its competitive position.
15
The Company files patent applications in its own name, and when appropriate,
it has filed, and expects to continue to file, applications jointly with its
collaborators. These patent applications cover compositions of matter, methods
of treatment, methods of discovery, use of novel compounds and novel modes of
action, and recombinantly expressed receptors and gene sequences which are
believed by the Company to be important in its research and development
activities. None of the Company's principal proprietary rights, including rights
related to process, compounds, use and technique related to its calcium receptor
science and NMDA receptor-channel technology, are protected by issued patents in
the Company's principal markets. The Company believes that its pending patent
applications in the fields of calcium receptors, inorganic ion receptors, mGluRs
and NMDA receptor-channels and compounds active at the same give the Company a
competitive advantage. The Company intends to file additional patent
applications as appropriate relating to its technology and to specific products
of the Company.
The patent positions of pharmaceutical and biotechnology firms, including
the Company, are uncertain and involve complex legal and factual questions. In
addition, the scope of the claims in a patent application can be significantly
modified during prosecution before the patent is issued. Consequently, the
Company does not know whether any of its applications will result in the
issuance of patents or, if any patents are issued, whether they will provide
significant proprietary protection or will be circumvented or invalidated.
Generally, patent applications in the United States are maintained in secrecy
until patents issue and publication of discoveries in the scientific or patent
literature often lag behind actual discoveries. In addition, no assurance can be
given that, even if published, the Company is aware of all such literature.
Accordingly, the Company cannot be certain that the named inventors were the
first to invent or that the Company is the first to pursue patent coverage for
such inventions. Moreover, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office to
determine priority of invention, which could result in substantial cost to the
Company, even if the eventual outcome is favorable to the Company. There can be
no assurance that the Company's pending patent applications, if issued, would be
held valid. An adverse outcome could subject the Company to significant
liabilities to third parties, could require disputed rights to be licensed from
third parties or require the Company to cease or modify its use of such
technology. Additionally, many of the Company's foreign patent applications have
been published as part of the patent prosecution process in such countries.
Protection of the rights revealed in such published patent applications can be
complex, costly and uncertain. See "Risk Factors -- Uncertainty of Protection of
Patents and Proprietary Technology."
The development of therapeutic products for applications in the Company's
product fields is intensely competitive. A number of pharmaceutical companies,
biotechnology companies, universities and research institutions have filed
patent applications or received patents in these and related fields. Some of
these applications or patents may limit or preclude the Company's applications
and could result in a significant reduction of the coverage of the Company's
patents, if issued.
NPS also relies on trade secrets and contractual arrangements to protect its
trade secrets. There can be no assurance that these agreements will be adequate,
that they will not be breached, that the Company would have adequate remedies
for any breach or that the Company's trade secrets will not otherwise become
known or be independently discovered by competitors.
Much of the know-how important to the Company's technology and many of its
processes are dependent upon the knowledge, experience and skills of key
scientific and technical personnel and are not the subject of pending patent
applications or issued patents. To protect its rights to its know-how and
technology, the Company requires all employees, consultants, advisors and
collaborators to enter into confidentiality agreements that prohibit the
unauthorized use and restrict the disclosure of confidential information, and
require disclosure and assignment to the Company of ideas, developments,
discoveries and inventions made by them. There can be no assurance that these
agreements
16
will effectively prevent disclosure of the Company's confidential information or
will provide meaningful protection for the Company's confidential information if
there is unauthorized use or disclosure. It must also be recognized that
competitors may develop substantially equivalent know-how and technology.
In connection with certain research in the field of calcium and other ion
receptors, NPS has sponsored research by various university and government
laboratories. For example, the Company has executed a license agreement and a
research agreement regarding research in the area of calcium and other ion
receptors with Brigham and Women's. See "Collaborative Research and Licensing
Agreements -- The Brigham and Women's Hospital, Inc."
The Company has also sponsored work at other government and academic
laboratories for various evaluations, assays, screenings and tests of its
natural products library and lead compounds in the central nervous system field.
Generally, under these agreements the Company funds the work of investigators in
exchange for the results of the specified works and the right or option to a
license to any patentable inventions that may result in designated areas.
Generally, if the sponsored work produces patentable subject matter, the Company
has the first right to negotiate for license rights therein. Any resulting
license would be expected to require the Company to pay royalties on net sales
of licensed products. There can be no assurance that any such inventions will
arise, that any patent applications thereon will be filed or, if filed, that any
patents will issue, that any license thereon can be negotiated, or that any
license agreement would give the Company valuable rights.
MANUFACTURING
NPS anticipates that all of its products will be made by synthetic chemical
manufacturing techniques. As such, the Company believes the compounds can be
precisely defined and characterized and should generally have relatively low
manufacturing costs compared to recombinant proteins produced by the
fermentation methods common to currently available biotechnology products.
NPS has no manufacturing facilities. Under the Amgen, Kirin and SmithKline
Agreements, each of such Licensee is responsible for the manufacture of the
applicable product. The Company relies on other manufacturers to produce its
proprietary compounds for research and development activities and in sufficient
quantities for preclinical and clinical purposes. The proposed pharmaceutical
products under development by the Company have never been manufactured on a
commercial scale, and there can be no assurance that such products can be
manufactured at a cost or in quantities to make them commercially viable. If the
Company were unable to contract for sufficient supply of its compounds on
acceptable terms, or if it should encounter delays or difficulties in its
relationships with manufacturers, the Company's preclinical and human clinical
testing schedule would be delayed. Such delay might postpone the submission of
products for regulatory approval or the market introduction and subsequent sales
of such products, which would have a materially adverse effect on the Company.
Moreover, contract manufacturers that the Company may use must adhere to cGMP
regulations enforced by the FDA through its facilities inspection program.
GOVERNMENT REGULATION
The production and marketing of the Company's product candidates and its
research and development activities are subject to regulation for safety,
efficacy and quality by numerous governmental authorities in the United States
and other countries. In the United States, drugs are subject to rigorous FDA
regulation. The Federal Food, Drug and Cosmetic Act, as amended, and the
regulations promulgated thereunder, and other federal and state statutes and
regulations govern, among other things, the testing, manufacture, safety,
efficacy, labeling, storage, record keeping, approval, advertising and promotion
of the Company's products. Product development and approval within this
regulatory framework take a number of years and involve the expenditure of
substantial resources.
17
The steps required before a pharmaceutical agent may be marketed in the
United States include: (i) preclinical laboratory tests, animal pharmacology and
toxicology studies and formulation studies; (ii) the submission to the FDA of an
IND for human clinical testing, which must become effective before human
clinical trials commence; (iii) adequate and well-controlled human clinical
trials to establish the safety and efficacy of the drug; (iv) the submission of
a New Drug Application ("NDA") to the FDA; and (v) FDA approval of the NDA prior
to any commercial sale or shipment of the drug. In addition to obtaining FDA
approval for each product, each domestic drug manufacturing establishment must
be registered with, and approved by, the FDA under cGMP regulations. Domestic
drug manufacturing establishments are subject to regular inspections by the FDA
and must comply with cGMP regulations. To supply products for use in the United
States, foreign manufacturing establishments must comply with cGMP regulations
and are subject to periodic inspection by the FDA or by corresponding regulatory
agencies in their home countries under reciprocal agreements with the FDA.
Preclinical studies include the laboratory evaluation of IN VITRO
pharmacology product chemistry and formulation, as well as animal studies to
assess the potential safety and efficacy of the product. Compounds must be
formulated according to cGMP, and preclinical safety tests must be conducted by
laboratories that comply with FDA regulations regarding 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 human
clinical trials. Unless the FDA objects to an IND, the IND will usually become
effective 30 days following its receipt by the FDA. There can be no assurance
that submission of an IND will result in FDA authorization to commence clinical
trials.
Clinical trials involve the administration of the investigational new drug
to healthy volunteers and to patients under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with Good
Clinical Practices under protocols that detail 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 clinical study must be conducted under the auspices of an Internal
Review Board ("IRB") at the institution at which the study will be conducted.
The IRB will consider, among other things, ethical factors, the safety of human
subjects and the possible liability of the institution.
Clinical trials typically are conducted in three sequential phases, which
phases may overlap. In Phase I, the initial introduction of the drug into
healthy subjects, the drug is tested for safety (adverse effects), dosage
tolerance, metabolism, distribution, excretion and pharmacodynamics (clinical
pharmacology). Phase II involves studies in a limited patient population to: (i)
determine the efficacy of the drug for specific, targeted indications; (ii)
determine dosage tolerance and optimal dosage; and (iii) identify possible
adverse effects and safety risks. When a compound is found to be effective and
to have an acceptable safety profile in Phase II evaluations, Phase III trials
are undertaken to evaluate further clinical efficacy and to test further for
safety within an expanded patient population at geographically dispersed
clinical study sites. There can be no assurance that Phase I, Phase II or Phase
III testing will be completed successfully within any specific time period, if
at all, with respect to any of the Company's products subject to such testing,
including Norcalcin. Furthermore, the Company, its collaborators, Licensees or
the FDA may suspend clinical trials at any time if they feel that the subjects
or patients are being exposed to an unacceptable health risk. See "Risk Factors
- -- Government Regulation; No Assurance of Regulatory Approval."
The results of the pharmaceutical development, preclinical studies and
clinical studies are submitted to the FDA in the form of an NDA for approval of
the marketing and commercial shipment of the drug. The testing and approval
process is likely to require substantial time and effort, and there can be no
assurance that any approval will be granted on a timely basis, if at all. The
FDA may deny an NDA if applicable regulatory criteria are not satisfied, require
additional testing or information, or require post-marketing testing and
surveillance to monitor the safety of the Company's products if the FDA does not
view the NDA as containing adequate evidence of the safety and efficacy of the
drug. Notwithstanding the submission of such data, the FDA may ultimately decide
that the application
18
does not satisfy its regulatory criteria for approval. Moreover, if regulatory
approval of a drug is granted, such approval may entail limitations on the
indicated uses for which it may be marketed. Finally, product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to cGMP, which must be followed at all times. In complying with standards set
forth in these regulations, manufacturers must continue to expend time, money
and effort in the area of production and quality control to ensure full
technical compliance. See "Risk Factors -- Government Regulation; No Assurance
of Regulatory Approval."
In addition to regulations enforced by the FDA, the Company is also subject
to regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and future federal, state or local regulations.
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 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. See "Risk Factors -- Risk of Product Liability; Use of
Hazardous Materials."
Outside the United States, the Company's ability to market a product is
contingent upon receiving a marketing authorization from the appropriate
regulatory authority. This foreign regulatory approval process includes all of
the risks associated with FDA approval set forth above.
COMPETITION
NPS is pursuing areas of product development in which the Company believes
there is a potential for extensive technological innovation in relatively short
periods of time. The Company operates in a field in which new discoveries occur
and are expected to occur at a rapid pace. The Company's competitors may succeed
in developing technologies or products that are more effective than those of the
Company or in obtaining regulatory approvals of their drugs more rapidly than
the Company and its collaborative partners, and could render the Company's
products obsolete or noncompetitive. Competition in the pharmaceutical industry
is intense and is expected to continue to increase. Many of the Company's
competitors, including biotechnology and pharmaceutical companies, are actively
engaged in the research and development of products in the Company's targeted
areas, including the fields of HPT, osteoporosis, neuroprotection, chronic pain
and epilepsy. Many of the Company's competitors have substantially greater
financial, technical, marketing and personnel resources than the Company. In
addition, some of them have considerable experience in preclinical testing,
human clinical trials and other regulatory approval procedures. Moreover,
certain academic institutions, governmental agencies and other research
organizations are conducting research in areas in which the Company is working.
These institutions are becoming increasingly aware of the commercial value of
their findings and are becoming more active in seeking patent protection and
licensing arrangements to collect royalties for use of technology that they have
developed. These institutions may also market competitive commercial products on
their own or through joint ventures and will compete with the Company in
recruiting highly qualified scientific personnel. There can be no assurance that
a pharmacological method of treatment for certain diseases, such as HPT, will
prove to be superior to existing or newly discovered approaches to the treatment
of those diseases. See "Risk Factors -- Rapid Technological Change; Intense
Competition."
19
ENVIRONMENTAL LIABILITY
On November 29, 1995, the Company received a letter from the EPA notifying
the Company that it may have incurred liability under section 107(a) of the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, for two barrels of radioactive waste taken by a third party contractor
to a hazardous and radioactive waste storage, treatment and disposal facility in
Denver, Colorado. Upon the EPA's request, the Company has identified the waste
and has verified that the barrels containing the waste have been removed from
the Denver, Colorado facility. Removal of wastes from the facility and
remediation of soil and groundwater at this site is currently underway. To date,
the EPA has spent $2.1 million to clean up this facility. However, the ultimate
cost of removal and remediation actions and the length of time for such actions
are difficult to estimate. Based upon its inspection of the site, the Company is
of the belief that the barrels containing the waste disposed of by the Company
were neither leaking nor damaged. Although the Company was a small contributor
to the site and the Company believes that there are a number of other
financially responsible contributors, there can be no assurance that the Company
will not be held liable for all or a portion of the cleanup cost or any other
costs or damages associated with this disposal site. See "Risk Factors -- Risk
of Product Liability; Use of Hazardous Materials."
EMPLOYEES
As of March 31, 1996, NPS employed 79 individuals full-time, 21 of whom hold
Ph.D. or M.D. degrees and 16 of whom hold other advanced degrees. Approximately
60 full-time employees are engaged in research and development activities,
including a variety of disciplines within the areas of molecular biology,
pharmacology, medicinal chemistry, computer sciences and clinical development.
Approximately 19 full-time employees are employed in finance, legal and
regulatory affairs, market research, corporate development and general
administrative activities. None of the Company's employees is covered by
collective bargaining agreements, and management considers relations with its
employees to be good. Additionally, NPS augments its full-time staff through
consulting arrangements with experienced scientists and managers. The Company's
anticipated growth and expansion will require the hiring of additional
management, research and development, and administrative personnel.
RISK FACTORS
EARLY STAGE OF PRODUCT DEVELOPMENT; DEPENDENCE ON NORCALCIN. The Company
was founded in 1986, and has not completed development of any drugs and does not
expect that any drugs resulting from its or its Licensees' research and
development efforts will be commercially available for several years, if at all.
Norcalcin is the only product candidate currently under development by the
Company and its Licensee that is in human clinical trials. No other compound
under development by NPS or its Licensees has been scheduled for clinical
testing. Clinical trials in humans are necessary to determine whether or not a
compound will be a safe, commercially attractive or effective drug. Results
obtained in preclinical trials are not necessarily indicative of results that
will be obtained in later stages of preclinical development or in human clinical
testing. All product candidates developed by the Company or its Licensees,
including Norcalcin, will require extensive research, development and
preclinical and clinical testing prior to submission of any regulatory
application, as well as a lengthy regulatory approval process. Preclinical and
clinical testing of safety and efficacy takes several years and the time
required to commercialize new drugs cannot be predicted with accuracy. Product
development of new pharmaceuticals is highly uncertain, and unanticipated
developments, clinical or regulatory delays, unexpected adverse side effects or
inadequate therapeutic efficacy could slow or prevent the product development
efforts of the Company and its Licensees, and have a materially adverse effect
on the Company's operations. There can be no assurance that the Company's
current product candidates, including Norcalcin, or any future product
candidates, will advance to clinical
20
trials, prove safe and effective, meet applicable regulatory standards, be
capable of being produced in commercial quantities at acceptable cost or be
successfully marketed. Also, there can be no assurance that a pharmacological
method for the treatment of diseases targeted by the Company, including HPT,
will prove to be superior to non-pharmacological treatments.
DEPENDENCE ON COLLABORATIVE RESEARCH AND LICENSE RELATIONSHIPS. The
Company's strategy for the development, clinical testing and manufacturing and
commercialization of certain of its product candidates and the research and
development of new product candidates includes entering into various research,
development and license agreements with corporate partners, licensees and
others. The Company has entered into a license agreement with Amgen pursuant to
which Amgen has assumed control of the development and commercialization of
Norcalcin in its territory, a collaborative research and license agreement with
Kirin for the development of Norcalcin in Kirin's territory and a collaborative
research and license agreement with SmithKline Beecham for research and
development in osteoporosis. The Licensees each have received from NPS certain
exclusive rights to commercialize products developed under their respective
agreements, have paid license fees to NPS and have committed to make milestone
payments to NPS upon achievement of specified goals. The Licensees have agreed
to fund the research or development efforts in HPT and osteoporosis, conduct
human clinical testing of lead compounds, prepare and file submissions for
regulatory approval and pay royalties on any resulting products. Because the
Company has granted exclusive development, commercialization and marketing
rights to the Licensees in the fields of HPT and osteoporosis, the success of
its existing HPT and osteoporosis programs is dependent upon the efforts of the
Licensees. There can be no assurance that the Licensees will perform their
obligations under their respective agreements, that they will successfully
develop or proceed to market any products under these agreements, or that the
Company will ever receive any royalties or milestone or research support
payments under these agreements, any of which could have a material adverse
effect on the business of the Company. Furthermore, there can be no assurance
that business conflicts will not arise between the Licensees over rights to
existing compounds or future compounds with respect to certain indications. The
Company's collaborative research and license agreements, including the
agreements with the Licensees, generally provide that they may be terminated
under a variety of circumstances upon prior written notice. If any of the
Licensees terminates or breaches its agreement, such termination or breach may
have a material adverse effect on the Company's operations. Furthermore, there
can be no assurance that present or future collaborators will not pursue
existing or alternative technologies in preference to treatments being developed
in collaboration with the Company.
NPS also intends to seek additional collaborative or license arrangements to
develop and commercialize other product candidates. Many of the Company's
competitors are similarly seeking to develop or expand their collaborative and
license arrangements with pharmaceutical companies. The success of these efforts
by the Company's competitors could have an adverse impact on the Company's
ability to form future collaborative arrangements and maintain existing ones.
There can be no assurance that the Company will be able to negotiate acceptable
collaborative agreements in the future or that efforts under any such
collaborative agreements will be successful. To the extent that the Company
chooses not to or is unable to enter into future collaborative agreements, it
would experience increased capital requirements to undertake research,
development and marketing of its product candidates at its own expense. In
addition, the Company may encounter significant delays in introducing its
product candidates into certain markets or find that the development,
manufacture or sale of its product candidates in such markets is adversely
affected by the absence of such collaborative agreements.
LACK OF PRODUCT SALES; HISTORY OF OPERATING LOSSES. Substantially all of
the Company's revenues to date have come from collaborative research and license
agreements with the Licensees. Aside from the incidental revenues from the sale
of research chemicals, no revenues have been generated from product sales. Other
working capital has come from equity and debt financings. NPS has incurred
cumulative losses through December 31, 1995 of $20.5 million, net of cumulative
revenues from research and license agreements of $22.3 million. The Company
expects to incur significant operating losses over at least the next several
years as the Company continues and expands its research and
21
development and preclinical and clinical testing activities. The Company expects
that losses will fluctuate from quarter to quarter and that such fluctuations
may be substantial. The Company's ability to achieve profitability depends in
part upon its ability, alone or with others, to complete development of
Norcalcin and other product candidates, obtain required regulatory approvals and
manufacture and successfully market such products, of which there can be no
assurance. As such, there can be no assurance that the Company will be able to
achieve profitability on a sustained basis, if at all.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL. The research
and development activities of the Company, as well as the investigation,
manufacture, distribution and marketing of therapeutic products, are subject to
extensive regulation by numerous governmental authorities in the United States
and other countries. Prior to marketing in the United States, a drug must
undergo rigorous preclinical and clinical testing and an extensive regulatory
approval process implemented by the FDA under federal law, including the Federal
Food, Drug and Cosmetic Act, as amended. Receipt of such regulatory approval
involves, among other things, satisfying the FDA that the product is both safe
and effective. Typically, this process takes several years or more depending
upon the type, complexity and novelty of the product and the nature of the
disease or other indication to be treated and requires the expenditure of
substantial resources. Preclinical studies must be conducted in conformance with
the FDA's Good Laboratory Practice regulations. Clinical testing must meet
requirements for Institutional Review Board oversight and informed consent by
clinical trial subjects and patients, as well as FDA prior review, oversight and
the FDA's Good Clinical Practice requirements. Clinical trials may require large
numbers of test subjects. Furthermore, the Company or the FDA may suspend
clinical trials at any time if either believes that the subjects participating
in such trials are being exposed to unacceptable health risks, including
undesirable or unintended side effects. While certain of the Company's employees
have some experience in conducting and managing the clinical testing necessary
to obtain regulatory approval, the Company has conducted only limited clinical
trials of one of its product candidates to date and anticipates that it will
need to either rely on its collaborative partners, licensees and outside
consultants or attract and retain additional employees with expertise in this
area.
Before receiving FDA approval to market a product, NPS may have to
demonstrate that such product represents an improved form of treatment compared
to existing therapies. Data obtained from preclinical and clinical activities
are susceptible to varying interpretations which could delay, limit or prevent
regulatory approvals. In addition, delays or rejections may be encountered based
upon additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development,
clinical trials and FDA regulatory review. If regulatory approval of a product
is granted, such approval will be limited to those disease states and conditions
for which the product is useful, as demonstrated through clinical studies.
Furthermore, approval may entail ongoing requirements for post-marketing
studies. Even if such regulatory approval is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual review
and periodic inspections. The regulatory standards for current Good
Manufacturing Practices ("cGMP") are currently being applied stringently by the
FDA. Discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
costly recalls or even withdrawal of the product from the market. There can be
no assurance that any compound developed by the Company alone or in conjunction
with others will prove to be safe and effective in clinical trials and will meet
all of the applicable regulatory requirements needed to receive marketing
approval.
RAPID TECHNOLOGICAL CHANGE; INTENSE COMPETITION. NPS is pursuing areas of
product development in which the Company believes there is a potential for
extensive technological innovation in relatively short periods of time. The
Company operates in a field in which new discoveries occur and are expected to
occur at a rapid pace. The Company's competitors may succeed in developing
technologies or products that are more effective than those of the Company or in
obtaining regulatory approvals of their drugs more rapidly than the Company and
its collaborative partners and licensees, and such
22
success could render the Company's products obsolete or non-competitive and have
a material adverse effect on the Company. Competition in the pharmaceutical and
biotechnology industry is intense and is expected to continue to increase. Many
of the Company's competitors, including biotechnology and pharmaceutical
companies, are actively engaged in the research and development of products in
the Company's targeted areas, including the fields of HPT, osteoporosis,
neuroprotection, chronic pain and epilepsy. Many of the Company's competitors
have substantially greater financial, technical, marketing and personnel
resources than the Company as well as considerable experience in preclinical
testing, human clinical trials and other regulatory approval procedures.
Moreover, certain academic institutions, governmental agencies and other
research organizations are conducting research in areas in which the Company is
working. These institutions are becoming increasingly aware of the commercial
value of their findings and are becoming more active in seeking patent
protection and licensing arrangements to collect royalties for use of technology
that they have developed. These institutions may also market competitive
commercial products on their own or through joint ventures and will compete with
the Company in recruiting highly qualified scientific personnel.
UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY TECHNOLOGY. The
Company's success depends, in part, on its ability to obtain patents, maintain
trade secret protection and operate without infringing on the proprietary rights
of third parties. Because the patent positions of biotechnology and
pharmaceutical companies can be highly uncertain and frequently involve complex
legal and factual questions, the breadth of claims allowed in biotechnology and
pharmaceutical patents or their enforceability cannot be predicted.
None of the Company's principal proprietary rights, including rights related
to process, compounds, use and technique related to its calcium receptor science
and NMDA receptor-channel technology, are protected by issued patents in the
Company's principal potential markets. No assurance can be given that patents
will issue from any of the Company's current or anticipated patent applications
or that such patent applications will allow the Company to preclude others from
practicing some or all of the art described in the publicly available versions
of these pending patent applications either before such patent applications
issue as patents or after such patent applications issue as patents. Generally,
patent applications in the United States are maintained in secrecy until patents
issue and publication of discoveries in scientific or patent literature often
lag behind actual discoveries. No assurance can be given that, even if
published, the Company is aware of all such literature. Accordingly, the Company
cannot be certain that the named inventors in its patent applications were the
first to invent, or that the Company is the first to pursue patent coverage for
such inventions. If patents do issue, there can be no assurance that the claims
allowed will be sufficiently broad to protect the Company's technology or to
prevent competition. No assurance can be given that any patents issued to the
Company will not be challenged, invalidated or circumvented or that rights
granted thereunder will provide competitive advantages to NPS. Moreover, the
Company may have to participate in interference proceedings declared by the
United States Patent and Trademark Office to determine priority of invention,
which could result in substantial cost to the Company, even if the eventual
outcome is favorable to the Company. If certain of the Company's patent
applications fail to issue or are successfully challenged, particularly those
related to its calcium receptor science and NMDA receptor-channel technology, it
may have a material adverse effect on the Company's operations or its ability to
maintain or establish collaborations. Furthermore, there can be no assurance
that others will not independently develop similar products, duplicate any of
the Company's products or design around the patented products or technology
developed by NPS. There can also be no assurance that any products developed by
NPS will not be found to infringe patents held by third parties, or that, in
such cases, licenses from such third parties would be available on commercially
attractive terms, if at all. If NPS does not obtain such licenses, it could
encounter delays in product market introductions or could find that it is unable
to develop, manufacture or sell its products requiring such licenses. In
addition, the Company could incur substantial costs in defending lawsuits
brought against NPS on such patents or in prosecuting lawsuits by NPS against
another party. Additionally, many of the
23
Company's foreign patent applications have been published as part of the patent
prosecution process in such countries. Protection of the rights revealed in such
published patent applications can be complex, costly and uncertain.
The development of therapeutic products for applications in the Company's
product fields is intensely competitive. A number of pharmaceutical companies,
biotechnology companies, universities and research institutions have filed
patent applications or received patents in these and related fields. Some of
these applications or patents may limit or preclude the Company's applications
and could result in a significant reduction of the coverage of the Company's
patents, if issued.
NPS also relies on trade secrets and proprietary know-how, which it seeks to
protect, in part, by confidentiality agreements with its corporate
collaborators, licensees, employees and consultants. NPS expects to continue to
rely on trade secrets and know-how to protect certain aspects of its
technologies. The Company believes it has, and can maintain, a competitive
advantage through its use of written confidential disclosure agreements and
invention assignment provisions with its employees, consultants, advisors and
potential and actual collaborators and licensees. Nonetheless, no assurance can
be given that these agreements will provide meaningful protection for the
Company's trade secrets or proprietary know-how as a result of an unauthorized
use or disclosure in the public domain. There can be no assurance that these
agreements will not be breached, that NPS would have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known or
be independently discovered by competitors.
DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING. To be successful, the
Company's products, if successfully developed, must be manufactured in
commercial quantities in accordance with regulations prescribed by the FDA and
at acceptable costs. NPS does not have the capability to manufacture products
under cGMP regulations prescribed by the FDA and does not intend to develop such
a capability in the near future. Accordingly, the Company anticipates that, for
the foreseeable future, it will pursue a strategy of seeking production
capability from corporate collaborators, licensees or contract manufacturers.
There can be no assurance that the Company's current or prospective corporate
collaborators, licensees or contract manufacturers will be able to manufacture
any developed compounds on a commercial scale or that any collaborator, licensee
or manufacturer will be able to manufacture products in quantities or at prices
which will be commercially viable or beneficial for the Company. The Licensees
are responsible for manufacturing any products developed under their respective
agreements with the Company. If the Company or its collaborators and licensees
encounter difficulty in obtaining third-party manufacturing on commercially
acceptable terms, their ability to commercialize products may be delayed or
foreclosed. Moreover, any manufacturer of the Company's products must adhere to
cGMP regulations enforced by the FDA through its facilities inspection program.
If these facilities cannot pass a pre-approval or periodic plant inspection, FDA
approval of the product will not be granted or sale of the product may be
barred.
Presently, the Company relies on contract manufacturers to produce its
proprietary compounds for development activities and in sufficient quantities
for preclinical and clinical purposes. If the Company were unable to contract
for sufficient supply of its compounds on acceptable terms, or if it should
encounter delays or difficulties in its relationships with manufacturers, the
Company's preclinical and human clinical testing schedule would be delayed. Such
delay would adversely affect the schedule for submission of products for
regulatory approval and the market introduction and subsequent sales of such
products, which would have a materially adverse effect on the Company.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company has
incurred negative cash flows from operations since its inception. Substantial
expenditures will be required to enable NPS to conduct existing and planned
preclinical studies and clinical trials, to manufacture or to have manufactured
and to market products from current research and development efforts, and to
continue research and development activities. The Company anticipates that its
existing capital resources, including research and development support payments
from existing collaborations, together with the net proceeds of a proposed
public offering of 2,000,000 shares of the Company's Common Stock (plus
24
an additional 300,000 shares to cover over-allotments, if any) and interest
earned thereon, will be sufficient to enable it to maintain its current and
planned operations through at least 1997. However, the Company's future capital
needs will be dependent upon many factors, including progress in its research
and development activities, the magnitude and scope of these activities,
progress with preclinical and clinical trials, the cost of preparing, filing,
prosecuting, maintaining and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in or
terminations of existing collaborative arrangements and license arrangements,
the establishment of additional collaborative and license arrangements, and the
cost of manufacturing scale-up and development of marketing activities, if
undertaken by the Company. If Amgen terminates its agreement to develop
Norcalcin in the Amgen territory, the Company may not have the resources
necessary to complete the development and commercialization of Norcalcin in the
Amgen territory.
Depending on the factors described above, NPS may need to raise substantial
additional funds to support its long-term product development and
commercialization programs. The Company intends to seek additional funding
through corporate collaborations and license agreements. There can be no
assurance the Company will be able to negotiate such agreements in the future on
acceptable terms, or at all. The Company may also seek additional funding
through public or private financings. If additional funds are raised by issuing
equity securities, further dilution to stockholders will result. If adequate
funds are not available, the Company may be required to delay, reduce the scope
of or eliminate one or more of its research and development programs or to
obtain funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates or products that the Company may otherwise seek to develop or
commercialize on its own, any one of which could have a material adverse effect
on the Company's operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
LACK OF MARKETING CAPABILITIES. The Licensees currently have marketing and
distribution rights with respect to products under development for the treatment
of HPT and osteoporosis; however, such commercialization rights may revert to
NPS, under certain circumstances, including upon termination of any of the
related agreements. NPS may retain commercialization rights to other products
developed in the future. The Company currently lacks sales, marketing and
distribution capability. In order to market any of its products directly, the
Company would have to develop a marketing and sales force with technical
expertise and with supporting distribution capability. There can be no assurance
that the Company will be able to establish in-house sales and distribution
capabilities or relationships with third parties, or that it will be successful
in gaining market acceptance for its products.
Outside the United States, the Company's ability to market a product is
contingent upon receiving marketing authorization from the appropriate foreign
regulatory authorities. The requirements governing the conduct of clinical
trials, marketing authorization, pricing and reimbursement vary widely from
country to country. This foreign regulatory approval process includes all of the
risks associated with FDA approval set forth above.
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT. There is significant national
concern today about the availability and rising cost of health care in the
United States. It is anticipated that new federal and/or state legislation will
be passed and regulations adopted to attempt to provide broader and better
health care and to manage and contain its cost. While NPS cannot predict whether
any such legislative or regulatory proposals will be adopted or the effect such
proposals may have on its business, the pendency of such proposals could have a
material adverse effect on the Company's ability to raise capital, and the
adoption of such proposals could have a material adverse effect on the Company
in general.
In both domestic and foreign markets, sales of the Company's product
candidates will depend in part on the availability of reimbursement from
third-party payors such as government health administration authorities, private
health insurers and other organizations. Under current guidelines, Medicare does
not reimburse patients for self-administered drugs. Such policy may adversely
affect
25
the market for products designed to treat patients with age-related disorders,
such as HPT and osteoporosis. In addition, third-party payors are increasingly
challenging the price and cost-effectiveness of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products. There can be no assurance that the Company's product
candidates will be considered cost-effective or that adequate third-party
reimbursement will be available to enable NPS to maintain price levels
sufficient to realize an appropriate return on its investment in product
development. Failure to achieve sufficient price levels for its drugs could
adversely affect the Company's business. Legislation and regulations affecting
the pricing of pharmaceuticals may change before any of the Company's product
candidates are approved for marketing. Adoption of such legislation or
regulations could further limit reimbursement for medical products and services.
Furthermore, the Company's ability to commercialize its potential product
portfolio may be adversely affected to the extent that such legislation has a
material adverse effect on the business, financial condition and profitability
of other companies that are current or future collaborators for certain of the
Company's product candidates.
DEPENDENCE ON KEY PERSONNEL; ABILITY TO MANAGE GROWTH. The Company is
highly dependent on the principal members of its scientific and management
staff. Loss of any of these persons could adversely affect the Company's
business. The Company does not have employment contracts. The Company's future
success will also depend in large part upon its continued ability to attract and
retain other highly qualified scientific and management personnel. The Company
faces competition for personnel from other companies, academic institutions,
government entities and other organizations. There can be no assurance that NPS
will be successful in hiring or retaining personnel. In addition, the Company's
anticipated growth and expansion into areas and activities requiring additional
expertise, such as clinical trials, government approvals, production and
marketing and general pharmaceutical company management are expected to place
increased demands on the Company's resources. These demands are expected to
require the addition of new management, research and development and
administrative personnel, and the development of additional expertise by
existing management personnel. The failure to acquire such services or to
develop such expertise could materially adversely affect prospects for the
Company's success. Certain of these anticipated future needs are expected to be
met through the agreements with the Licensees and potential additional corporate
collaborations, but there can be no assurance that any services provided by the
Licensees or other potential corporate collaborators will be sufficient to meet
the Company's personnel or management needs.
RISK OF PRODUCT LIABILITY; USE OF HAZARDOUS MATERIALS. The testing,
marketing and sale of human therapeutic products entail significant risks. If
the Company succeeds in developing products under its product development
programs, use of such products in clinical trials and the sale of such products
following regulatory approval may expose the Company to liability claims
allegedly resulting from use of such products. These claims might be made
directly by consumers or others. NPS currently has an aggregate of $5 million
insurance for the clinical trials of Norcalcin. There can be no assurance that
NPS will be able to maintain such insurance or obtain similar insurance for any
of its future clinical trials or that coverage will be in sufficient amount to
protect against damages for liability that could have a material adverse effect
on NPS. There can also be no assurance that NPS will be able to obtain or
maintain product liability insurance in the future on acceptable terms or in
sufficient amounts to protect the Company against damages for liability that
could have a material adverse effect on the Company. The agreements with the
Licensees each provide for certain indemnification against such claims, but
there can be no assurance that any claim arising from products sold by a
collaborative partner or licensee would not also include claims directly against
NPS or that any such claim would be indemnifiable under such agreement.
In addition, the Company's research and development activities involve the
controlled use of hazardous materials, radioactive compounds and other
chemicals. The Company is required to comply with complex local, state and
federal regulations involving the use, storage and handling of these materials
and may incur certain costs in complying therewith. Although the Company
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed
26
by local, state and federal regulations, the possibility of unintended
non-compliance with such regulations or 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. The Company
may incur substantial costs to comply with environmental regulations.
The Company contracts with third parties to remove biohazardous waste
generated by the Company. The disposal of such waste, third-party waste disposal
companies contracted by the Company, and their disposal sites are regulated by
the Environmental Protection Agency ("EPA"). The EPA has initiated cleanup of a
site where a waste disposal firm contracted by the Company disposed of certain
waste generated by the Company. The Company has not accrued any liability with
respect to this matter. Although the Company was a small contributor to the site
and the Company believes that there are a number of other financially
responsible contributors, there can be no assurance that the Company will not be
held liable for all or a portion of the cleanup cost or any other costs or
damages associated with this disposal site.
VOLATILE STOCK PRICE. The market price of the shares of Common Stock, like
that of the common stock of many other biotechnology and biopharmaceutical
companies, has been and is likely to continue to be highly volatile. Factors
such as fluctuations in the Company's operating results, announcements of
technological innovations or new commercial products by the Company or its
competitors, progress with clinical trials, governmental regulation, changes in
reimbursement policies, developments in patent or other proprietary rights,
developments in the Company's relationships with current or future collaborative
partners, public concern as to the safety and efficacy of drugs developed by the
Company and its competitors, and general market conditions for biotechnology or
pharmaceutical stocks could have a significant adverse effect on the future
price of the Common Stock.
ANTITAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS. Certain
provisions of the Company's Certificate of Incorporation and Bylaws and Section
203 of the Delaware General Corporation Law could also discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. Such provisions could diminish the opportunities for a stockholder to
participate in tender offers, including tender offers at a price above the then
current market value of the Common Stock. Such provisions may also inhibit
fluctuations in the market price of the Common Stock that could result from
takeover attempts. In addition, the Board of Directors, without further
stockholder approval, may issue Preferred Stock that could have the effect of
delaying or preventing a change in control of the Company as well as adversely
affecting the voting power of the holders of Common Stock, including the loss of
voting control to others.
ABSENCE OF DIVIDENDS. The Company has never paid any cash dividends and
does not anticipate paying cash dividends in the foreseeable future.
PART II
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the results of operations and financial
condition of NPS should be read in conjunction with the Financial Statements and
Notes thereto included elsewhere in this Prospectus.
OVERVIEW
Since its inception in 1986, NPS has devoted substantially all of its
resources to its research and development programs. To date, the Company has not
developed any pharmaceutical products for sale and has incurred substantial
losses. NPS has incurred cumulative losses through December 31, 1995
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of $20.5 million, net of cumulative revenues from collaborative research and
license agreements of $22.3 million. The Company expects to incur significant
operating losses over at least the next several years as the Company continues
and expands its research and development and preclinical and clinical testing
activities. Because substantially all of the Company's revenues are derived from
license fees, milestone payments and research support payments from its
Licensees, which fluctuate from quarter to quarter, the Company expects that
losses will fluctuate from quarter to quarter and that such fluctuations may be
substantial. The Company's ability to achieve profitability depends in part on
its ability, alone and/or with others, to complete development of its product
candidates, including Norcalcin to obtain required regulatory approvals and to
manufacture and market such products, of which there can be no assurance.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Substantially all of the Company's revenues were derived from collaborative
research and license agreements with the Licensees. Revenues from such
agreements were $600,000 in 1993, $3.6 million in 1994, and $9.4 million in
1995. All of the revenues in 1993 and 1994 and $1.8 million in 1995 were from
license fees received under the collaborative agreement with SmithKline Beecham
and recognized for accounting purposes as the related research expenses were
incurred. In 1995, the Company received and recognized a $5.0 million license
fee and $1.0 million in research support from Kirin, and $1.6 million in
research support from SmithKline Beecham.
Research and development expenses increased from $6.0 million in 1993 to
$7.8 million in 1994 and to $8.7 million in 1995. The increases in research and
development expenses were principally due to the conducting of clinical trials
for Norcalcin in 1994 and 1995, increased activity in each of the Company's
principal research and development projects, the associated expansion in
staffing and increased purchases of laboratory supplies and consulting services.
Research and development expenses are expected to increase significantly in the
future as NPS conducts clinical trials for other product candidates and as more
research and development personnel are hired.
General and administrative expenses increased from $2.0 million in 1993 to
$3.1 million in 1994 and to $4.0 million in 1995. The increase in 1995 was
primarily due to costs incurred for advisory services in connection with the
consummation of the Amgen and Kirin agreements, and the increased costs
associated with operating a public company for a full year. The increase in 1994
was primarily due to expansion of facilities, the addition of management and
administrative personnel, and the costs associated with becoming a public
company. The Company expects that general and administrative expenses will
continue to increase in the future as a result of increased activity by the
Company in corporate development, investor relations, and legal affairs, and as
more personnel and facilities are needed to support research and development
activities.
Interest income increased from $110,000 in 1993 to $398,000 in 1994 and to
$480,000 in 1995 as a result of increases in the Company's cash balances from
the net proceeds of the initial public offering in 1994 and the Kirin license
fee in 1995. The Company anticipates that interest income will fluctuate in the
future as the Company's cash balance and short-term interest rates fluctuate.
Interest expense increased from $112,000 in 1993 to $128,000 in 1994 and to
$158,000 in 1995, primarily due to the acquisition of equipment through capital
leases and completion of a $1.0 million debt financing of existing equipment and
leasehold improvements in 1995.
Income tax expense of $500,000 in 1995 consisted entirely of a 10% Japanese
tax withheld on the license fee paid by Kirin. Future license, milestone and
royalty payments from Kirin will be subject to the same 10% tax.
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As of December 31, 1995, the Company had a federal income tax net operating
loss carryforward of approximately $18.4 million and a federal income tax
research credit carryforward of approximately $953,000. The Company's ability to
utilize these operating loss and research credit carryforwards against future
taxable income will be subject to annual limitations in future periods pursuant
to the "change in ownership rules" under Section 382 of the Internal Revenue
Code of 1986, as amended. See Note 7 of Notes to Financial Statements.
The Company has adopted Financial Accounting Standards Board Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities." The
adoption of the statement did not have a material effect on the Company's
financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
collaborative research and license agreements and the private and public
placement of equity securities. As of December 31, 1995, the Company had
recognized approximately $22.3 million of cumulative revenues from collaborative
research and license agreements and approximately $28.1 million in consideration
for the sale of equity securities. The Company's principal sources of liquidity
are its cash, cash equivalents and marketable investment securities which
totaled $8.3 million at December 31, 1995. Also, in connection with the
establishment of the Amgen agreement, Amgen paid $7.5 million to NPS for
1,000,000 shares of Common Stock and a non-refundable license fee of $10.0
million in March 1996.
The Company receives quarterly payments under the Kirin and SmithKline
Beecham agreements to support the Company's research efforts in HPT and
osteoporosis, respectively. The Kirin payments are $500,000 per quarter through
June 1996 and a total of $5.0 million over the remaining four years of the
research term of the agreement. The SmithKline Beecham payments are estimated to
be an aggregate of $4.3 million through the scheduled expiration of the
agreement in October 1996, of which $1.6 million had been received by December
31, 1995. Amgen will reimburse the Company up to $400,000 per year for a period
not to exceed five years for certain costs which may be incurred by the Company
in the development of Norcalcin in the Amgen territory, with such participation
occuring under the direction of Amgen. The Company could receive additional
payments of up to $56.0 million from the Licensees upon the accomplishment of
specified research and/or development milestones. Each of these agreements may
be terminated before the scheduled expiration date by the respective Licensee
and, therefore, no assurance can be given that any future milestone or research
or development support payments will be received thereunder.
Under its agreement with Brigham and Women's, the Company is obligated to
pay an aggregate of $810,000 to Brigham and Women's from February 1996 through
February 1998. Additional payments may be required upon the accomplishment of
certain research milestones by Brigham and Women's.
As of December 31, 1995, the Company's net investment in leasehold
improvements, equipment and furnishings was approximately $2.2 million. The
Company has financed a portion of such expenditures through capital leases and
long-term debt with a total principal obligation of approximately $1.5 million
as of December 31, 1995. Additional equipment and facilities will be needed as
the Company increases its research and development activities, a portion of
which may be financed with debt. Equipment and leasehold improvements subject to
the capital leases and the long-term debt have been pledged in support of the
leasehold obligations.
The Company anticipates that its existing capital resources, including
research and development support payments from existing collaborations, as well
as the net proceeds of the Offering and the interest earned thereon, will be
sufficient to enable it to maintain its current and planned operations through
at least 1997. However, actual needs are dependent on numerous factors,
including the progress of the Company's research and development programs, the
magnitude and scope of these
29
activities, progress with preclinical and clinical trials, the cost of
preparing, filing, prosecuting, maintaining and enforcing patent claims and
other intellectual property rights, competing technological and market
developments, changes in or terminations of existing collaborative research or
license arrangements, the establishment of additional collaborative arrangements
and the cost of manufacturing scale-up and development of marketing activities,
if undertaken by the Company. Substantial expenditures will be required to
conduct preclinical studies and clinical trials, manufacture or have
manufactured and market products other than Norcalcin from current research and
development efforts and perform research and development activities in
additional areas. In addition, if Amgen terminates its agreement to develop and
commercialize Norcalcin in its territory, the Company may not have sufficient
capital to complete the development and commercialization of Norcalcin in
Amgen's territory.
NPS will need to raise substantial additional funds to support its long-term
product development and commercialization programs. The Company also intends to
seek additional funding through corporate collaborations and licensing
agreements and the Company may seek additional funding through public or private
financing. There can be no assurance that additional financing will be available
on acceptable terms, if at all. If adequate funds are not available, the Company
may be required to delay, reduce the scope of or eliminate one or more of its
research and development programs or to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company may otherwise seek to develop or commercialize on its own.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 3 to
Report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized on the 31st day of May, 1996.
REGISTRANT:
NPS PHARMACEUTICALS, INC.
By ________/s/ JAMES U. JENSEN________
James U. Jensen
VICE PRESIDENT, CORPORATE
DEVELOPMENT
AND LEGAL AFFAIRS
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