As filed with the Securities and Exchange Commission on March 24, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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CELL THERAPEUTICS, INC.
(Exact name of Registrant as specified in its charter)
Washington 91-1533912
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
201 Elliott Avenue West
Seattle, Washington 98119
(206) 282-7100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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James A. Bianco
President and Chief Executive Officer
Cell Therapeutics, Inc.
201 Elliott Avenue West
Seattle, Washington 98119
(206) 282-7100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies to:
Michael J. Kennedy, Esq. Mark Mihanovic, Esq.
Karen A. Dempsey, Esq. Joel Bernstein, Esq.
Torrey J. Miller, Esq. Marc Jones, Esq.
Wilson Sonsini Goodrich & Rosati McDermott, Will & Emery
Professional Corporation 2049 Century Park East
One Market, Spear Street Tower Suite 3400
San Francisco, CA 94105 Los Angeles, CA 90067
(415) 947-2000 (310) 277-4110
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following. [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following. [_]
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CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Amount Maximum Aggregate Amount of
Title of Each Class to be Offering Price Offering Price Registration
of Securities to be Registered Registered (1) Per Share (2) (2) Fee
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Common Stock, no par value...... 3,450,000 $19.3125 $66,628,125 $17,590
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(1) Includes 450,000 shares that the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) The price of $19.3125 per share, which was the average of the high and low
prices of the Registrant's common stock on The Nasdaq National Market on
March 21, 2000, is set forth solely for the purposes of calculating the
registration fee in accordance with Rule 457(c) of the Securities Act of
1933, as amended.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Subject to Completion, Dated March 24, 2000.
The information contained in this prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
3,000,000 Shares
Cell Therapeutics [Logo]
Common Stock
$ per share
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Cell Therapeutics, Inc. is offering 3,000,000 shares of its common stock.
The common stock is listed on the Nasdaq National Market under the symbol
"CTIC." On March 23, 2000, the last reported sale price of our common stock on
the Nasdaq National Market was $27.00 per share.
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.
Per
Share Total
----- -----
Price to the public........................................ $ $
Underwriting discount......................................
Proceeds to Cell Therapeutics..............................
We have granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 450,000 additional
shares from us within 30 days following the date of this prospectus to cover
over-allotments.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
CIBC World Markets
U.S. Bancorp Piper Jaffray
The date of this prospectus is , 2000
Our Product Development Pipeline
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Preclinical Phase I Phase II Phase III New Drug
Application
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ATO (arsenic trioxide)
. Relapsed acute promyelocytic ------------------------------
leukemia, or APL
. First line treatment of APL* --------------------------
. Refractory multiple myeloma -------------------
. Relapsed or refractory non-Hodgkin's -------------------
lymphoma,
or NHL*
. Relapsed or refractory Hodgkin's -------------------
lymphoma*
. Relapsed or refractory acute -------------------
lymphoblastic leukemia,
or ALL*
. Relapsed and refractory acute -------------------
myelogenous leukemia,
or AML, secondary leukemia*
. Relapsed or refractory chronic -------------------
myelogenous leukemia,
or CML*
. Advanced hormone refractory prostate -------------------
cancer*
. Advanced cervical cancer* -------------------
. Advanced renal cell cancer* -------------------
. Combination with ascorbic acid for -----------
relapsed and
refractory multiple myeloma*
PG-TXL(TM) (polyglutamate paclitaxel)
. Advanced cancers not previously ------------
treated with taxanes
PG-CPT (polyglutamate camptothecin)
. Treatment of advanced colon cancer ----
and other cancers
Apra(TM)
. Second line treatment for soft -------------------
tissue sarcoma
. Treatment of hormone/chemotherapy- -------------------
resistant
prostate cancer
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* Trials being conducted under a Cooperative Development and Research Agreement
with the NCI
Table of Contents
Page
----
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 17
Common Stock Market Data................................................. 18
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operation............................................................ 22
Business................................................................. 26
Management............................................................... 39
Principal Shareholders................................................... 43
Description of Capital Stock............................................. 45
Underwriting............................................................. 48
Legal Matters............................................................ 50
Experts.................................................................. 50
Where You Can Find More Information...................................... 50
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Unless otherwise stated, all information contained in this prospectus assumes
no exercise of the over-allotment option granted to the underwriters.
The underwriters are offering the shares subject to various conditions and may
reject all or part of any order.
3
Prospectus Summary
The summary highlights information contained in other parts of this prospectus.
Because it is a summary, it does not contain all of the information that you
should consider before investing in the shares. You should read the entire
prospectus carefully, including the Risk Factors and the reports incorporated
by reference in this prospectus.
Our Business
We develop, acquire and commercialize novel treatments for cancer. Our goal is
to build a leading, vertically-integrated biopharmaceutical company with a
diversified portfolio of proprietary oncology drugs. Our research and in-
licensing activities are concentrated on identifying new, less toxic and more
effective ways to treat cancer.
Our Products
We acquired our lead product called arsenic trioxide, or ATO, in January 2000.
We plan to submit a New Drug Application, or NDA, with the FDA for ATO by the
end of March 2000. ATO is initially being developed for patients with a type of
blood cell cancer called Acute Promyelocytic Leukemia, or APL, who have
relapsed or failed available therapies. We received fast-track designation from
the FDA for this indication and expect to receive priority review, which would
expedite the FDA's review of our application. In the phase I and phase II
trials of ATO in patients with APL, 88% of the 52 patients experienced complete
remission following treatment with ATO. In addition, initial clinical trials
have demonstrated encouraging responses among patients with other types of
cancers, including advanced cases of multiple myeloma. The National Cancer
Institute is investigating ATO in treating a variety of cancers including
multiple myeloma, lymphoma, cervical cancer, prostate cancer, renal cell cancer
and certain types of leukemia. Fourteen clinical trials are ongoing in the
United States.
We are also developing a new way to deliver cancer drugs more selectively to
tumor tissue in order to attempt to reduce the toxic side effects and improve
the anti-tumor activity of existing chemotherapy agents. Our technology links,
or conjugates, chemotherapy drugs to a naturally occurring polymer called
polyglutamate. We believe this technology works by taking advantage of unique
characteristics of tumor blood vessels to increase the percentage of the drug
administered that actually reaches the tumor, which may increase the potency
and reduce the side effects of a given dose compared to giving the drug alone.
In addition, the conjugate is inactive while it circulates in the bloodstream,
which may lower its toxicity relative to the drug alone.
Our first application of the polyglutamate technology is PG-TXL, which is
polyglutamate linked to paclitaxel. Paclitaxel is the active ingredient in
Taxol, the world's best selling cancer drug. In preclinical animal studies, PG-
TXL demonstrated fewer side effects and significantly improved tumor killing-
activity compared to Taxol alone, including cures in established animal breast
cancer models in which similar doses of Taxol merely slowed tumor growth. The
Cancer Research Campaign is currently sponsoring a U.K. phase I clinical trial
of PG-TXL for which we expect to complete enrollment by the end of 2000. We
plan to begin phase II trials in the U.S. and the U.K. in the second half of
2000. We also expect to initiate development of a novel PG-camptothecin in the
second half of this year.
In addition, we are developing Apra, an anti-cancer compound that regulates how
cancer cells metabolize certain lipids. Because of its unique mechanism for
killing cancer cells, Apra may not have the side effects of conventional cancer
drugs, may be effective in treating patients whose cancers have become
resistant to standard anti-cancer agents and may enhance the cancer fighting
capabilities of conventional chemotherapy drugs. In November 1999, we announced
encouraging clinical results in the first 24 evaluable patients in a phase II
efficacy trial of Apra in patients with soft tissue sarcomas who had failed
available therapies. As a result, we expanded the trial protocol from 40
patients to 80 patients and expect enrollment for this trial to be
4
completed by the end of 2000. Treatment of sarcoma with Apra has received
orphan drug designation from the FDA. We are also completing enrollment in a
phase II trial of Apra in patients with prostate cancer who have failed
hormonal and conventional chemotherapy.
Our Strategy
Our goal is to become a leading cancer drug company. The following are the key
elements of our business strategy:
. We initially develop our cancer drug candidates to treat life threatening
types or stages of cancer for which current treatments are inadequate and
that qualify for fast-track designation from the FDA. Once approved, we
will seek to expand the market potential of our products by seeking
approval for other indications in larger cancer patient populations.
. We plan to devote a substantial portion of our efforts to further develop
and commercialize ATO.
. We plan to develop our own sales and marketing capabilities in North
America and establish collaborations to commercialize our products outside
North America. We plan to have our own sales force in place in time for us
to launch ATO if and when approved by the FDA.
. We are applying our patented polymer drug delivery technology to develop a
portfolio of improved versions of currently marketed anti-cancer drugs to
improve their ease of administration, side effect profile and
effectiveness.
. We plan to continue to in-license or acquire complementary products or
technologies.
Other Information
We were incorporated in Washington in 1991. Our principal executive offices
are located at 201 Elliott Avenue West, Seattle, Washington 98119. Our
telephone number is (206) 282-7100. Our website can be found at
www.cticseattle.com. We do not intend the information found on our website to
constitute part of this prospectus.
"CTI," "PG-TXL" and "Apra" are our trademarks. All other product names,
trademarks and trade names referred to in this prospectus are the property of
their respective owners.
5
The Offering
Common stock offered by CTI........... 3,000,000 shares
Common stock to be outstanding after 24,294,772 shares
the offering..........................
Use of proceeds....................... We intend to use the net proceeds from
this offering for clinical trials and
other research and development
activities, commercialization of ATO
and general corporate purposes. See
"Use of Proceeds."
Nasdaq National Market symbol......... CTIC
In the table above, the number of shares of common stock to be outstanding
after the offering is based on the number of shares outstanding as of March 15,
2000, and includes the following:
. 2,000,000 shares of common stock issued for the acquisition of PolaRx
Biopharmaceuticals, Inc. in January 2000
. 3,333,334 shares of common stock issued in a private placement in February
2000
. 365,902 shares of common stock issued from January 1, 2000 through March
15, 2000 in connection with stock option exercises
The number of shares of common stock outstanding excludes the following:
. 2,778,126 shares of common stock issuable upon exercise of options
outstanding as of March 15, 2000 at a weighted average exercise price of
$2.93 per share
. 2,243,810 shares of common stock issuable upon exercise of warrants
outstanding as of March 15, 2000 at a weighted average exercise price of
$6.69 per share
. 4,624,277 shares of common stock issuable upon the conversion, at the
option of the holder, of Series D preferred stock issued in November 1999
6
Summary Consolidated Financial Data
(in thousands, except per share data)
The pro forma balance sheet data in the table below reflects the acquisition of
PolaRx consummated in January 2000 as if effective on December 31, 1999, the
sale of common stock resulting in net proceeds of $37.1 million in a private
placement consummated in February 2000 and $2.2 million related to the exercise
of stock options from January 1, 2000 through March 15, 2000. The pro forma as
adjusted balance sheet data reflects the receipt of the net proceeds from the
sale of 3,000,000 shares of common stock at an assumed price to the public of
$27.00 per share, after deducting underwriters' discounts and estimated
offering expenses.
Year Ended December 31,
--------------------------------
1997 1998 1999
-------- --------- -----------
(in thousands, except per
share data)
Statements of Operations Data:
Revenues:
Collaboration agreements..................... $ 11,831 $ 13,200 $ --
Operating expenses:
Research and development..................... 27,285 29,942 27,682
General and administrative................... 10,090 10,889 9,788
-------- -------- --------
Total operating expenses.................... 37,375 40,831 37,470
-------- -------- --------
Loss from operations........................... (25,544) (27,631) (37,470)
Other income (expense):
Investment income............................ 2,895 3,094 1,692
Interest expense............................. (377) (435) (502)
-------- -------- --------
Net loss....................................... (23,026) (24,972) (36,280)
Preferred stock dividend....................... -- -- (5,201)
-------- -------- --------
Net loss applicable to common shareholders..... $(23,026) $(24,972) $(41,481)
======== ======== ========
Basic and diluted net loss per common share.... $ (1.98) $ (1.62) $ (2.67)
======== ======== ========
Shares used in computation of basic and diluted
net loss per common share..................... 11,634 15,410 15,552
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
Balance Sheet Data:
Cash, cash equivalents and securities available
for sale...................................... $23,880 $63,330 $139,225
Working capital................................ 17,705 51,322 127,217
Total assets................................... 30,848 102,876 178,771
Long-term obligations, less current portion.... 2,653 12,993 12,993
Total shareholders' equity..................... 20,904 76,726 152,621
7
Risk Factors
You should carefully consider the following factors and other information
included or incorporated by reference in this prospectus before deciding to
invest in the shares.
If we do not successfully develop products, we may be unable to generate any
revenue.
Our leading drug candidates, arsenic trioxide, or ATO, PG-TXL and Apra, are
currently in clinical trials. These clinical trials of the drug candidates
involve the testing of potential therapeutic agents, or effective treatments,
in humans in three phases (phases I, II, and III) to determine the safety and
efficacy of the drug candidates necessary for an approved drug. Many drugs in
human clinical trials fail to demonstrate the desired safety and efficacy
characteristics. Even if our drugs progress successfully through initial human
testing, they may fail in later stages of development. A number of companies in
the pharmaceutical industry, including CTI, have suffered significant setbacks
in advanced clinical trials, even after reporting promising results in earlier
trials. For example, in our first phase III human trial for lisofylline,
completed in March 1998, we failed to meet our two primary endpoints, or goals,
even though we met our endpoints in two earlier phase II trials for
lisofylline. As a result, we are no longer developing lisofylline as a
potential product. In addition, data obtained from clinical trials are
susceptible to varying interpretations. Government regulators and our
collaborators may not agree with our interpretation of our future clinical
trial results. The clinical trials of ATO, PG-TXL and Apra or any of our future
drug candidates may not be successful.
Many of our drug candidates are still in research and preclinical development,
which means that they have not yet been tested on humans. We will need to
commit significant time and resources to develop these and additional product
candidates. We are dependent on the successful completion of clinical trials
and obtaining regulatory approval in order to generate revenues. The failure to
generate such revenues may preclude us from continuing our research and
development of these and other product candidates.
Even if our drug candidates are successful in clinical trials, they may not be
successfully commercialized.
Since our inception in 1991, we have dedicated substantially all of our
resources to the research and development of our technologies and related
compounds. All of our compounds currently are in research or development, and
none has been submitted for marketing approval. There can be no assurance that
any of our other compounds will enter human clinical trials on a timely basis,
if at all, or that we will develop any product candidates suitable for
commercialization. Prior to commercialization, each product candidate will
require significant additional research, development and preclinical testing
and extensive clinical investigation before submission of any regulatory
application for marketing approval. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Potential products may:
. be found ineffective or cause harmful side effects during preclinical
testing or clinical trials
. fail to receive necessary regulatory approvals
. be difficult to manufacture on a large scale
. be uneconomical to produce
. fail to achieve market acceptance
. be precluded from commercialization by proprietary rights of third parties
We cannot assure you that our product development efforts or that our
collaborative partners' efforts will be successfully completed, that required
regulatory approvals will be obtained or that any products, if introduced, will
be successfully marketed or achieve customer acceptance.
8
Several of our drug candidates are based on novel technologies that have not
yet been proven.
Many of our product candidates are based upon novel delivery technologies which
we are using to discover and develop drugs for the treatment of cancer. This
technology has not been proven. Furthermore preclinical results in animal
studies may not predict outcome in human clinical trials. Our product
candidates may not be proven safe or effective. If this technology does not
work, our drug candidates may not develop into commercial products.
Our clinical trials could take longer to complete than expected.
Although for planning purposes we forecast the commencement and completion of
clinical trials, the actual timing of these events can vary dramatically due to
factors such as delays, scheduling conflicts with participating clinicians and
clinical institutions and the rate of patient accruals. We cannot assure you
that clinical trials involving our product candidates will commence or be
completed as forecasted. We have limited experience in conducting clinical
trials. In certain circumstances we rely on academic institutions or clinical
research organizations to conduct, supervise or monitor some or all aspects of
clinical trials involving our products. In addition, certain clinical trials
for our products will be conducted by government-sponsored agencies and
consequently will be dependent on governmental participation and funding. We
will have less control over the timing and other aspects of these clinical
trials than if we conducted them entirely on our own. We cannot assure you that
these trials will commence or be completed as we expect or that they will be
conducted successfully. Failure to commence or complete, or delays in, any of
our planned clinical trials could delay or prevent the commercialization of our
products and harm our business.
If we continue to incur net losses, we may not achieve or maintain
profitability.
We were incorporated in 1991 and have incurred a net operating loss every year.
As of December 31, 1999, we had an accumulated deficit of approximately $158.4
million. We have not generated any product revenue from sales to date. We may
never generate revenue nor become profitable, even if we are able to
commercialize any products. We will need to conduct significant research,
development, testing and regulatory compliance activities that, together with
projected general and administrative expenses, we expect will result in
substantial increasing operating losses for at least the next several years.
Even if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
If we fail to adequately protect our intellectual property, our competitive
position could be harmed.
Development and protection of our intellectual property are critical to our
business. If we do not adequately protect our intellectual property,
competitors may be able to practice our technologies. Our success depends in
part on our ability to:
. obtain patent protection for our products or processes both in the United
States and other countries
. protect trade secrets
. prevent others from infringing on our proprietary rights
In particular we believe that linking our polymers to existing drugs will yield
patentable subject matter. We do not believe that our polymer-drug conjugates
will infringe any third-party patents covering the underlying drug. However,
there can be no assurance that we will receive a patent for our polymer
conjugates or that we will not be challenged by the holder of a patent covering
the underlying drug.
The patent position of biopharmaceutical firms generally is highly uncertain
and involves complex legal and factual questions. The U.S. Patent and Trademark
Office has not established a consistent policy regarding the breadth of claims
that it will allow in biotech patents. If it allows broad claims, the number
and cost of patent interference proceedings in the U.S. and the risk of
infringement litigation may increase. If it allows narrow claims, the risk of
infringement may decrease, but the value of our rights under our patents,
licenses and patent applications may also decrease.
9
We cannot assure you that patent applications in which we have rights will ever
issue as patents or that the claims of any issued patents will afford
meaningful protection for our technologies or products. In addition, patents
issued to us or our licensors may be challenged and subsequently narrowed,
invalidated or circumvented. Litigation, interference proceedings or other
governmental proceedings that we may become involved in with respect to our
proprietary technologies or the proprietary technology of others could result
in substantial cost to us. Patent litigation is widespread in the biotechnology
industry, and any patent litigation could harm our business. Costly litigation
might be necessary to protect our orphan drug designations or patent position
or to determine the scope and validity of third-party proprietary rights, and
we may not have the required resources to pursue such litigation or to protect
our patent rights. An adverse outcome in litigation with respect to the
validity of any of our patents could subject us to significant liabilities to
third parties, require disputed rights to be licensed from third parties or
require us to cease using a product or technology.
We also rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. Third parties may independently
develop such know-how or otherwise obtain access to our technology. While our
employees, consultants and corporate partners with access to proprietary
information are generally required to enter into confidentiality agreements,
these agreements may not be honored.
If any of our license agreements for intellectual property underlying ATO, PG-
TXL or any other product are terminated, we may lose our rights to develop or
market that product.
Patents issued to third parties may cover our products as ultimately developed.
We may need to acquire licenses to these patents or challenge the validity of
these patents. We may not be able to license any patent rights on acceptable
terms or successfully challenge such patents. The need to do so will depend on
the scope and validity of these patents and ultimately on the final design or
formulation of the products and services that we develop.
We have licensed intellectual property, including patent applications from
Memorial Sloan Kettering Cancer Institute, Samuel Waxman Cancer Research
Foundation, Beijing Medical University and others, including the intellectual
property underlying our most advanced product candidate, ATO. We have also in-
licensed the intellectual property relating to our polymer drug delivery
technology, including PG-TXL. Some of our product development programs depend
on our ability to maintain rights under these licenses. Each licensor has the
power to terminate its agreement with us if we fail to meet our obligations
under that license. We may not be able to meet our obligations under these
licenses. If we default under any of these license agreements, we may lose our
right to market and sell any products based on the licensed technology.
Our products could infringe on the intellectual property rights of others,
which may cause us to engage in costly litigation and, if we are not
successful, could cause us to pay substantial damages and prohibit us from
selling our products.
Although we attempt to monitor the patent filings of our competitors in an
effort to guide the design and development of our products to avoid
infringement, third parties may challenge the patents that have been issued or
licensed to us. We may have to pay substantial damages, possibly including
treble damages, for past infringement if it is ultimately determined that our
products infringe a third party's patents. Further, we may be prohibited from
selling our products before we obtain a license, which, if available at all,
may require us to pay substantial royalties. Even if infringement claims
against us are without merit, defending a lawsuit takes significant time, may
be expensive and may divert management attention from other business concerns.
Our lack of operating experience may cause us difficulty in managing our
growth.
We have no experience in selling pharmaceutical products and only limited
experience in negotiating, establishing and maintaining strategic
relationships, in manufacturing or procuring products in commercial quantities
and conducting other later-stage phases of the regulatory approval process.
Furthermore, our first leading drug candidate, ATO, was only recently acquired
in January from PolaRx. We have no experience with
10
respect to the launch of a commercial product. Our ability to manage our
growth, if any, will require us to improve and expand our management and our
operational and financial systems and controls (particularly with respect to
ATO). If our management is unable to manage growth effectively, our business
and financial condition would be materially harmed. In addition, if rapid
growth occurs, it may strain our operational, managerial and financial
resources.
If we fail to keep pace with rapid technological change in the biotechnology
and pharmaceutical industries, our products could become obsolete.
Biotechnology and related pharmaceutical technology have undergone and are
subject to rapid and significant change. We expect that the technologies
associated with biotechnology research and development will continue to develop
rapidly. Our future will depend in large part on our ability to maintain a
competitive position with respect to these technologies. Any compounds,
products or processes that we develop may become obsolete before we recover any
expenses incurred in connection with developing these products.
We are faced with direct and intense competition from our rivals in the
biotechnology and pharmaceutical industries.
The biotechnology and pharmaceutical industries are intensely competitive. We
have numerous competitors in the United States and elsewhere. Our competitors
include major, multinational pharmaceutical and chemical companies, specialized
biotechnology firms and universities and other research institutions. Many of
these competitors have greater financial and other resources, larger research
and development staffs and more effective marketing and manufacturing
organizations, than we do. In addition, academic and government institutions
have become increasingly aware of the commercial value of their research
findings. These institutions are now more likely to enter into exclusive
licensing agreements with commercial enterprises, including our competitors, to
market commercial products.
Our competitors may succeed in developing or licensing technologies and drugs
that are more effective or less costly than any we are developing. Our
competitors may succeed in obtaining FDA or other regulatory approvals for drug
candidates before we do. In particular, we face direct competition from many
companies focusing on delivery technologies. Drugs resulting from our research
and development efforts, if approved for sale, may not compete successfully
with our competitors' existing products or products under development.
If we fail to raise substantial additional capital, we will have to curtail or
cease operations.
We expect that our existing capital resources and the interest earned thereon
will enable us to maintain our current and planned operations for at least two
years following this offering. Beyond that time, if our capital resources are
insufficient to meet future capital requirements, we will have to raise
additional funds to continue the development of our technologies and complete
the commercialization of products, if any, resulting from our technologies. We
will require substantial funds to: (1) continue our research and development
programs, (2) in-license or acquire additional technologies, and (3) conduct
preclinical studies and clinical trials. We may need to raise additional
capital to fund our operations repeatedly. We may raise such capital through
public or private equity financings, partnerships, debt financings, bank
borrowings, or other sources. Our capital requirements will depend upon
numerous factors, including the following:
. the establishment of additional collaborations
. the development of competing technologies or products
. changing market conditions
. the cost of protecting our intellectual property rights
. the purchase of capital equipment
11
. the progress of our drug discovery and development programs, the progress
of our collaborations and receipt of any option/license, milestone and
royalty payment resulting from those collaborations
. in-licensing and acquisition opportunities
Additional funding may not be available on favorable terms or at all. If
adequate funds are not otherwise available, we may curtail operations
significantly. To obtain additional funding, we may need to enter into
arrangements that require us to relinquish rights to certain technologies, drug
candidates, products and/or potential markets. To the extent that additional
capital is raised through the sale of equity, or securities convertible into
equity, you may experience dilution of your proportionate ownership of the
company.
Our stock price is extremely volatile, which may affect our ability to raise
capital in the future.
The market price for securities of biopharmaceutical and biotechnology
companies, including that of ours, historically has been highly volatile, and
the market from time to time has experienced significant price and volume
fluctuations that are unrelated to the operating performance of such companies.
For example, in the last twelve months, our stock price has ranged from a low
of $1.3125 to a high of $52.00. Fluctuations in the trading price or liquidity
of our common stock may adversely affect our ability to raise capital through
future equity financings.
Factors that may have a significant impact on the market price and
marketability of our common stock include:
. announcements of technological innovations or new commercial therapeutic
products by us, our collaborative partners or our present or potential
competitors
. our quarterly operating results
. announcements by us or others of results of preclinical testing and
clinical trials
. developments or disputes concerning patent or other proprietary rights
. developments in our relationships with collaborative partners
. acquisitions
. litigation
. adverse legislation, including changes in governmental regulation and the
status of our regulatory approvals or applications
. third-party reimbursement policies
. changes in securities analysts' recommendations
. changes in health care policies and practices
. economic and other external factors
. general market conditions
In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. If a
securities class action suit is filed against us, we would incur substantial
legal fees and our management's attention and resources would be diverted from
operating our business in order to respond to the litigation.
There are a substantial number of unregistered shares of our common stock
which, when registered for resale, could result in a decrease in our stock
price or impair our ability to raise funds in future equity offerings.
The sale, or availability for sale, of substantial amounts of our common stock
in the public market could materially decrease the market price of our common
stock and could impair our ability to raise additional capital.
12
We have filed a resale registration statement for 4,624,277 shares of our
common stock underlying our Series D preferred stock and warrants issued in
November 1999. We are also obligated to file a resale registration statement
covering 3,333,334 shares of common stock issued in a private placement in
February 2000. While shareholders holding an aggregate of 4,976,907 of such
shares are subject to a lockup until 90 days following the completion of this
offering, sales of the remaining shares will be available for resale in the
public market from time to time during this offering. We also intend to file a
resale registration statement covering 2,000,000 shares issued in the
acquisition of PolaRx, although these shares will not be available for resale
until at least 90 days following this offering.
Any sales by existing shareholders or holders of options or warrants may have
an adverse effect on our ability to raise capital and may adversely affect the
market price of the common stock.
Our dependence on third-party manufacturers means that we may not have
sufficient control over the manufacture of our products.
We currently do not have internal facilities for the manufacture of any of our
products for clinical or commercial production. We will need to develop
additional manufacturing resources, enter into collaborative arrangements with
other parties which have established manufacturing capabilities or elect to
have other third parties manufacture our products on a contract basis. For
example, we are a party to an agreement with Aerojet to furnish Apra bulk drug
substance for future clinical studies. We are dependent on such collaborators
or third parties to supply us in a timely way with products manufactured in
compliance with standards imposed by the FDA and foreign regulators. The
manufacturing facilities of contract manufacturers may not comply with
applicable manufacturing regulations of the FDA nor meet our requirements for
quality, quantity or timeliness.
We may face difficulties in achieving acceptance of our products in the market
due to our lack of sales and marketing capabilities and other factors.
We have no direct experience in marketing, sales or distribution. The creation
of infrastructure to commercialize pharmaceutical products is an expensive and
time-consuming process. In the event that ATO achieves regulatory approval, we
will need to build a sales and marketing force to market the product. Should we
have to market and sell our other products directly, we would need to further
develop a marketing and sales force with sufficient technical expertise and
distribution capability. We may be unable to develop the necessary marketing
and sales capabilities and we may fail to gain market acceptance for our
products.
If we lose our key personnel or are unable to attract and retain additional
personnel, we may be unable to pursue collaborations or develop our own
products.
We are highly dependent on Dr. James A. Bianco, Chief Executive Officer, and
Dr. Jack Singer, Executive Vice President, Research Program Chairman. The loss
of these principal members of our scientific or management staff, or failure to
attract or retain other key scientific personnel employees, could prevent us
from pursuing collaborations or developing our products and core technologies.
Recruiting and retaining qualified scientific personnel to perform research and
development work are critical to our success. There is intense competition for
qualified scientists and managerial personnel from numerous pharmaceutical and
biotechnology companies, as well as from academic and government organizations,
research institutions and other entities. In addition, we rely on consultants
and advisors, including our scientific and clinical advisors, to assist us in
formulating our research and development strategy. All of our consultants and
advisors are employed by other employers or are self-employed, and have
commitments to or consulting or advisory contracts with other entities that may
limit their availability to us.
If we fail to obtain regulatory approvals, we will be unable to commercialize
our products.
We do not have a drug product approved for sale in the U.S. or any foreign
market. We must obtain approval from the FDA in order to sell our drug products
in the U.S. and from foreign regulatory authorities in order to
13
sell our drug products in other countries. We have not yet submitted any
application for approval to the FDA. Once an application is submitted, the FDA
could reject the application or require us to conduct additional clinical or
other studies as part of the regulatory review process. Delays in obtaining or
failure to obtain FDA approvals would prevent or delay the commercialization of
our drug products, which prevent, defer or decrease our receipt of revenues.
The regulatory review and approval process is lengthy, expensive and uncertain.
Extensive preclinical and clinical data and supporting information must be
submitted to the FDA for each indication for each drug in order to secure FDA
approval. We have limited experience in obtaining such approvals, and cannot be
certain when we will receive these regulatory approvals, if ever.
In addition to initial regulatory approval, our drug products will be subject
to extensive and rigorous ongoing domestic and foreign government regulation,
as we discuss in more detail in "Business--Government Regulation." Any
approvals, once obtained, may be withdrawn if compliance with regulatory
requirements is not maintained or safety problems are identified. Failure to
comply with these requirements may subject us to stringent penalties.
Because there is a risk of product liability associated with our products, we
face potential difficulties in obtaining insurance.
Our business exposes us to potential product liability risks inherent in the
testing, manufacturing and marketing of human pharmaceutical products, and we
may not be able to avoid significant product liability exposure. Except for
insurance covering product use in our clinical trials, we do not currently have
any product liability insurance, and it is possible that we will not be able to
obtain or maintain such insurance on acceptable terms or that any insurance
obtained will provide adequate coverage against potential liabilities. Our
inability to obtain sufficient insurance coverage at an acceptable cost or
otherwise to protect against potential product liability claims could prevent
or limit the commercialization of any products we develop. A successful product
liability claim in excess of our insurance coverage could exceed our net worth.
Uncertainty regarding third-party reimbursement and health care cost
containment initiatives may limit our returns.
Our ability to commercialize our products successfully will be affected by the
ongoing efforts of governmental and third-party payors to contain or reduce the
cost of health care. Governmental and other third-party payors increasingly are
attempting to contain health care costs by:
. challenging the prices charged for health care products and services
. limiting both coverage and the amount of reimbursement for new therapeutic
products
. denying or limiting coverage for products that are approved by the FDA but
are considered experimental or investigational by third-party payors
. refusing in some cases to provide coverage when an approved product is used
for disease indications in a way that has not received FDA marketing
approval
In addition, the trend toward managed health care in the United States, the
growth of organizations such as health maintenance organizations, and
legislative proposals to reform healthcare and government insurance programs
could significantly influence the purchase of healthcare services and products,
resulting in lower prices and reducing demand for our products.
Even if we succeed in bringing any of our proposed products to the market, they
may not be considered cost-effective and third-party reimbursement might not be
available or sufficient. If adequate third-party coverage is not available, we
may not be able to maintain price levels sufficient to realize an appropriate
return on our investment in research and product development. In addition,
legislation and regulations affecting the pricing of
14
pharmaceuticals may change in ways adverse to us before or after any of our
proposed products are approved for marketing. While we cannot predict whether
any such legislative or regulatory proposals will be adopted, the adoption of
such proposals could make it difficult or impossible to sell our products.
We have broad discretion as to use of the net proceeds we receive from this
offering, and, if we do not allocate these proceeds wisely, your investment
could suffer.
We expect to use the net proceeds we receive from this offering to expand our
clinical trials and other research, with a particular focus on our late-stage
clinical product candidates, the sales and marketing activities for the
commercialization of ATO, for potential acquisitions of complementary
technologies, products or businesses and for general corporate purposes and
working capital. We may change the allocation of these proceeds in response to
economic or industry developments or changes. Our board of directors and
management can determine to spend the proceeds from this offering in ways with
which the stockholders may not agree. We cannot be certain that the proceeds
will be invested to yield a favorable return.
Although we believe that we adequately prepared for Year 2000 issues, it is
possible that Year 2000 problems of other companies could impact our business.
Although we have not experienced any Year 2000 problems, the systems of other
companies on which we rely may still remain vulnerable to the Year 2000 issue.
Potential impacts could include, but are not limited to, future revenue delays
due to delayed research, development, clinical trials or agency approvals. We
presently believe the Year 2000 issue will not pose significant operational
problems for our computer systems or third-party relationships. We believe that
the Year 2000 issues have been effectively avoided, but we have developed for
each critical activity a contingency plan to allow operations to continue even
if significant issues are experienced.
Since we use hazardous materials in our business, we may be subject to claims
relating to improper handling, storage or disposal of these materials.
Our research and development activities involve the controlled use of hazardous
materials, chemicals and various radioactive compounds. We are subject to
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of such materials and certain waste products.
Although we believe that our 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 eliminated completely. In the event of such an accident, we
could be held liable for any damages that result and any such liability not
covered by insurance could exceed our resources. Compliance with environmental
laws and regulations may be expensive, and current or future environmental
regulations may impair our research, development or productions efforts.
Our ability to conduct animal testing could be limited in the future.
Certain of our research and development activities involve animal testing. Such
activities have been the subject of controversy and adverse publicity. Animal
rights groups and other organizations and individuals have attempted to stop
animal testing activities by pressing for legislation and regulation in these
areas. To the extent the activities of these groups are successful, our
business could be materially harmed.
15
Because our charter documents contain certain anti-takeover provisions and we
have a rights plan, it may be more difficult for a third party to acquire us,
and the rights of some shareholders could be adversely affected.
Our Restated Articles of Incorporation and Bylaws contain provisions that may
make it more difficult for a third party to acquire or make a bid for us. These
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our common stock. In addition, shares of our
preferred stock may be issued in the future without further shareholder
approval and upon such terms and conditions and having such rights, privileges
and preferences, as the board of directors may determine. The rights of the
holders of common stock will be subject to, and may be adversely affected by,
the rights of any holders of preferred stock that may be issued in the future.
The issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of our outstanding voting
stock. We have no present plans to issue any shares of preferred stock. In
addition, we have adopted a shareholder rights plan that, along with certain
provisions of our Restated Articles of Incorporation, may have the effect of
discouraging certain transactions involving a change of control of the company.
16
Forward-Looking Statements
Some of the information in this prospectus (and in the documents we have filed
with the Securities and Exchange Commission which we have referenced under
"Where You Can Find More Information" on page 50 contains forward-looking
statements within the meaning of the federal securities laws. Forward-looking
statements represent our management's judgment regarding future events. These
forward-looking statements include statements about our plans, objectives,
expectations and intentions and other statements contained in this prospectus
that are not historical facts. These statements may be found under "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business" and
elsewhere in this prospectus and in the other documents filed with the SEC.
Forward-looking statements typically are identified by use of terms such as
"may," "will," "shall," "could," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential," "continue," and similar words, although
some forward-looking statements are expressed differently. An investment in our
securities involves certain risks and uncertainties that could affect our
future financial results. You should be aware that our actual results could
differ materially from those contained in the forward-looking statements due to
a number of factors, including:
. failure to successfully commercialize our products
. failure to develop new products
. competitive factors
. general economic conditions
. the ability to develop safe and efficacious drugs
. ability to enter into future collaborative agreements
. failure to achieve positive results in clinical trials
. uncertainty regarding our patents and patent rights
. governmental regulation
. technological change
There may be events in the future that we are not able to predict accurately or
over which we have no control. You should also consider carefully the
statements under "Risk Factors" and other sections of this prospectus and in
the other documents filed with the SEC, which address additional factors that
could cause our actual results to differ from those set forth in the forward-
looking statements. You should be aware that the occurrence of the events
described in "Risk Factors" and elsewhere in this prospectus and in the other
documents filed with the SEC could materially and adversely affect our
business, operating results and financial condition. All subsequent written and
oral forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by the applicable cautionary
statements. We have no plans to update these forward-looking statements.
We use what data and industry forecasts throughout this prospectus, which we
have obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information they provide has been obtained from sources believed to be
reliable but that the accuracy and completeness of such information is not
guaranteed. Similarly, we believe that the surveys and market research we or
others have performed are reliable, but we have not independently verified this
information. Neither we nor any of the underwriters represents that any such
information is accurate.
17
Common Stock Market Data
Since March 21, 1997, our common stock has been traded on the Nasdaq National
Market under the symbol "CTIC." The following table sets forth, for the periods
indicated, the high and low sales prices for our common stock, as reported on
the Nasdaq National Market.
High Low
---- ---
1997
First Quarter (commencing March 21, 1997)................... $10 7/8 $10
Second Quarter.............................................. 13 5/8 7 5/8
Third Quarter............................................... 16 1/4 10 5/8
Fourth Quarter.............................................. 18 3/4 14 7/8
1998
First Quarter............................................... $16 3/4 $ 4
Second Quarter.............................................. 4 3/4 2 1/2
Third Quarter............................................... 3 3/16 1 1/2
Fourth Quarter.............................................. 3 3/4 1 3/4
1999
First Quarter............................................... $ 4 5/8 $2 13/16
Second Quarter.............................................. 5 2 1/16
Third Quarter............................................... 3 9/32 2 1/32
Fourth Quarter.............................................. 7 1/2 1 5/16
2000
First Quarter (through March 23, 2000)...................... $52 $5 5/16
On March 23, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $27.00 per share. As of February 29, 2000, there
were approximately 335 holders of record of our common stock.
18
Use of Proceeds
We estimate that the net proceeds from the sale of the shares of common stock
we are offering will be approximately $75,895,000. If the underwriters fully
exercise the over-allotment option, the net proceeds of the shares sold by us
will be $87,376,750. "Net proceeds" are what we expect to receive after
deducting the underwriting discount and other expenses of the offering. For the
purpose of estimating net proceeds, we are assuming that the public offering
price will be $27.00 per share.
We intend to use the net proceeds from this offering primarily for:
. continued funding of clinical trials for our existing product candidates
. expanding our sales and marketing activities to commercialize ATO
. in-licensing or acquiring complementary products, technologies or
businesses
. general corporate purposes, including working capital
The timing and amount of our actual expenditures are subject to change and will
be based on many factors, including:
. success of our sales and marketing efforts
. progress in and scope of our research and development activities
. competing technological and market developments
. success in acquiring complementary products, technologies or businesses
We currently have no agreements for any prospective acquisitions.
These or other factors may result in our making changes in the use of these
proceeds. Our management has broad discretion as to the allocation of the net
proceeds in this offering.
Until we use the net proceeds of the offering, we will invest the funds in
short-term, investment grade, interest-bearing securities.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We
anticipate that we will retain earnings to support operations and to finance
the growth and development of our business. Therefore, we do not expect to pay
cash dividends in the foreseeable future.
19
Capitalization
The following table shows:
. our actual capitalization on December 31, 1999
. our pro forma capitalization on December 31, 1999 reflecting the January
2000 acquisition of PolaRx including the issuance of 2,000,000 shares of
common stock and the recognition of the current value of a future
obligation which will be settled either through the issuance of additional
stock, subject to shareholder approval, or payment of cash, the February
2000 private placement of 3,333,334 shares of common stock for net proceeds
of $37.1 million and $1.4 million from the exercise of 365,902 stock
options
. our pro forma as adjusted capitalization on December 31, 1999, assuming the
completion of the offering at an assumed public offering price of $27.00
per share less our costs associated with the offering
December 31, 1999
---------------------------------
Pro Forma
Actual Pro Forma As Adjusted
--------- --------- -----------
(in thousands)
Long-term obligations, less current
portion.................................. $ 2,653 $ 12,993 $ 12,993
Shareholders' equity:
Preferred Stock, no par value; 10,000,000
shares authorized;
Series A, B and C, no shares issued and
outstanding;
Series D, 10,000 shares issued and
outstanding ($10,000,000 liquidation
preference)............................ 11,384 11,384 11,384
Common Stock, no par value; 100,000,000
shares authorized; 15,595,536 shares
issued and outstanding, actual;
21,294,772 shares issued and
outstanding, pro forma; and 24,294,772
shares issued and outstanding pro forma
as adjusted............................. 168,235 224,057 299,952
Notes receivable from officers........... (330) (330) (330)
Deficit accumulated during development
stage................................... (158,350) (158,350) (158,350)
Accumulated other comprehensive loss..... (35) (35) (35)
--------- --------- ---------
Total shareholders' equity............. 20,904 76,726 152,621
--------- --------- ---------
Total capitalization................... $ 23,557 $ 89,719 $ 165,614
========= ========= =========
The number of shares of common stock in this table excludes the following:
. 2,778,126 shares of common stock issuable upon exercise of options
outstanding as of March 15, 2000
. 2,243,810 shares of common stock issuable upon exercise of warrants
outstanding as of March 15, 2000
. 4,624,277 shares of common stock issuable upon the conversion, at the
option of the holder, of Series D preferred stock issued in November 1999
20
Selected Consolidated Financial Data
This section presents our selected historical financial data. You should read
carefully the financial statements included in the reports incorporated by
reference in this prospectus, including the notes to the financial statements
included in those reports as well as the section of this prospectus entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected data in this section is not intended to replace the
financial statements.
We derived the selected consolidated statement of operations data for the years
ended December 31, 1997, 1998 and 1999 and the selected consolidated balance
sheet data as of December 31, 1998 and 1999 from our audited financial
statements incorporated by reference in this prospectus. These financial
statements were audited by Ernst & Young LLP, independent auditors. The
selected consolidated statement of operations data for the years ended December
31, 1995 and 1996 and the selected consolidated balance sheet data as of
December 31, 1995, 1996 and 1997 have been derived from our audited
consolidated financial statements not incorporated by reference in this
prospectus. Historical results are not necessarily indicative of results that
may be expected in the future.
Year Ended December 31,
------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(in thousands, except per share data)
Statements of Operations
Data:
Revenues:
Collaboration agreements... $ 100 $ 9,121 $ 11,831 $ 13,200 $ --
Operating expenses:
Research and development... 14,606 16,109 27,285 29,942 27,682
General and
administrative............ 6,144 7,602 10,090 10,889 9,788
-------- -------- -------- -------- --------
Total operating expenses.. 20,750 23,711 37,375 40,831 37,470
-------- -------- -------- -------- --------
Loss from operations......... (20,650) (14,590) (25,544) (27,631) (37,470)
Other income (expense):
Investment income.......... 1,167 1,174 2,895 3,094 1,692
Interest expense........... (509) (512) (377) (435) (502)
-------- -------- -------- -------- --------
Net loss..................... (19,992) (13,928) (23,026) (24,972) (36,280)
Preferred stock dividend..... -- -- -- -- (5,201)
-------- -------- -------- -------- --------
Net loss applicable to common
shareholders................ $(19,992) $(13,928) $(23,026) $(24,972) $(41,481)
======== ======== ======== ======== ========
Basic and diluted net loss
per common share(1)......... $ (4.19) $ (2.82) $ (1.98) $ (1.62) $ (2.67)
======== ======== ======== ======== ========
Shares used in computation of
basic and diluted net loss
per common share............ 4,771 4,939 11,634 15,410 15,552
December 31,
---------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and securities
available-for-sale................... $21,906 $30,987 $70,444 $46,435 $23,880
Working capital....................... 18,342 26,300 67,694 44,143 17,705
Total assets.......................... 28,048 37,002 80,433 58,156 30,848
Long-term obligations, less current
portion.............................. 2,606 2,005 2,138 3,888 2,653
Total shareholders' equity............ 21,858 30,054 71,760 47,165 20,904
- ------------------
(1) See Note 1 of notes to consolidated financial statements for a description
of the computation of the number of shares and net loss per share.
21
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
We focus on developing, acquiring and commercializing novel treatments for
cancer. Our goal is to build a leading, vertically-integrated pharmaceutical
company with a diversified portfolio of oncology drugs and drug candidates.
Since commencement of operations in 1992, we have been engaged in research and
development activities, including conducting preclinical studies and clinical
trials. We have not received any revenue from product sales to date. As of
December 31, 1999, we had incurred aggregate net losses of approximately $158.4
million since inception. We expect to continue to incur significant additional
operating losses over the next several years from our research and development
efforts. Operating losses may fluctuate from quarter to quarter as a result of
differences in the timing of expenses incurred and revenues recognized.
In the fourth quarter of 1995, we began to receive revenue under a
collaboration agreement with BioChem Pharma, Inc., and in the fourth quarter of
1996, we began to receive revenue under a collaboration agreement with
subsidiaries of Johnson & Johnson. Under the terms of the collaboration,
Johnson & Johnson paid 60% of the U.S. development costs of lisofylline, a
product we are no longer developing. In November 1998, after reviewing the
results of our phase III clinical trial for lisofylline, we and Johnson &
Johnson formally amended our collaboration. Under the terms of the amended
collaboration, Johnson & Johnson agreed to pay us $13.1 million for development
cost reimbursements for the year ended December 31, 1998, and we anticipate no
further payments under this agreement.
On June 30, 1998, we entered into an agreement with PG-TXL Company, L.P. and
scientists at the M.D. Anderson Cancer Center, granting us an exclusive
worldwide license to the rights to PG-TXL, and to all potential uses of its
polymer technology. Under the terms of the agreement, we will fund the
research, development, manufacture, marketing and sale of drugs developed using
PG-TXL's polymer technology.
In January 2000, we acquired ATO upon our acquisition of PolaRx, a single
product company that owned the rights to ATO. In connection with the
acquisition, we issued 2,000,000 shares of our common stock at signing and will
issue an additional 3,000,000 shares to PolaRx shareholders upon the earlier of
approval of an NDA by the FDA for ATO or five years from the acquisition date.
The acquisition agreement requires shareholder approval for 2,000,000 of the
3,000,000 additional shares. If our shareholders do not approve the issuance of
these additional shares, we will pay the PolaRx shareholders in cash. Two
additional payouts tied to sales thresholds of $10 million and $20 million in
any four consecutive quarters, may be payable in tranches of $4 million and
$5 million at the then fair market value of our stock, at the time such
thresholds are achieved. For annual sales of ATO in excess of $40 million,
PolaRx shareholders will receive a 2% royalty on net sales payable at the then
fair market value of our common stock or, in certain circumstances, cash. We
assumed $5 million of PolaRx's outstanding liabilities and commitments and
expect to incur substantial pre-commercialization expenses associated with the
launch of ATO, should we receive marketing approval from the FDA.
22
Results of Operations
Years ended December 31, 1999 and 1998
Revenues. We did not record any collaboration agreement revenues during 1999.
In 1998, we recorded revenues of approximately $13.1 million from our
collaboration agreement with Johnson & Johnson and $100,000 under a
collaboration agreement from BioChem Pharma.
Research and development. Research and development expenses decreased to
approximately $27.7 million for the year ended December 31, 1999 from
approximately $29.9 million for the year ended December 31, 1998. This decrease
was due primarily to the winding down of manufacturing and preclinical
development activities for lisofylline offset in part by development activities
for PG-TXL. We have almost eliminated research and development expenses for
lisofylline and anticipate increased research and development expenses in
connection with our other products.
General and administrative expenses. General and administrative expenses
decreased to approximately $9.8 million for the year ended December 31, 1999
from approximately $10.9 million for the year ended December 31, 1998. This
decrease was due primarily to reduction in general and administrative staff
personnel and operating expenses required to support our research and
development activities. General and administrative expenses are expected to
increase to support our expected increase in research, development and
commercialization efforts.
Investment income. Investment income decreased to approximately $1.7 million
for the year ended December 31, 1999 from approximately $3.1 million for the
year ended December 31, 1998. This decrease was associated primarily with lower
average cash balances on hand during the year ended December 31, 1999 compared
to the year ended December 31, 1998.
Interest expense. Interest expense increased to approximately $502,000 for the
year ended December 31, 1999 from approximately $435,000 for the year ended
December 31, 1998. This increase was due primarily to higher average balances
of outstanding long-term obligations.
Preferred stock dividend. We issued preferred stock and common stock warrants
in November 1999. On the date of issuance, the effective conversion price of
the preferred stock after allocating the portion of the proceeds to the common
stock warrants based on the relative fair values, was at a discount to the
price of the common stock into which the preferred stock is convertible. The
discount of $5.2 million was recorded as a preferred stock dividend.
Years Ended December 31, 1998 and 1997
Revenues. During the year ended December 31, 1998, we recorded $13.2 million of
collaboration agreement revenues. During the year ended December 31, 1997, we
recorded approximately $11.8 million of collaboration agreement revenue from
Johnson & Johnson.
Research and development. Research and development expenses increased to
approximately $29.9 million for the year ended December 31, 1998 from
approximately $27.3 million for the year ended December 31, 1997. This increase
was due primarily to expanded development activities with respect to
lisofylline, Apra, and commencing development activities for PG-TXL.
General and administrative expenses. General and administrative expenses
increased to approximately $10.9 million for the year ended December 31, 1998
from approximately $10.1 million for the year ended December 31, 1997. This
increase was due primarily to operating expenses associated with supporting our
increased research, development and clinical activities. Additionally, during
1998 we incurred transaction costs with respect to acquiring the rights to PG-
TXL.
23
Investment income. Investment income increased to approximately $3.1 million
for the year ended December 31, 1998 from approximately $2.9 million for the
year ended December 31, 1997. The increase was associated primarily with higher
average cash balances on hand during 1998 due to the proceeds from follow-on
offering in the fourth quarter of 1997.
Interest expense. Interest expense increased to approximately $435,000 for the
year ended December 31, 1998 from approximately $378,000 for the year ended
December 31, 1997. This increase was due primarily to higher average balances
of outstanding long-term obligations, partially offset by lower average
interest rates on those obligations.
Liquidity and Capital Resources
We have financed our operations since inception primarily through the sale of
equity securities and our collaboration with Johnson & Johnson. As of December
31, 1999, we had raised aggregate net proceeds of approximately $177.1 million
through the sale of equity securities. We have received approximately
$40.8 million from Johnson & Johnson including $10 million from the sale of
equity securities. In addition, we financed the purchase of $16.2 million of
property and equipment through financing agreements and capital lease
obligations of which approximately $3.4 million remained outstanding as of
December 31, 1999.
As of December 31, 1999, we had $23.9 million in cash, cash equivalents and
securities available for sale. In February 2000, we received net proceeds of a
$37.1 million private placement of common stock. Pro forma for this placement,
we had $61.0 million in cash, cash equivalents and securities available for
sale as of December 31, 1999.
We expect to generate losses from operations for several years due to
substantial additional research and development costs, including costs related
to clinical trials, and increased sales and marketing expenditures. We expect
that our existing capital resources, including the proceeds from this offering,
will enable us to maintain our current and planned operations for at least two
years following the offering. Our future capital requirements will depend on
many factors, including:
. success of our sales and marketing efforts
. progress in and scope of our research and development activities
. competitive market developments
. success in acquiring complementary products, technologies or businesses
Future capital requirements will also depend on the extent to which we acquire
or invest in businesses, products and technologies. If we should require
additional financing due to unanticipated developments, additional financing
may not be available when needed or, if available, we may not be able to obtain
this financing on terms favorable to us or to our stockholders. Insufficient
funds may require us to delay, scale back or eliminate some or all of our
research and development programs, or may adversely affect our ability to
operate as a going concern. If additional funds are raised by issuing equity
securities, substantial dilution to existing stockholders may result.
24
Income Taxes
As of December 31, 1999, we had available for Federal income tax purposes net
operating loss carryforwards of approximately $152.0 million and research and
development credit carryforwards of approximately $5.6 million. These
carryforwards begin to expire in 2007. Our ability to utilize these net
operating loss and research and development credit carryforwards is subject to
annual limitations of $5.6 million for losses incurred prior to March 26, 1997
and may be subject to additional limitations thereafter pursuant to the "change
in ownership" rules under Section 382 of the Internal Revenue Code of 1986.
Quantitative and Qualitative Disclosure about Market Risk
We are exposed to market risk related to changes in interest rates that could
adversely affect the value of our investments. We do not use derivative
financial instruments for speculative or trading purposes. We maintain a short-
term investment portfolio consisting of interest bearing securities with an
average maturity of less than one year. These securities are classified as
"available-for-sale" securities. These securities are interest bearing and thus
subject to interest rate risk and will fall in value if market interest rates
increase. Because we have the ability to hold our fixed income investments
until maturity, we do not expect our operating results or cash flows to be
affected to any significant degree by a sudden change in market interest rates
on our securities portfolio.
We have operated primarily in the United States and all revenues to date have
been in U.S. dollars. Accordingly, we do not have material exposure to foreign
currency rate fluctuations. We have not entered into any foreign exchange
contracts to hedge any exposure to foreign currency rate fluctuations because
such exposure is immaterial.
Year 2000
Based on a review of our computer and business systems and significant third
party vendors, we have concluded that the change from the year 1999 to the year
2000 did not have an effect on our day-to-day operations or otherwise pose
significant operational problems. However, we will continue to monitor our
mission critical computer applications and those of our suppliers and vendors
throughout the year 2000 to ensure that any latent year 2000 matters that may
arise are promptly addressed.
25
Business
Overview
We focus on developing, acquiring and commercializing novel treatments for
cancer. Our goal is to build a leading, vertically-integrated biopharmaceutical
company with a diversified portfolio of oncology drugs and drug candidates. Our
research and in-licensing activities are concentrated on identifying new, less
toxic and more effective ways to treat cancer. We plan to submit a NDA for ATO
for the treatment of patients with resistant or relapsed APL by the end of
March 2000. We received fast-track designation from the FDA for this indication
and expect to receive priority review, which would expedite the FDA's review of
our application. ATO is also in phase II or III clinical trials for ten other
cancer indications. In addition, we are developing a novel cancer drug delivery
technology that links chemotherapy drugs to a polymer to improve the efficacy
and reduce the side effects of these drugs. Our first application, PG-TXL, is a
polyglutamate polymer linked to the active ingredient in Taxol, which is the
highest selling chemotherapy agent in the world. We are currently conducting a
phase I trial using PG-TXL to treat solid tumors and also are developing other
drug conjugates. We have another product candidate, Apra, in a phase II
clinical trial for treatment of soft tissue sarcomas.
The Oncology Market
Overview. Cancer is the second leading cause of death in the United States,
resulting in over 550,000 deaths annually. The National Cancer Advisory Board
reports that more than 8 million people in the United States have cancer, and
it is estimated that one in three Americans will develop cancer in their
lifetime. Approximately 1.2 million new cases of cancer are diagnosed each year
in the United States.
The most commonly used methods for treating cancer patients are surgery,
radiation and chemotherapy. A cancer patient usually receives a combination of
these treatments depending upon the type and extent of the disease. At some
point in their disease treatment, 60% of all cancer patients will receive
radiation therapy and 50% of all cancer patients will receive chemotherapy.
Unfortunately, there are significant limitations and complications associated
with radiation and chemotherapy that result in a high rate of treatment
failure. The principal limitations of chemotherapy include:
. treatment related toxicities
. inability to selectively target killing effects to cancer cells
. the development of resistance to the cancer killing effects of chemotherapy
Treatment related toxicities. The majority of current chemotherapy agents kill
cancer cells by disrupting the cell division process. Chemotherapy drugs
disrupt the process by killing cells once they begin to undergo division and
replication. Although this mechanism often works in cancer cells, which grow
rapidly through cell division, non-cancerous cells are also killed because they
too undergo routine cell division. This is especially true for cells that line
the mouth, stomach and intestines, hair follicles, blood cells and reproductive
cells (sperm and ovum). Because the mechanism by which conventional cancer
drugs work is not limited to cancer cells, their use is often accompanied by
toxicities. These toxicities limit the effectiveness of cancer drugs and
seriously impact the patient's quality of life.
Selective targeting of tumor tissue. When administered, chemotherapy drugs
circulate through the bloodstream, reaching both tumor and normal tissues.
Normal tissues are generally as sensitive as tumor cells to the killing effects
of chemotherapy. These toxic effects on normal tissues prevent use of higher,
potentially more effective, doses of chemotherapy.
Chemotherapy resistance. Resistance to the cancer killing effects of
conventional chemotherapy drugs is a major impediment to effective treatment of
cancer. Approximately 90% of all cancer patients undergoing
26
chemotherapy ultimately develop resistance to chemotherapy and die from their
disease. Because many chemotherapy drugs share similar properties, when a tumor
develops resistance to a single drug, it may become resistant to many other
drugs as well. Drugs that work differently from existing chemotherapies, and
are not susceptible to the same mechanisms of resistance, could play a very
important role in treating resistant tumors.
Strategy
Our goal is to become a leading cancer drug company. The key elements of our
business strategy are to:
. Accelerate commercialization by focusing on products that qualify for fast-
track designation. We initially develop our cancer drug candidates to treat
life threatening types or stages of cancer for which current treatments are
inadequate. The FDA has adopted fast-track and priority procedures for
accelerating the approval of oncology agents addressing such needs,
potentially reducing the time required to bring new drugs to market. Once
approved, we would seek to expand the market potential of our products by
seeking approval for indications in larger cancer patient populations. We
believe this strategy will facilitate more rapid entry into the market for
our products and accelerate their acceptance by health care providers and
third-party payors.
. Establish specialized sales and marketing capabilities. We plan to develop
our own sales and marketing capabilities in North America and establish
collaborations to commercialize our products outside North America. We
believe that oncologists and hematologists are a concentrated group of
physicians that can be targeted successfully through a relatively small,
specialized sales force. We plan to have our own sales force in place in
time for us to launch ATO if and when approved by the FDA.
. Maximize the market opportunity for ATO. A substantial portion of our
efforts will be devoted to the further development and commercialization of
ATO. We are initially seeking approval of ATO for the treatment of patients
with resistant or relapsed APL. If approved, we intend to expand the use of
the product into other indications by performing clinical trials
independently and in collaboration with the NCI and other cooperative
oncology groups. ATO is currently in 14 clinical trials in the United
States.
. Leverage our polymer drug delivery technology. We are applying our patented
polymer drug delivery technology to develop improved versions of currently
marketed, well known anti-cancer drugs and to newly discovered agents with
the goal of improving their ease of administration, side effect profile and
effectiveness. Given the proven efficacy of the agents we choose to link to
our polymer, we believe this strategy will provide us a broad portfolio of
cancer products with less development risk. Furthermore, we believe that
linking our polymers to existing drugs will yield patentable subject
matter. We also plan to make this technology available to selected
collaborators, where linking our polymer to their drugs can improve the
efficacy and extend the patent life of their drugs.
. In-license or acquire complementary products or technologies. We use the
expertise of our management, scientific team and scientific advisory board
to identify and evaluate potential product opportunities that fit within
our overall portfolio strategy. We have identified and acquired attractive
oncology product candidates by following three key principles:
. We focus on identifying products that more selectively target tumor
cells (making them potentially less toxic and more effective than
existing drugs) and products that kill tumor cells by unique mechanisms
of action (making them potentially able to overcome resistance to
existing drugs)
. We leverage key relationships at leading cancer research institutions to
uncover potential new product opportunities that meet our criteria
. We act quickly to secure licensing rights once an attractive opportunity
is identified
27
Products in Development
The following table summarizes the potential therapeutic indications for, and
current development status of, our products in development. Trials designated
with an asterisk are being conducted under a Cooperative Development and
Research Agreement with the NCI.
Drug Candidate Indication/Intended Use Status
ATO (arsenic NDA being prepared
trioxide) Relapsed acute promyelocytic leukemia, or APL
Combination with ATRA for first line treatment Phase III *
of APL
Refractory multiple myeloma Phase II
Relapsed or refractory non-Hodgkin's lymphoma, Phase II *
or NHL
Relapsed or refractory Hodgkin's lymphoma Phase II *
Relapsed or refractory acute lymphoblastic Phase II *
leukemia, or ALL
Relapsed and refractory acute myelogenous Phase II *
leukemia, or AML; secondary leukemia
Relapsed or refractory chronic myelogenous Phase II *
leukemia, or CML
Advanced hormone refractory prostate cancer Phase II *
Advanced cervical cancer Phase II *
Advanced renal cell cancer Phase II *
Combination with ascorbic acid for relapsed and Phase I/II *
refractory multiple myeloma
- ------------------------------------------------------------------------------------------
PG-TXL(TM) Advanced cancers not previously treated with Phase I
taxanes
(polyglutamate Combination with anthracylines or cisplatin for Phase I planned
earlier stage breast, lung, ovarian cancer
paclitaxel) Taxane refractory cancers including breast Phase II planned
and ovarian cancer
- ------------------------------------------------------------------------------------------
PG-CPT Treatment of advanced colon cancer and other Preclinical
(polyglutamate cancers
camptothecin)
- ------------------------------------------------------------------------------------------
Apra(TM) Second line treatment for soft tissue sarcoma Phase II
Treatment of hormone/chemotherapy-resistant Phase II
prostate cancer
Combination with cisplatin for non-small cell Phase I planned
lung cancer other advanced cancers
- --------------------------------------------------------------------------------
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Arsenic Trioxide (ATO)
We are developing ATO initially for the treatment of patients with resistant or
relapsed APL and are planning to submit our NDA by the end of March 2000. ATO
is a synthetic version of arsenic, a natural element. ATO appears to work by
forcing immature cancer cells to self destruct through a process called
programmed cell death or apoptosis. Apoptosis is a normal part of a normal
cell's life cycle. Because cancer is often associated with a malfunction of the
normal process of apoptosis, drugs that can induce apopotosis offer the hope of
affecting cancer cells more selectively without the typical toxic side effects
of conventional treatments. Direct induction of apoptosis represents a new
method of killing tumor cells that is different from that of the majority of
conventional cancer drugs. As a result, in addition to its use as single agent
therapy, ATO may work well when administered in combination with other cancer
therapies to produce more durable cancer response rates.
The FDA has granted ATO fast track designation based on the fact that APL is a
life threatening cancer that can result in rapid death if not treated promptly
and that the use of ATO may result in remissions in patients who have not been
able to attain remissions using currently approved drugs. If ATO is approved
for the first indication, we plan on expanding the use of ATO in other cancers
such as multiple myeloma, lymphoma, other leukemias and solid tumors if
clinical trials results indicate that ATO can lead to major responses. More
than 150 patients have received ATO in the United States and 14 clinical trials
of ATO are underway.
We intend to protect ATO by obtaining orphan drug exclusivity in the U.S. and
Europe. When granted orphan exclusivity, products usually receive seven years
of marketing exclusivity in the U.S. and 10 years in the E.U. We have received
orphan drug designation for the use of ATO in APL and have filed for orphan
drug designation, the first step toward orphan drug exclusivity, for multiple
myeloma, myelodysplasia and non-Hodgkin's lymphoma. We also plan to pursue
orphan drug designation for other indications. In addition, we have exclusive
rights to several patent applications filed by Memorial Sloan-Kettering
Institute and the Sam Waxman Cancer Foundation which cover methods of treating
a variety of cancers and conditions with ATO.
ATO for Acute Promyleocytic Leukemia. APL is a malignant disorder of the white
blood cells which typically occurs in patients over the age of 30.
Approximately 1,500 to 2,000 patients are diagnosed with APL each year in the
United States. Current treatment for APL includes the use of all-trans retinoic
acid, commonly called ATRA, followed by anthracyline based chemotherapy.
Without chemotherapy, 90% of patients will relapse within 6 months of ATRA
treatment. Combined with chemotherapy, still only about 50% of APL patients
will survive three years or longer. The high treatment failure rates may be
explained by the fact that combination treatment results in eradication of the
mutant APL gene in the bone marrow in only 20% to 30% of patients. For patients
who relapse following ATRA and chemotherapy, survival rates are low, with
median survival being limited to just four to five months and only
approximately 20% of patients surviving one year. Moreover, these patients are
exposed to, and some actually die from, the toxic effects of high cumulative
doses of anthracycline chemotherapy.
The initial pilot trial results and accompanying editorial were published in
the November 5, 1998 issue of The New England Journal of Medicine. The results
of this study were confirmed in a recently completed pivotal trial whose
preliminary results were presented at the 1999 Annual Meeting of the American
Society of Hematology. As reported in the two trials, 30 of 34 (88%) patients
with resistant APL and 16 of 18 (89%) patients with relapsed APL achieved a
complete remission with ATO.
Investigators reported that in the pivotal trial, 40 patients with relapsed APL
following chemotherapy and/or bone marrow transplants were treated with low
dose intravenous ATO over a one to two hour daily infusion until remission was
achieved. Patients required on average 30 days of treatment and, following a
month off treatment, received an additional 25 days of maintenance therapy. Of
the 40 patients treated, 34 patients (85%) achieved a complete response, with
73% of the patients demonstrating molecular eradication of the malignant APL
gene on bone marrow testing. Although the median survival has not yet been
reached, median survival already exceeds 12 months, substantially higher than
the four to five months generally observed in these
29
patients. Side effects of ATO noted in that study by the investigators were
mild and manageable, for the most part, as outpatients. The most common side
effects included fever, weight gain, fatigue, skin rash, numbness in the hands
and an asymptomatic change in electrocardiogram, or EKG.
Based on these results, we plan to submit a NDA in the United States by the end
of March 2000 and for marketing approval in Europe by the end of the year.
Also, given the high complete response rates reported for ATO in the end-stage,
salvage therapy setting for APL, the NCI is currently conducting a randomized
phase III of ATRA and ATO as first line therapy for APL. If successful, we
would plan to file a supplemental NDA for ATO as first line treatment for APL.
ATO for Multiple Myeloma. Multiple myeloma is a malignant disease of the bone
marrow that is invariably fatal. It is the second most common blood cell
malignancy, affecting approximately 40,000 people in the United States with
over 13,000 new cases reported annually. The disease is initially treated with
oral chemotherapy drugs. Once the disease can no longer be controlled with oral
drugs, treatments include aggressive high dose chemotherapy, bone marrow
transplant and recently, thalidomide. Fewer than 50% of patients experience a
response to these treatment options.
In December 1999, investigators reported interim results of a phase II study
conducted at the University of Arkansas on the use of ATO in nine patients with
advanced stage multiple myeloma who had failed treatment with high dose
chemotherapy and bone marrow transplants and who had also failed treatment with
thalidomide. Three of nine patients (33%) had a response to ATO. However, only
four patients had completed more than 30 days of ATO therapy at the time of the
report, of which two had a major response (>50% reduction in myeloma protein
levels), one had stable disease and one progressed. The investigators concluded
that ATO had activity in end stage, high risk myeloma and should be
investigated in earlier stage disease prior to use of thalidomide. We are
currently conducting a phase II trial of ATO in earlier stage myleoma. In
addition, the NCI is conducting a phase I/II trial of ATO in combination with
ascorbic acid for treating relapsed and refractory myeloma. We are seeking
orphan drug designation for the treatment of myeloma with ATO.
ATO for Advanced Hematologic Malignancies. Hematologic malignancies are cancers
of the blood system, and include leukemias and lymphomas. In 1998, more than
80,000 people had acute and chronic leukemia and approximately 31,000 new cases
are diagnosed annually in the United States. Non-Hodgkin's lymphoma affects
almost 180,000 people in the United States, with approximately 55,000 new cases
reported in the U.S. in 1999. For patients who relapse, fewer than 25% survive
five years, with the majority dying within 14 months of relapse. Clinical
trials with ATO have demonstrated encouraging responses in advanced leukemias
other than APL and myeloma, including CML, AML and myelodysplasia. Promising
results have also been achieved in advanced lymphomas including non-Hodgkin's
lymphoma. The NCI is conducting six phase II or phase III clinical trials
investigating the utility of ATO in treating advanced leukemia and lymphoma. If
these trials are successful and provide sufficient data, we intend to use data
from these trials, where appropriate, to support additional indications for
ATO.
ATO for Solid Tumors. Solid tumors include malignancies that develop in various
tissues throughout the body, as opposed to hematologic cancers described above.
Genitourinary cancers, such as cervical, renal cell and prostate cancer, affect
approximately 850,000 patients in the United States, with over 240,000 new
cases diagnosed annually. Preclinical tests and clinical trials have
demonstrated that ATO may have significant anti-tumor activity among patients
with cervical, renal cell and prostate cancer. The NCI is currently conducting
three phase II trials in these cancers to further evaluate these preliminary
observations. If these trials are successful and provide sufficient data, we
intend to use the information from these trials and new trials in other solid
tumors to extend the indications for ATO.
Polyglutamate Drug Delivery Technology
We are also developing a new way to deliver cancer drugs more selectively to
tumor tissue with the goal of reducing the toxic side effects and improving the
anti-tumor activity of existing chemotherapy agents. Our technology links
cancer drugs to proprietary polyglutamate polymers. Polyglutamate, which we
call PG, is a biodegradable polymer made of glutamic acid, a naturally
occurring amino acid. To build these polymers, we
30
repetitively link together glutamic acid molecules to an optimized size. Unlike
blood vessels found in normal tissues, tumor blood vessels contain openings or
pores. Because of these pores, tumors are more permeable to molecules, such as
our PG polymers, that are within a specific size range. As the polymer,
carrying its tumor killing drug, circulates in the bloodstream and passes
through the tumor blood vessels, it becomes trapped in the tumor tissue
allowing a significantly greater percentage of the anticancer drug to
accumulate preferentially in tumor tissue as compared to normal tissue. The
toxicity of the chemotherapy drug may be further reduced because the drug is
inactive as long as it is bound to the polymer. Once the polymer drug conjugate
enters the tumor, the polymer is digested, freeing the cancer killing drug.
Based on preclinical animal studies, we believe that our polyglutamate-
chemotherapy drug conjugates may be able to achieve a number of benefits over
existing chemotherapy drugs:
. More drug reaches the tumor
. Increased efficacy using the same amount of drug
. Ability to use higher doses of the active drug
. Less toxicity at the same or higher doses of drug
. Broader applicability due to differentiated tumor uptake mechanism
. Potential to overcome resistance to the underlying chemotherapy drug
In addition, we believe that linking our polymers to existing drugs will yield
patentable subject matter and that our polymer-drug conjugates will not
infringe any third-party patents covering the underlying drug. However, there
can be no assurance that we will receive a patent for our polymer conjugates or
that we will not be challenged by the holder of a patent covering the
underlying drug.
We licensed the worldwide exclusive rights to PG and related polymers and their
applications from PG-TXL Company in 1998. The technology was originally
developed at the MD Anderson Cancer Center. The initial patent, which issued in
November 1999, covers the ability to use PG coupled with commonly used cancer
drugs such as paclitaxel, docetaxel, etopside, teniposide, camptothecin or
epothilone. These drug classes represented over 40% of U.S. chemotherapy sales
in 1998.
Our strategy is to use this novel polymer to build a portfolio of potentially
safer and more effective versions of well-known anti-cancer agents. We believe
that our PG drug development program may lower the risks inherent in developing
new drugs because we are linking PG to well defined and widely used
chemotherapy drugs. We are initially focusing our development efforts on
applying PG to two of the fastest growing classes of anticancer drugs, taxanes
and the camptothecins.
PG-TXL(TM) (polyglutamate paclitaxel). PG-TXL is PG linked to paclitaxel, the
active ingredient in Taxol, the world's best selling cancer drug. Taxol is
difficult to administer because it must be mixed in castor oil and ethanol,
which is toxic when given intravenously, and requires a lengthy three hour
intravenous infusion. PG-TXL is 80,000 fold more water soluble than paclitaxel,
allowing it to be administered in just two tablespoons of water in minutes.
Also, because PG-TXL is water soluble, its administration should not require
premedication with steroids and antihistamines to prevent severe reactions. PG-
TXL may also allow for delivery of higher doses that can be achieved with the
currently marketed version of paclitaxel.
It is estimated that more than 2 million people have breast, ovarian, lung and
colon cancer, with more than 470,000 new cases diagnosed each year in the
United States. Despite the difficulties associated with administration and
serious dose limiting toxicities, 1999 U.S. sales of Taxol and Taxotere grew to
$1.2 billion, with worldwide sales approaching $2.0 billion. The majority of
taxane usage has been in breast, ovarian and lung cancer indications. Most
recently, Taxol received approval as a first line treatment in node positive
breast cancer, which is expected to add up to an additional 75,000 eligible
patients annually in the U.S.
31
We have performed multiple preclinical animal studies using PG-TXL and
comparing PG-TXL to paclitaxel alone. Our results suggested superior efficacy
and lower toxicity for PG-TXL, and an ability for PG-TXL to treat tumors
resistant to Taxol. Specifically:
. In animal testing, when administered at equivalent doses of paclitaxel,
treatment with PG-TXL cured established breast cancer tumors whereas
treatment with paclitaxel only slowed tumor growth by several days.
. When examined for the ability of PG-TXL to accumulate in tumor tissue,
administration of PG-TXL to tumor bearing animals resulted in 600% more
paclitaxel reaching the tumor than an equivalent dose of paclitaxel alone.
At the end of seven days, there was still as much paclitaxel in the tumor
being released from the polymer than the maximum amount that was achieved
on day one with free paclitaxel.
. PG-TXL significantly enhanced anti-tumor activity in tumors that are
resistant to the killing effects of paclitaxel suggesting the polymer may
expand the potential utility of paclitaxel to a wider population of cancer
types than the currently available form of the drug can achieve.
The Cancer Research Campaign is currently sponsoring a U.K. phase I clinical
trial of PG-TXL which we expect to be completed by the end of 2000. We plan to
begin phase II trials in the U.S. and the U.K. in the second half of 2000. Our
registration strategy for PG-TXL is to examine its potential safety and
efficacy as single agent therapy in solid tumors that either have become
unresponsive to Taxol or Taxotere or for which Taxol and Taxotere are not
indicated. We believe this strategy could allow us to accelerate the
development and regulatory submission for PG-TXL under the FDA fast track
program. We also intend to investigate the safety and efficacy of PG-TXL when
used in combination with drugs commonly used in first line treatment regimens
in combination with Taxol or Taxotere, such as cisplatin or doxorubicin.
The phase I trial is testing PG-TXL in patients with cancers who have failed
other chemotherapies but who have not previously been treated with taxanes such
as Taxol or Taxotere. We expect to enroll 12 to 18 patients to determine the
maximum tolerated dose of PG-TXL when administered by a 10 to 30 minute
infusion every three weeks. We chose to initiate human trials in the U.K.
because of the CRC's experience with polymer cancer drug conjugates and because
of the ability to perform trials in patients who have not received taxol. We
believe this data will expedite initiation of phase II testing in the United
States.
PG-CPT (polyglutamate camptothecin). PG-CPT (polyglutamate camptothecin) is
camptothecin linked to PG. Camptothecins are an important and rapidly growing
class of anticancer drugs. However, like taxanes, their full clinical benefit
is limited by poor solubility and significant toxicity. To avert solubility
limitations, oral analogs such as Hycamtin and Camptosar were developed.
However, conversion to oral dosage forms has been accompanied by a reduction in
antitumor potency. Despite these limitations, camptothecins are becoming
standard drugs in the treatment of advanced colon, lung and ovarian cancer.
U.S. sales for camptothecins exceeded $330 million in 1999.
Linking camptothecin to PG renders it water soluble and in animal studies
permits up to 400% more drug to be administered without an increase in
toxicity. PG-CPT demonstrated significantly enhanced anti-tumor activity in
animal models of lung, colon and breast cancer, with up to 500% improvement
over the free drug. We are currently optimizing a camptothecin for selection as
a clinical development candidate and plan to file an IND by mid 2001.
Apra
Apra belongs to a new class of cancer drugs, called phospholipid regulators,
developed by our scientists. At effective concentrations, Apra selectively
kills tumor cells but spares normal cells. Also, because the structure and
mechanism of action for Apra are unique, tumors that are or become resistant to
standard anti-cancer drugs may not be resistant to Apra. Preclinical studies
have demonstrated that Apra, when used in combination with conventional agents
such as the widely used cancer drug cisplatin, can sensitize tumors to the
killing effects of cisplatin making the combination treatment more effective
than either agent used alone.
32
We are currently conducting two phase II trials of Apra in patients with drug
resistant soft tissue sarcoma and prostate cancer. The FDA has granted orphan
drug designation for Apra in the treatment of both sarcoma and refractory
prostate cancer. Our strategy is to initially pursue fast track designation for
sarcoma and then seek to expand the potential indications of the drug by
investigating it in combination with conventional cancer drugs for larger
disease indications such as non-small cell lung cancer and prostate cancer.
Apra for Sarcoma. Sarcomas are malignant tumors of the muscle, cartilage or
cells which make up the connective tissues of other organs. Over 12,000
patients have sarcoma in the United States, with 7,000 new cases diagnosed each
year. First line chemotherapy treatment for sarcomas consists primarily of
anthracycline therapy, which produces responses in approximately 10% to 20% of
patients. Patients with sarcoma that do not respond to chemotherapy generally
die within 12 months.
We previously completed two phase I trials in 52 patients with end stage
cancers which provide preliminary data on the maximum tolerated dose, safety
and potential efficacy of Apra when used alone in the treatment of advanced
stage cancers. Among those 52 patients, 17 had advanced stage sarcoma. Six of
17 (35%) had a response with 5 of 6 (83%) remaining alive a median of 19 months
from commencing therapy. Based on these results, we initiated a phase II trial
of Apra as second line treatment for sarcoma. In November 1999, investigators
reported encouraging data among the first 24 evaluable patients. Based upon the
responses that were observed in a particular subtype of sarcoma called
gastrointestinal stromal cell sarcoma, or GIST, we announced we were expanding
the size of the sarcoma trial from 40 patients to 80 patients. We expect to
complete enrollment for this trial by the end of 2000.
Apra for Treatment of Other Cancers. We are also investigating whether the
combination of Apra with cisplatin, a commonly used cancer drug for solid
tumors, can result in better tumor response rates than with cisplatin alone. We
intend to initiate a phase Ib trial of Apra in combination with cisplatin for
lung cancer and other advanced cancers in the second half of 2000. Our strategy
is to expand the use of Apra over time to larger cancer markets such as lung
cancer and prostate cancer where Apra may improve efficacy when combined with
conventional cancer drugs.
Collaboration and Licensing Arrangements
BioChem Pharma. We have a collaboration and supply agreement with BioChem
Pharma for the development and commercialization of Apra in Canada. Under this
collaboration agreement, BioChem Pharma will be responsible for obtaining
regulatory approval for Apra in Canada. Although BioChem Pharma will have no
obligation to conduct any research and development activities, it will have the
right to have us perform clinical trials in Canada at BioChem Pharma's expense.
BioChem Pharma will have the exclusive right to commercialize Apra in Canada,
subject to the payment of royalties to us. We will also receive payments under
the collaboration agreement if certain milestones are achieved. BioChem Pharma
may terminate this agreement with respect to any product at any time for any
reason upon 30 days' notice.
PG-TXL Company, L.P. On June 30, 1998, we entered into an agreement with PG-TXL
Company, L.P. granting us an exclusive worldwide license for the rights to PG-
TXL and to all potential uses of PG-TXL Company's polymer technology. Under the
terms of the agreement, we acquired the rights to fund the research,
development, manufacture, marketing and sale of anti-cancer drugs developed
using this polymer technology. We are obligated to make payments upon the
attainment of significant development milestones, as defined in the agreement.
We are obligated to meet certain development requirements by June 30, 2002 to
maintain these exclusive license rights.
Johnson & Johnson. In November 1996, we entered into a Collaboration and
License Agreement with Johnson & Johnson for the joint development and
commercialization of lisofylline. Neither party is currently pursuing any
further development of lisofylline at this time.
33
Patents and Proprietary Rights
We dedicate significant resources to protecting our intellectual property. We
have acquired through our acquisition of PolaRx rights to four pending patent
applications covering dosage formulations, methods of administration and
methods of use for various forms of arsenic trioxide and related compounds. We
have exclusive rights to one issued patent and 21 U.S. and foreign pending
patent applications relating to our polymer drug delivery technology. Thirteen
issued U.S. patents cover the chemical entity, pharmaceutical compositions and
methods of use of Apra and related compounds. We intend to file additional
patent applications when appropriate, with respect to improvements in our core
technology and to specific products and processes that we develop. There can be
no assurance that any patents will issue from any present or future
applications or, if patents do issue, that such patents will be issued on a
timely basis or that claims allowed on issued patents will be sufficient to
protect our technology. In addition, there can be no assurance that the patents
issued to us will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide proprietary protection or commercial
advantage to us. With respect to such issued U.S. patents or any patents that
may issue in the future, there can be no assurance that they will effectively
protect the technology involved, foreclose the development of competitive
products by others or otherwise be commercially valuable.
We have sought and intend to aggressively seek patent protection in the United
States, Europe and Japan to protect any products that we may develop. We also
intend to seek patent protection or rely upon trade secrets to protect certain
of our enabling technologies that will be used in discovering and evaluating
new drugs which could become marketable products. However, there can be no
assurance that such steps will effectively protect the technology involved. To
protect any such trade secrets and other proprietary information, we rely on
confidentiality and material transfer agreements with our corporate partners,
employees, consultants, outside scientific collaborators and sponsored
researchers and other advisors. There can be no assurance that these agreements
will not be breached, that we will have adequate remedies for breach or that
our trade secrets will not otherwise become known or independently discovered
by competitors. We also have members of our Scientific Advisory and Clinical
Boards, our consultants and, in most cases, our employees enter into agreements
requiring disclosure to us of ideas, developments, discoveries or inventions
conceived during employment or consulting and assignment to us of proprietary
rights to such matters related to our business and technology.
Manufacturing
We currently use, and expect to continue to be dependent upon, contract
manufacturers to manufacture each of our product candidates. We have
established a quality control and quality assurance program, including a set of
standard operating procedures and specifications, designed to ensure that our
products are manufactured in accordance with cGMPs and other applicable
domestic and foreign regulations. There can be no assurance that these
manufacturers will meet our requirements for quality, quantity or timeliness.
We will need to develop additional manufacturing resources, and may seek to
enter into additional collaborative arrangements with other parties which have
established manufacturing capabilities or may elect to have a third party
manufacture our products on a contract basis. We have an agreement with a
third-party vendor to furnish ATO, PG-TXL and Apra drug substances for clinical
studies and in the case of ATO, for initial commercial launch, if and when
approved by the FDA. We will be dependent upon these third parties to supply us
in a timely manner with products manufactured in compliance with cGMPs or
similar standards imposed by foreign regulators. Contract manufacturers may
violate cGMPs, and the FDA has intensified its oversight of drug manufacturers.
There can be no assurance that the FDA would not take action against a contract
manufacturer who violates cGMPs. Such actions may include requiring the
contract manufacturer to cease its manufacturing activities.
Marketing
We intend to develop our own sales and marketing infrastructure in North
America to commercialize our portfolio of oncology products. We plan to enter
into commercialization arrangements to market our products outside of North
America.
34
We have no experience in marketing, sales or distribution. We believe, however,
that the United States oncology market is accessible by a limited marketing
staff and field sales organization. This market is highly concentrated. It is
comprised primarily of the approximately 5,000 physicians who order the vast
majority of cancer therapeutics.
Competition
Competition in the pharmaceutical and biotechnology industries is intense. We
face competition from a variety of companies focused on developing oncology
drugs. We compete with large pharmaceutical companies and with other
specialized biotechnology companies. Many of our existing or potential
competitors have substantially greater financial, technical and human resources
than us and may be better equipped to develop, manufacture and market products.
Smaller companies may also prove to be significant competitors, particularly
through collaborative arrangements with large pharmaceutical and established
biotechnology companies. Many of these competitors have significant products
that have been approved or are in development and operate large, well funded
research and development programs.
We expect to encounter significant competition for the principal pharmaceutical
products we plan to develop. Companies that complete clinical trials, obtain
required regulatory approvals and commence commercial sales of their products
before their competitors may achieve a significant competitive advantage.
Accordingly, the relative speed with which we and any future collaborators can
develop products, complete preclinical testing and clinical trials and approval
processes, and supply commercial quantities of the products to the market are
expected to be important competitive factors. A number of biotechnology and
pharmaceutical companies are developing new products for the treatment of the
same diseases being targeted by us. In some instances, such products have
already entered late-stage clinical trials or received FDA approval.
Significant levels of research in biotechnology, medicinal chemistry and
pharmacology occur in academic institutions, governmental agencies and other
public and private research institutions. These entities have become
increasingly active in seeking patent protection and licensing revenues for
their research results. They also compete with us in recruiting and retaining
skilled scientific talent.
We believe that our ability to compete successfully will be based on our
ability to create and maintain scientifically advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent or
other protection for its products, obtain required regulatory approvals and
manufacture and successfully market our products either alone or through
outside parties. We will continue to seek licenses with respect to technology
related to our field of interest and may face competition with respect to such
efforts.
Government Regulation
The research, development, testing, manufacture, labeling, promotion,
advertising, distribution, and marketing, among other things, of our products
are extensively regulated by governmental authorities in the United States and
other countries. In the United States, the FDA regulates drugs under the
Federal Food, Drug, and Cosmetic Act ("the FDCA") and its implementing
regulations. Failure to comply with the applicable U.S. requirements may
subject us to administrative or judicial sanctions, such as FDA refusal to
approve pending new drug applications, warning letters, product recalls,
product seizures, total or partial suspension of production or distribution,
injunctions, and/or criminal prosecution.
Drug Approval Process. None of our drugs may be marketed in the U.S. until the
drug has received FDA approval. We have not yet submitted an application for
approval for any of our drug product candidates. The steps required before a
drug may be marketed in the U.S. include:
. preclinical laboratory tests, animal studies, and formulation studies
. submission to the FDA of an investigational new drug application, or IND,
for human clinical testing, which must become effective before human
clinical trials may begin
35
. adequate and well-controlled human clinical trials to establish the safety
and efficacy of the drug for each indication
. submission to the FDA of a NDA
. satisfactory completion of an FDA inspection of the manufacturing facility
or facilities at which the drug is produced to assess compliance with
current Good Manufacturing Procedures ("cGMP") and
. FDA review and approval of the NDA.
Preclinical tests include laboratory evaluation of product chemistry, toxicity,
and formulation, as well as animal studies. The results of the preclinical
tests, together with manufacturing information and analytical data, are
submitted to the FDA as part of an IND, which must become effective before
human clinical trials may begin. An IND will automatically become effective 30
days after receipt by the FDA, unless before that time the FDA raises concerns
or questions about issues such as the conduct of the trials as outlined in the
IND. In such a case, the IND sponsor and the FDA must resolve any outstanding
FDA concerns or questions before clinical trials can proceed. We cannot be sure
that submission of an IND will result in FDA allowing clinical trials to begin.
Clinical trials involve the administration of the investigational drug to human
subjects under the supervision of qualified investigators. Clinical trials are
conducted under protocols detailing the objectives of the study, the parameters
to be used in monitoring safety, and the effectiveness criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the IND.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap or be combined. Each trial must be reviewed and approved by
an independent Institutional Review Board before it can begin. Study subjects
must sign an informed consent form before participating in a clinical trial.
Phase I usually involves the initial introduction of the investigational drug
into people to evaluate its safety, dosage tolerance, pharmacodynamics, and, if
possible, to gain an early indication of its effectiveness. Phase II usually
involves trials in a limited patient population to (i) evaluate dosage
tolerance and appropriate dosage; (ii) identify possible adverse effects and
safety risks; and (iii) evaluate preliminarily the efficacy of the drug for
specific indications. Phase III trials usually further evaluate clinical
efficacy and test further for safety by using the drug in its final form in an
expanded patient population. There can be no assurance that phase I, phase II,
or phase III testing will be completed successfully within any specified period
of time, if at all. Furthermore, the Company or the FDA may suspend clinical
trials at any time on various grounds, including a finding that the subjects or
patients are being exposed to an unacceptable health risk.
Assuming successful completion of the required clinical testing, the results of
the preclinical studies and of the clinical studies, together with other
detailed information, including information on the manufacture and composition
of the drug, are submitted to the FDA in the form of an NDA requesting approval
to market the product for one or more indications. Before approving an NDA, the
FDA usually will inspect the facility or the facilities at which the drug is
manufactured, and will not approve the product unless cGMP compliance is
satisfactory. If FDA evaluates the NDA and the manufacturing facilities as
acceptable, the FDA will issue an approval letter. If the FDA evaluates the NDA
submission or manufacturing facilities as not acceptable, the FDA will outline
the deficiencies in the submission and often will request additional testing or
information. Even if we submit the requested additional information, the FDA
ultimately may decide that the NDA does not satisfy the regulatory criteria for
approval. The testing and approval process requires substantial time, effort,
and financial resources, and we cannot be sure that any approval will be
granted on a timely basis, if at all. After approval, certain changes to the
approved product, such as adding new indications, manufacturing changes, or
additional labeling claims are subject to further FDA review and approval.
FDA's "fast track" program is intended to facilitate the development and
expedite the review of drugs intended for the treatment of serious or life-
threatening diseases and that demonstrate the potential to address unmet
medical needs for such conditions. Under this program, FDA can, for example,
review portions of an NDA for a fast track product before the entire
application is complete, thus potentially beginning the review process at
36
an earlier time. We have received fast track designation for ATO for the
treatment of patients with drug resistant or relapsed APL and we intend to seek
to have some of our other drug products designated as fast track products, with
the goal of reducing review time. There can be no guarantee that FDA will grant
any of our additional requests for fast track designation, that any fast track
designation would affect the time of review, or that FDA will approve the NDA
submitted for any of our drug candidates, whether or not fast track designation
is granted. Additionally, FDA approval of a fast track product can include
restrictions on the product's use or distribution (such as permitting use only
for specified medical procedures or limiting distribution to physicians or
facilities with special training or experience), and can be conditioned on the
performance of additional clinical studies after approval.
FDA procedures also provide priority review of NDAs submitted for drugs that,
compared to currently marketed products, offer a significant improvement in the
treatment, diagnosis, or prevention of a disease.
NDAs that are granted priority review are intended to be acted upon more
quickly than NDAs given standard review. FDA's current goal is to act on 90% of
priority NDAs within six months of receipt. We anticipate seeking priority
review of ATO for the indication of relapsed APL and intend to do so with
regard to some of our other drug candidates. There can be no guarantee that FDA
will grant priority review status in any instance, that priority review status
will affect the time of review, or that FDA will approve the NDA submitted for
any of our drug candidates, whether or not priority review status is granted.
Post-Approval Requirements. If FDA approval of one or more of our drug products
is obtained, we will be required to comply with a number of post-approval
requirements. For example, holders of an approved NDA are required to report
certain adverse reactions to the FDA, and to comply with certain requirements
concerning advertising and promotional labeling for their products. Also,
quality control and manufacturing procedures must continue to conform to cGMP
after approval, and the FDA periodically inspects manufacturing facilities to
assess compliance with cGMP. Accordingly, manufacturers must continue to expend
time, money, and effort in the area of production and quality control to
maintain cGMP compliance. We use and will continue to use third-party
manufacturers to produce our products in clinical and commercial quantities,
and we cannot be sure that future FDA inspections will not identify compliance
issues at our facilities or at the facilities of our contract manufacturers
that may disrupt production or distribution, or require substantial resources
to correct. In addition, discovery of problems with a product after approval
may result in restrictions on a product, manufacturer, or holder of an approved
NDA, including withdrawal of the product from the market. Also, new government
requirements may be established that could delay or prevent regulatory approval
of our products under development.
Orphan Drug. The FDA may grant orphan drug designation to drugs intended to
treat a "rare disease or condition," which generally is a disease or condition
that affects fewer than 200,000 individuals in the United States. Orphan drug
designation must be requested before submitting an NDA. After the FDA grants
orphan drug designation, the identity of the therapeutic agent and its
potential orphan use are publicly disclosed by the FDA. Orphan drug designation
does not convey an advantage in, or shorten the duration of, the regulatory
review and approval process. If a product which has an orphan drug designation
subsequently receives the first FDA approval for the indication for which it
has such designation, the product is entitled to orphan exclusivity, meaning
that the FDA may not approve any other applications to market the same drug for
the same indication, except in certain very limited circumstances, for a period
of seven years.
We have obtained orphan drug designation for ATO to treat patients with
resistant or relapsed APL, and for Apra to treat patients with soft tissue
sarcoma and refractory prostate cancer. We have also filed for orphan drug
designation for ATO for the treatment of patients with refractory multiple
myeloma, myelodysplasia, and non-Hodgkins lymphoma. However, we cannot be sure
that ATO will receive an orphan drug designation for these indications, or that
ATO, Apra, or any of our drug products will receive orphan drug exclusivity for
any indication. Also, it is possible that our competitors could obtain
approval, and attendant orphan drug exclusivity, for products that would
preclude us from marketing our products for specified indications for some
time.
Non-United States Regulation. Before our products can be marketed outside of
the United States, they are subject to regulatory approval similar to that
required in the United States, although the requirements governing
37
the conduct of clinical trials, product licensing, pricing and reimbursement
vary widely from country to country. No action can be taken to market any
product in a country until an appropriate application has been approved by the
regulatory authorities in that country. The current approval process varies
from country to country, and the time spent in gaining approval varies from
that required for FDA approval. In certain countries, the sales price of a
product must also be approved. The pricing review period often begins after
market approval is granted. No assurance can be given that even if a product is
approved by a regulatory authority, satisfactory prices will be approved for
such product.
Environmental Regulation
In connection with its research and development activities and its
manufacturing materials and products, we are subject to federal, state and
local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal
of certain materials, biological specimens and wastes. Although we believe that
we have complied with these laws, regulations and policies in all material
respects and has not been required to take any significant action to correct
any noncompliance, there can be no assurance that we will not be required to
incur significant costs to comply with environmental and health and safety
regulations in the future. Our research and development involves the controlled
use of hazardous materials, including but not limited to certain hazardous
chemicals and radioactive materials. Although we believe that our 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 eliminated. In the event
of such an accident, we could be held liable for any damages that result and
any such liability could exceed our resources.
Facilities
We lease approximately 66,000 square feet of space at 201 Elliott Avenue West
in Seattle, Washington for our executive office, laboratory and administrative
operations. The lease expires on January 31, 2003, with two consecutive five-
year renewal options at the then prevailing market rent. We believe our
existing and planned facilities are adequate to meet our present requirements.
Despite a decrease in local vacancy rates for commercial space, we currently
anticipate that additional space will be available to us, when needed, on
commercially reasonable terms.
Employees
As of March 15, 2000, we employed 97 individuals, including 35 holding doctoral
or other advanced degrees. Our employees do not have a collective bargaining
agreement. We consider our relations with our employees to be good.
38
Management
Board of Directors and Executive Officers
The following table sets forth certain information concerning our executive
officers as of March 15, 2000:
Name Age Position
---- --- --------
Max E. Link, Ph.D.(1)............. 60 Chairman of the Board of Directors
James A. Bianco, M.D.(1).......... 43 President, Chief Executive Officer
and Director
Edward F. Kenney.................. 55 Executive Vice President and Chief
Operating Officer
Louis A. Bianco................... 47 Executive Vice President, Finance and
Administration
Robert A. Lewis, M.D.............. 55 Executive Vice President, Chief
Scientific Officer
Susan O. Moore.................... 51 Executive Vice President, Corporate
Resource Development
Jack W. Singer, M.D. ............. 57 Executive Vice President, Research
Program Chairman and Director
Jack L. Bowman(2)................. 67 Director
Jeremy L. Curnock Cook(1)(2)...... 50 Director
Wilfred E. Jaeger, M.D.(2)(3)..... 44 Director
Mary O'Neil Mundinger, DrPH....... 62 Director
Phillip M. Nudelman, Ph.D.(1)(3).. 64 Director
- ------------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Max E. Link, Ph.D., joined the Board of Directors in July 1995 as its Vice
Chairman and has served as Chairman of the board of directors since January
1996. Dr. Link has held a number of executive positions with pharmaceutical and
healthcare companies. Most recently, he served as Chief Executive Officer of
Corange, Limited, from May 1993 until June 1994. Prior to joining Corange, Dr.
Link served in a number of positions within Sandoz Pharma Ltd., including Chief
Executive Officer from 1990 until April 1992, and Chairman from April 1992
until May 1993. Dr. Link currently serves on the boards of directors of Alexion
Pharmaceuticals, Inc., Human Genome Sciences, Inc., and Protein Design Labs,
Inc. Dr. Link received his Ph.D. in Economics from the University of St.
Gallen.
James A. Bianco, M.D., is our principal founder and has been our President and
Chief Executive Officer since February 1992 and a director since our inception
in September 1991. Prior to joining the company, Dr. Bianco was an Assistant
Professor of Medicine at the University of Washington, Seattle, and an
Assistant Member in the clinical research division of the Fred Hutchinson
Cancer Research Center, the world's largest bone marrow transplant center. From
1990 to 1992, Dr. Bianco was the director of the Bone Marrow Transplant Program
at the Veterans Administration Medical Center in Seattle. Dr. Bianco received
his B.S. degree in Biology and Physics from New York University and his M.D.
from Mount Sinai School of Medicine.
Edward F. Kenney has been our Executive Vice President, Chief Operating Officer
since January 1999. From February 1997 to September 1998 he was Vice President
of Marketing and Sales at CellPro Incorporated. From 1987 to 1996 he served in
various sales, marketing and business development positions at Cetus
Corporation and Chiron Corporation, which merged in 1991. From 1991 to 1996,
Mr. Kenney was a marketing manager in the cardiovascular therapy area at
Boehringer Ingelheim, and from 1978 to 1986, he served in various sales,
marketing and business development capacities at Bristol-Myers Corporation. Mr.
Kenney earned a M.S. degree in Natural Resources from Ohio State University.
Jack W. Singer, M.D., is a founder and director of the company and currently
serves as our Executive Vice President, Research Program Chairman. Dr. Singer
has been a director since our inception in September 1991. From April 1992 to
July 1995, Dr. Singer was our Executive Vice President, Research and
Development. Prior to joining CTI, Dr. Singer was Professor of Medicine at the
University of Washington and full Member of the
39
Fred Hutchinson Cancer Research Center. From 1975 to 1992, he was the Chief of
Medical Oncology at the Veterans Administration Medical Center in Seattle. Dr.
Singer received his M.D. from State University of New York, Downstate Medical
College.
Louis A. Bianco is a founder of the company and has been our Executive Vice
President, Finance and Administration since February 1, 1992, and was a
director of the company from our inception in September 1991 to April 1992 and
from April 1993 to April 1995. From January 1989 through January 1992, Mr.
Bianco was a Vice President at Deutsche Bank Capital Corporation in charge of
risk management. Mr. Bianco is a Certified Public Accountant and received his
M.B.A. from New York University. Louis Bianco is the brother of James Bianco,
our President and CEO.
Robert A. Lewis, M.D., has been our Executive Vice President, Chief Scientific
Officer since April 1996. From September 1994 to May 1995, Dr. Lewis was Senior
Vice President and Director, Preclinical Research and Development at Syntex-
Roche. From February 1986 to February 1992, he held various Senior and
Executive Vice Presidential offices at Syntex. While at Syntex, he held
associate professorships at Stanford University and at the University of
California, San Francisco, where he also held an adjunct professorship from
1992 to 1994. Prior to joining Syntex, Dr. Lewis was an Associate Professor of
Medicine at Harvard Medical School. Dr. Lewis received his B.S. degree in
chemistry from Yale University and M.D. from the University of Rochester.
Susan O. Moore has been our Executive Vice President, Corporate Resource
Development since January 1999, responsible for Corporate Communications and
Human Resource Development, and served as Executive Vice President, Human
Resource Development from July 1995 to December 1998. From March 1993 to July
1995, Ms. Moore was CTI's Vice President of Human Resources. Prior to joining
CTI, Ms. Moore was self-employed as a compensation consultant. From 1991 to
December 1992, Ms. Moore was the Director of Human Resources at ICOS
Corporation, a biotechnology company. From 1984 to 1990, Ms. Moore served as
Program Manager for Software Engineering Digital Equipment Corporation.
Jack L. Bowman has been a director since April 1995. From 1987 until January
1994, Mr. Bowman was a company group chairman at Johnson & Johnson, having
primary responsibility for a group of companies in the diagnostic, blood
glucose monitoring and pharmaceutical business. From 1980 to 1987, Mr. Bowman
held various positions at American Cyanamid Company, most recently as Executive
Vice President. Mr. Bowman was a member of the board of trustees of The Johns
Hopkins University and serves on the board of directors of NeoRx Corporation,
CytRx Corporation and Cellegy Pharmaceuticals, Inc., Targeted Genetics Corp.,
and Celgene Corp.
Jeremy L. Curnock Cook has been a director since March 1995. Mr. Curnock Cook
has been a director of the Bioscience Unit of Rothschild Asset Management
Limited since 1987. He is a director of several British companies, including
The International Biotechnology Trust, plc, Biocompatibles International, plc,
Therexsys, Ltd. and Vanguard Medica Group, plc. He also serves on the boards of
directors of Creative Biomolecules, Inc., Targeted Genetics, Corp., and
Ribozyme Pharmaceuticals, Inc. in the United States.
Wilfred E. Jaeger, M.D., has been a director since September 1992. Dr. Jaeger
is a founding general partner of Three Arch Partners, a venture capital firm
which focuses on health care investments. Prior to joining Three Arch Partners
in 1993, he was a partner at Collinson Howe Venture Partners, formerly
Schroeder Venture Advisers, and the Phoenix Partners. Dr. Jaeger received his
M.D. from the University of British Columbia in Vancouver, B.C., Canada, in
1981. Dr. Jaeger is also a director of Intensiva Healthcare Corporation.
Mary O'Neil Mundinger, DrPH, has been a director since April 1997. Since 1986,
she has been a Dean and Professor at the School of Nursing, and an Associate
Dean on the Faculty of Medicine at Columbia University. Dr. Mundinger also
serves on the editorial board of National Health Publishing Company, Inc.
Dr. Mundinger received her Doctorate of Public Health from Columbia's School of
Public Health.
Phillip M. Nudelman, Ph.D., has been a director since March 1994. He is the
President and Chairman of the Board of Kaiser/Group Health. From 1990 to 1997,
Dr. Nudelman was the President and Chief Executive
40
Officer of Group Health Cooperative of Puget Sound, a health maintenance
organization. Dr. Nudelman serves as chairman of the boards of directors of the
American Association of Health Plans, ATL Ultrasound, SpaceLabs Medical, Inc.,
Cytran Ltd., Franklin Health and the United Way. Dr. Nudelman received his B.S.
degree in Microbiology, Zoology and Pharmacy from the University of Washington,
and holds an M.B.A. and a Ph.D. in Health Systems Management from Pacific
Western University.
Scientific and Clinical Advisory Boards
We have a Scientific Advisory Board which consists of recognized scientists
with expertise in the fields of immunology, cell and molecular biology, and
synthetic and medical chemistry. Our Scientific Advisory Board meets with our
management and key scientific employees on a semi-annual basis and in smaller
groups or individually from time to time on an informal basis. The members
assist us in identifying scientific and product development opportunities,
reviewing with management the progress of our specific projects and recruiting
and evaluating our scientific staff. We also have a Clinical Advisory Board
which assists us from time to time on clinical matters.
The following are members of our Scientific Advisory Board:
Lewis Cantley, Ph.D., is a noted authority in cellular biochemical signaling
pathways that employ phosphatidyl inositol and its metabolites and is the
discoverer of one of the most critical enzymes in those pathways, the
PI3 Kinase. He is currently Professor of Cell Biology at Harvard Medical School
and Chief of the Division of Signal Transduction in the Department of Medicine,
Beth Israel Hospital, Boston and the author of over 180 publications.
Edward A. Dennis, Ph.D., is the Vice Chair of Medical Biochemistry at the
University of California, San Diego. He is a noted authority on phospholipases,
cell signaling and phospholipid metabolism. Dr. Dennis serves on the Scientific
Advisory Board and Management Committee of, and chairs the Management Executive
Board of, the Keystone Symposia. He sits on the Editorial Board of the Journal
of Cellular Biochemistry and on the Publications Committee of the American
Society for Biochemistry and Molecular Biology. He has authored over 185
manuscripts.
Edwin Krebs, M.D., is a Professor Emeritus, Department of Pharmacology and
Biochemistry, at the University of Washington in Seattle and a Senior
Investigator Emeritus at the Howard Hughes Medical Institute. He is a
recognized authority on mechanisms of action of second messengers, including
protein kinases and phosphorylation reactions. He is the recipient of numerous
awards and honors and has authored 297 manuscripts. In 1992, Dr. Krebs was
awarded the Nobel Prize in Physiology of Medicine for his work on second
messenger pathways.
L. Jackson Roberts, II, M.D., is an internationally recognized authority on the
oxidative metabolism of polyunsaturated fatty acids. He is known for having
identified PGD2 on the major mast cell lipid mediator and, more recently, for
having originated the field of studying non enzymatically-generated
prostanoids, including the isprostanes and neuroprostanes. He is currently
Profession of Pharmacology and Medicine at Vanderbilt University and is the
author of over 170 publications.
The following are members of our Clinical Advisory Board:
E. Donnall Thomas, M.D., is the Chairman of our Clinical Advisory Board. He is
the former Associate Director of Clinical Research and presently a Professor
Emeritus at the Fred Hutchinson Cancer Research Center, of which he was a
founding member. His research has spanned a wide array of fields from radiation
biology to developmental immunology, and from cancer causing genes to gene
transfer therapies. For his pioneering work in bone marrow transplant, Dr.
Thomas was awarded the Nobel Prize for Medicine in 1990. Among the other honors
awarded to Dr. Thomas in recognition of his medical research are the American
Cancer Society Award for Distinguished Service in Basic Research and the
Kettering Prize of the General Motors Cancer Research Foundation. He is a
member of the U.S. Academy of Sciences.
41
Karen H. Antman, M.D., is the Chief of the Division of Medical Oncology,
College of Physicians & Surgeons of Columbia University. Dr. Antman is an
expert in emerging treatment strategies for solid tumors, notably breast cancer
and sarcomas. From 1994 to 1995 she served as President of the American Society
of Clinical Oncology. Since 1993, Dr. Antman has served on the Sarcoma
Committee of the Southwest Oncology Groups, and has been its chairperson since
1995. From 1993 to 1994 she was program committee chair of the American
Association for Cancer Research. She is on the editorial board of several
prestigious journals, including Associate Editor of The New England Journal of
Medicine.
42
Principal Shareholders
The following table sets forth information regarding beneficial ownership of
our common stock as of March 15, 2000 by:
. each shareholder known by us to be the beneficial owner of more than 5% of
the outstanding shares of common stock;
. each of our directors;
. each of our executive officers; and
. all directors and officers as a group.
Beneficial ownership is determined according to the rules of the Securities and
Exchange Commission, and generally means that person has beneficial ownership
of a security if he or she possesses sole or shared voting or investment power
of that security, and includes options that are currently exercisable or
exercisable within 60 days. Each director, officer or 5% or more shareholder,
as the case may be, has furnished us information with respect to beneficial
ownership. Except as otherwise indicated, we believe that the beneficial owners
of the common stock listed below, based on the information each of them has
given to us, have sole investment and voting power with respect to their
shares, except where community property laws may apply.
This table lists applicable percentage ownership based on 25,919,049 shares of
common stock outstanding as of March 15, 2000, including 4,624,277 shares of
common stock issuable upon conversion, at the option of the holder, of Series D
preferred stock issued in November 1999, and also lists applicable percentage
ownership based on 28,919,049 shares of common stock outstanding after
completion of this offering. Options to purchase shares or our common stock
that are exercisable within 60 days of March 15, 2000, are deemed to be
beneficially owned by the persons holding these options for the purpose of
computing percentage ownership of that person, but are not treated as
outstanding for the purpose of computing any other person's ownership
percentage. Shares underlying options that are deemed beneficially owned are
listed in this table separately in the column labeled "Shares Subject to
Options." These shares are included in the number of shares listed in the
column labeled "Total Number."
Unless otherwise indicated, the principal address of each shareholder below is:
c/o Cell Therapeutics, Inc., 201 Elliott Avenue West, Seattle, Washington
98119.
Shares Beneficially Owned
--------------------------------------
Shares Percent Percent
Total Subject Before After
Name and Address of Beneficial Owner Number to Options Offering Offering
- ------------------------------------ --------- ---------- -------- --------
5% Shareholders
Essex Woodlands Health Ventures Fund
IV, L.P.(1).......................... 3,855,519 -- 14.88% 13.33%
15001 Walden Road, Suite 101
Montgomery, TX 77356
Lindsay A. Rosenwald and The Aries
Master Funds(2)...................... 2,743,857 -- 10.59% 9.49%
c/o Paramount Capital Asset
Management, Inc.
787 Seventh Avenue, 48th Floor
New York, NY 10019
The International Biotechnology Trust
plc(3)............................... 1,358,156 -- 5.24% 4.70%
c/o Rothschild Asset Management
Limited
Five Arrows House
St. Swithin's Lane
London, England EC4N 8NR
43
Shares Beneficially Owned
--------------------------------------
Shares Percent Percent
Total Subject Before After
Name and Address of Beneficial Owner Number to Options Offering Offering
- ------------------------------------ --------- ---------- -------- --------
Directors and Named Officers
Max E. Link, Ph.D. .................... 54,762 3,810 * *
James A. Bianco, M.D. ................. 621,111 310,340 2.37% 2.12%
Edward F. Kenney....................... -- -- * *
Jack W. Singer, M.D. .................. 309,318 82,865 1.19% 1.07%
Louis A. Bianco........................ 216,523 98,198 * *
Robert A. Lewis, M.D. ................. 124,013 98,813 * *
Susan O. Moore......................... 94,688 80,288 * *
Jack L. Bowman......................... 32,383 32,383 * *
Jeremy L. Curnock Cook(4).............. 1,384,824 26,668 5.34% 4.78%
Wilfred E. Jaeger, M.D. ............... 39,335 39,335 * *
Mary O. Mundinger, DrPH................ 9,573 7,923 * *
Philip M. Nudelman, Ph.D. ............. 33,811 31,811 * *
All directors and officers as a group
(12 persons).......................... 2,920,341 812,434 10.92% 9.82%
- ------------------
* Less than 1%
(1) Consists of 2,941,233 shares of common stock beneficially owned by Essex
Woodlands Health Ventures and 914,286 shares issuable upon exercise of
warrants held by Essex Woodlands Health Ventures. Mr. Martin P. Sutter is
the Managing General Partner.
(2) Includes (a) 976,065 shares of common stock owned by Lindsay A. Rosenwald,
M.D., (b) 780,578 shares of common stock of CTI issuable upon conversion of
780,578 shares of Series D preferred stock, 257,219 warrants to purchase
257,219 shares of common stock, and 178,787 shares of common stock held by
The Aries Master Fund, a Cayman Island exempted company, (c) 316,301 shares
of common stock of CTI issuable upon conversion of 316,301 shares of Series
D preferred stock, 104,229 warrants to purchase 104,229 shares of common
stock, and 84,367 shares of common stock held by Aries Domestic Fund L.P.
("Aries I"), (d) 24,509 shares of common stock of CTI issuable upon
conversion of 24,509 shares of Series D preferred stock, 8,076 warrants to
purchase 8,076 shares of common stock, and 13,726 shares of common stock,
held by Aries Domestic Fund II, L.P. ("Aries II"). Paramount Capital Asset
Management, Inc. ("PCAM") is the general partner of each of Aries I and
Aries II and the investment manager of the The Aries Master Fund. Dr.
Rosenwald is the chairman and sole shareholder of PCAM.
(3) Includes 1,358,156 shares of common stock beneficially owned by IBT. IBT is
managed by Rothschild and Rothschild has or shares voting and investment
power with respect to the shares held by IBT and may be deemed to be the
beneficial owner of such shares. Mr. Curnock Cook is a director of IBT and
Rothschild and may be deemed to be the beneficial owner of any shares
beneficially owned by each of IBT and Rothschild. Mr. Curnock Cook
disclaims beneficial ownership of shares beneficially owned by IBT and
Rothschild except to the extent of his proportionate interest therein. See
footnote 4 below.
(4) Consists of 1,358,156 shares of common stock beneficially owned by
International Biotechnology Trust plc, a company formed under the laws of
England ("IBT") and managed by Rothschild Asset Management Limited
("Rothschild"), and 26,668 options that are currently exercisable or
exercisable within 60 days that are beneficially held by Jeremy Curnock
Cook, a director of IBT and Rothschild. Rothschild has or shares voting and
investment power with respect to the shares held by IBT and may be deemed
to be the beneficial owner of such shares. As a director of IBT and
Rothschild, Mr. Curnock Cook may be deemed to be the beneficial owner of
any shares beneficially owned by each of IBT and Rothschild; however, he
disclaims beneficial ownership of these shares except to the extent of his
proportionate interest therein. See footnote 3 above.
44
Description of Capital Stock
General
We are authorized to issue 100,000,000 shares of common stock no par value, and
10,000,000 shares of preferred stock, no par value.
Common Stock
Each holder of common stock is entitled to one vote for each share held on all
matters to be voted upon by the shareholders and there are no cumulative voting
rights. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of common stock are entitled to receive ratably the
dividends, if any, that are declared from time to time by the board of
directors out of funds legally available for that purpose. In the event of a
liquidation, dissolution or winding up of the company, the holders of common
stock are entitled to share in our assets remaining after the payment of
liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable. The
rights, preferences and privileges of the holders of common stock are subject
to, and may be adversely affected by, the rights of the holders of shares of
any series of preferred stock that we may designate in the future.
Preferred Stock
The board of directors has the authority, without action by the shareholders,
to designate and issue preferred stock in one or more series and to designate
the rights, preferences and privileges of each series, which may be greater
than the rights of the common stock. It is not possible to state the actual
effect of the issuance of any shares of preferred stock upon the rights of
holders of the common stock until the board of directors determines the
specific rights of the holders of this preferred stock. However, the effects
might include, among other things:
.restricting dividends on the common stock;
.diluting the voting power of the common stock;
.impairing the liquidation rights of the common stock; or
.delaying or preventing a change in control of the company without further
action by the shareholders
We designated 100,000 shares of our preferred stock as Series C preferred stock
in November 1996 in connection with the adoption of a shareholder rights plan
as described below. In November 1999, we designated 10,000 shares of our
preferred stock as 5% Series D preferred stock in connection with a private
placement of those shares. The Series D has a 5% annual dividend and is
redeemable upon certain events, including a change of control of the company.
Each holder of Series D preferred stock is entitled to one vote for each share
of common stock into which the preferred stock could then be converted. The
Series D preferred stock is convertible into common stock at the election of
the holder at any time. As of March 15, 2000, there were 10,000 shares of
Series D preferred stock outstanding convertible into 4,624,777 shares of
common stock.
No other shares of preferred stock are outstanding, and we have no present
plans to issue any additional shares of preferred stock.
45
Warrants and Other Obligations to Issue Capital Stock
As of March 15, 2000, we had outstanding warrants to purchase an aggregate of
2,243,810 shares of our common stock. These warrants have a weighted average
exercise price of $6.69 per share. These warrants expire between 2002 and 2008.
In connection with the acquisition of PolaRx Biopharmaceuticals in January
2000, we issued 2,000,000 shares of our common stock. We will issue an
additional 3,000,000 shares to PolaRx shareholders upon the earlier of approval
of a NDA by the FDA for ATO or five years from the acquisition date. The
acquisition agreement requires shareholder approval for 2,000,000 of the
3,000,000 additional shares. If the shareholders do not approve the issuance of
these additional shares, we will pay the PolaRx shareholders in cash. Two
additional payouts tied to sales thresholds of $10 million and $20 million in
any four consecutive quarters may be payable in tranches of $4 million and $5
million at the then fair market value of our stock. We are also obligated to
make additional payouts based on annualized sales of ATO, which payouts can be
made in common stock or cash, at our election.
Registration Rights
We have filed a resale registration statement for 4,624,277 shares of our
common stock underlying our Series D preferred stock and warrants issued in
November 1999. We are also obligated to file a resale registration statement
covering 3,333,334 shares of common stock issued in a private placement in
February 2000. While shareholders holding an aggregate of 4,976,907 of such
shares are subject to a lockup until 90 days following the completion of this
offering, sales of the remaining shares will be available for resale in the
public market from time to time during this offering. We are also obligated to
file a resale registration statement covering 2,000,000 shares issued in the
acquisition of PolaRx, although these shares will not be available for resale
until at least 90 days following this offering.
Antitakeover Effects of Provisions of Washington Law and Our Charter and Bylaws
Statutory and Charter Provisions
Washington law contains certain provisions that may have the effect of
delaying, deterring or preventing a change in control of the company. Chapter
23B.17 of the Washington Business Corporation Act (the "WBCA") prohibits,
subject to certain exceptions, a merger, sale of assets or liquidation of the
company involving an "interested shareholder" (defined as a person or group of
affiliated persons who own beneficially 20% or more of the company's voting
securities) unless the transaction is determined to be at a "fair price" or
otherwise approved by a majority of the company's disinterested directors or is
approved by holders of two-thirds of the company's outstanding voting
securities, other than those held by the interested shareholder. A Washington
corporation may, in its articles of incorporation, exempt itself from coverage
of this provision, but we have not done so. In addition, Chapter 23B.19 of the
WBCA prohibits the company, with certain exceptions, from engaging in certain
significant business transactions with an "acquiring person" (defined as a
person or group of persons who acquire 10% or more of the company's voting
securities without the prior approval of the Company's Board of Directors) for
a period of five years following the acquiring person's share acquisition date.
The prohibited transactions include, among others, a merger or consolidation
with, disposition of assets to, or issuance or redemption of stock to or from,
the acquiring person, or otherwise allowing the acquiring person to receive any
disproportionate benefit as a shareholder. We may not exempt ourself from
coverage of this statute. These statutory provisions may have the effect of
delaying, deterring or preventing a change in control of the company.
Our Board of Directors is divided into three approximately equal classes of
directors serving staggered three-year terms. In addition, our Restated
Articles of Incorporation provide that directors may be removed from office
only at a meeting of shareholders called expressly for that purpose and only
for cause. Our Restated Articles of Incorporation limit "cause" to willful
misfeasance having a material adverse effect on the company or conviction of a
felony, provided that any action by a director shall not constitute "cause" if,
in good faith, the director believed the action to be in or not opposed to the
best interests of the company or if the director is
46
entitled to be indemnified with respect to such action under applicable law,
our Restated Articles of Incorporation or Bylaws, or a contract with the
company. Further, our Bylaws require a shareholder to provide notice to the
company of such shareholder's intent to nominate a person or persons for
election as directors not later than 90 days prior to the date one year from
the date or the immediately preceding annual meeting of shareholders or, in the
case of an election to be held at a special meeting of shareholders for the
election of directors, the close of business on the tenth day following the
date on which notice of such meeting is first given to shareholders. A
shareholder must also provide us with notice of such shareholder's intent to
make any proposal at an annual meeting of shareholders not later than 90 days
prior to the date of one year from the date of the immediately preceding annual
meeting of shareholder. These provisions may have the effect of deterring
hostile takeovers or delaying changes in control or management of our company.
Shareholder Rights Plan
On November 11, 1996, our board of directors adopted a shareholder rights plan
and declared a distribution of one Preferred Stock Purchase Right (a "Right")
for each outstanding share of common stock to shareholders of record as of the
close of business November 21, 1996 and for each share of common stock issued
thereafter pursuant to a Rights Agreement between the company and Harris Trust
Company of California, as Rights Agent (the "Rights Agreement"). One Right will
be issued for each share of common stock issued in connection with this
offering. In connection with its adoption of the Rights Agreement, we reserved
for issuance 100,000 shares of Series C Preferred. The Series C Preferred will
only be issued in the event Rights issued pursuant to the Rights Agreement are
exercised.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Harris Trust Company
of California.
47
Underwriting
We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp. and U.S. Bancorp Piper Jaffray Inc. are acting
as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the
commitment of any other underwriter to purchase shares. Subject to the terms
and conditions of the underwriting agreement, each underwriter has severally
agreed to purchase the number of shares of common stock set forth opposite its
name below:
Underwriter Number of Shares
----------- ----------------
CIBC World Markets Corp.....................................
U.S. Bancorp Piper Jaffray Inc..............................
---------
Total..................................................... 3,000,000
=========
The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any are purchased. Under the underwriting agreement, if an
underwriter defaults in its commitment to purchase shares, the commitments of
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated, depending on the circumstances.
The shares should be ready for delivery on or about , 2000 against
payment in immediately available funds. The representatives have advised us
that the underwriters propose to offer the shares directly to the public at the
public offering price that appears on the cover page of this prospectus. In
addition, the representatives may offer some of the shares to other securities
dealers at this price less a concession of $ per share. The
underwriters may also allow, and such dealers may reallow, a concession not in
excess of $ per share to other dealers. After the shares are released
for sale to the public, the representatives may change the offering price and
other selling terms at various times.
We have granted the underwriters an over-allotment option. This option, which
is exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of 450,000 additional shares from us to
cover over-allotments. If the underwriters exercise all or part of this option,
they will purchase shares covered by the option at the public offering price
that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to public will
be $ and the total proceeds to us will be $ . The underwriters
have severally agreed that, to the extent the over-allotment option is
exercised, they will each purchase a number of additional shares proportionate
to the underwriter's initial amount reflected in the foregoing table.
The following table provides information regarding the amount of the discount
to be paid to the underwriters by us:
Total Without Exercise of Total With Full Exercise of
Per Share Over-Allotment Option Over-Allotment Option
--------- ------------------------- ---------------------------
Cell Therapeutics....... $ $ $
We estimate that our total expenses of the offering, excluding the underwriting
discount, will be approximately $650,000.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
48
We, our officers and directors and some other stockholders have agreed with the
underwriters to a 90-day "lock up" with respect to approximately 4,200,000
shares of common stock and other securities that they beneficially own,
including securities that are convertible into shares of common stock and
securities that are exchangeable or exercisable for shares of common stock.
This means that, subject to certain exceptions, for a period of 90 days
following the date of this prospectus, we and such persons may not, directly or
indirectly, offer, sell, pledge or otherwise dispose of these securities
without the prior written consent of CIBC World Markets Corp.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the
shares is completed. The underwriters may, however, engage in the following
activities in accordance with the rules:
. Stabilizing transactions--The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.
. Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in
syndicate covering transactions by purchasing shares in the open market.
The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.
. Penalty bids--If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
. Passive market making--Market makers in the shares who are underwriters or
prospective underwriters may make bids for or purchases of shares, subject
to limitations, until the time, if ever, at which a stabilizing bid is
made.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or
otherwise. If these transactions are commenced, they may be discontinued
without notice at any time.
49
Legal Matters
Certain legal matters with respect to the legality of the issuance of the
shares of common stock offered by this prospectus will be passed upon for us by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, San Francisco,
California. Certain legal matters will be passed upon for the underwriters by
McDermott, Will & Emery. McDermott, Will & Emery also represents us in
connection with certain intellectual property-related matters.
Experts
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 1999, as set forth in their report, which is incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
Where You Can Find More Information
We have filed a registration statement on Form S-3 with the Securities and
Exchange Commission in connection with this offering. We are subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy the registration statement and
any other documents we file at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the Public Reference Room. Our SEC filings are also
available to the public at the SEC's Internet site at "http://www.sec.gov."
This prospectus is a part of the registration statement and does not contain
all of the information included in the registration statement. Whenever a
reference is made in this prospectus to any contract or other document to Cell
Therapeutics, the reference may not be complete and you should refer to the
exhibits that are part of the registration statement for a copy of the contract
or document.
The SEC allows us to "incorporate by reference" into this prospectus the
information we file with them, which means that we can disclose important
information to you by referring you to those documents. Information
incorporated by reference is part of this prospectus. Later information filed
with the SEC will update and supercede this information.
We incorporate by reference the documents listed below and any future filings
made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until this offering is completed:
. Annual Report on Form 10-K for the year ended December 31, 1999
. Current Report on Form 8-K filed March 22, 2000
. The description of our capital stock contained in our registration on Form
10 filed on April 29, 1996 (as amended on June 27, 1996 and June 28, 1996)
and the description of our preferred stock purchase rights contained in our
registration statement on Form 8-A filed on November 15, 1996.
50
You may request a copy of these filings (other than exhibits to such documents
which are not specifically incorporated by reference in these documents), at no
cost, by contacting us at:
Cell Therapeutics, Inc.
201 Elliott Avenue West
Seattle, Washington 98119
(206) 272-7100
Attention: Louis A. Bianco
You should rely only on the information provided or incorporated by reference
in this prospectus or any prospectus supplement. We have not authorized anyone
to provide you with different information. You should not assume that
information in this prospectus is accurate as of any date other than the date
of this prospectus.
51
- -------------------------------------------------------------------------------
[CTI logo]
Cell Therapeutics, Inc.
3,000,000 Shares
Common Stock
----------------
PROSPECTUS
----------------
, 2000
CIBC World Markets
U.S. Bancorp Piper Jaffray
- -------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. No dealer,
salesperson or other person is authorized to give information that is not
contained in this prospectus. This prospectus is not an offer to sell nor is it
seeking an offer to buy these securities in any jurisdiction where the offer or
sale is not permitted. The information contained in this prospectus is correct
only as of the date of this prospectus, regardless of the time of the delivery
of this prospectus or any sale of these securities.
Part II
Information Not Required in Prospectus
Item 14. Other Expenses of Issuance and Distribution
The fees and expenses incurred by the Company in connection with the offering
are payable by the Company and, other than filing fees, are estimated as
follows:
Amount
--------
SEC Registration Fee............................................... $ 22,998
NASD Filing Fee.................................................... 9,211
Nasdaq National Market Fee......................................... 17,500
Printing........................................................... 150,000
Legal Fees and Expenses............................................ 350,000
Accounting Fees and Expenses ...................................... 100,000
Miscellaneous...................................................... 291
--------
Total............................................................ $650,000
========
Item 15. Indemnification of Officers and Directors
Sections 23B.08.500 through 23B.08.600 of the Washington Business Corporation
Act (the "WCBA") authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article IX of CTI's Related Bylaws provides for
indemnification of CTI's directors, officers, employees and agents to the
maximum extent permitted by Washington law. The directors and officers of CTI
also may be indemnified against liability they may incur for serving in such
capacity pursuant to a liability insurance policy maintained by CTI for such
purpose.
Section 223B.08.320 of the WBCA authorizes a corporation to limit a director's
liability to the corporation for its shareholders for monetary damages for acts
or omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate losses
or distributions , or any transaction from which the director personally
receives a benefit in money, property or services to which the director is not
legally entitled. Article VI of the Registrant's Restated Articles of
Incorporation (Exhibit 4.1 hereto) contains provisions implementing, to the
fullest extent permitted by Washington law, such limitations on a director's
liability to the Registrant and its shareholders.
CTI has entered into an indemnification agreement with each of its executive
officers and directors in which CTI agrees to hold harmless and indemnify the
officer or director to the fullest extent permitted by Washington law, CTI
agrees to indemnify the officer or director against any and all losses, claims,
damages, liabilities or expenses incurred in connection with any actual,
pending or threatened action, suit, claim or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal, in
which the officer or director is, was or becomes involved by reason of the fact
that the officer or director is or was a director, officer, employee, trustee
or agent of the Registrant or any related company, partnership or enterprise,
including service with respect to an employee benefit plan, whether the basis
of such proceeding is alleged action (or inaction) by the officer or director
in an official capacity and any action, suit, claim or proceeding is or was
authorized by CTI's Board of Directors. No indemnity pursuant to the
indemnification agreements shall be provided by CTI on account of profits made
from the purchase or sale by officer or director of securities of CTI in
violation of the provisions of Section 16(b) of the Securities Exchange Act of
1934, or for damages that have been paid directly to the officer or director by
an insurance carrier under a policy of directors' and officers' liability
insurance maintained by CTI.
II-1
Item 16. Exhibits
The following exhibits are filed with this Registration Statement:
Exhibit Index
Exhibit
Number Description
------- -----------
1.1 Form of Underwriting Agreement.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (see page II-4 of this Registration Statement).
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-
effective amendment to this Registration Statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act; (ii) to
reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) (Section 230.424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and (iii)
to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that (i) and (ii) do not apply if the Registration
Statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by (i) and (ii) is
contained in periodic reports filed with or furnished to the Commission by
the Registrant pursuant to Section 13 or Section 15(d) of the Exchange Act
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the Registration Statement shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-2
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against liabilities (other than the payment of the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Seattle, State of Washington on this 23rd day
of March, 2000.
CELL THERAPEUTICS, INC.
/s/ James A. Bianco, M.D.
By:____________________________
James A. Bianco, M.D.
President and Chief Executive Officer
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James A. Bianco and Louis A. Bianco, and each of
them his attorney-in-fact, with the power of substitution, for him in any and
all capacities, to sign any amendment or post-effective amendment to this
Registration on Form S-3 or abbreviated registration statement (including,
without limitation, any additional registration filed pursuant to Rule 462
under the Securities Act of 1933) with respect thereto and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on March 23, 2000.
Signature Title
--------- -----
/s/ James A. Bianco President, Chief Executive Officer and Director
____________________________________ (Principal Executive Officer)
(James A. Bianco, M.D.)
/s/ Louis A. Bianco Executive Vice President, Finance and
____________________________________ Administration (Principal Financial and
(Louis A. Bianco) Accounting Officer)
Director
____________________________________
(Max E. Link, Ph.D.)
/s/ Jack W. Singer, M.D. Director
____________________________________
(Jack W. Singer, M.D.)
/s/ Jack L. Bowman Director
____________________________________
(Jack L. Bowman)
Director
____________________________________
(Jeremy L. Curnock Cook)
/s/ Wilfred E. Jaeger, M.D. Director
____________________________________
(Wilfred E. Jaeger, M.D.)
/s/ Mary O'Neil Mundinger, DrPH Director
____________________________________
(Mary O'Neil Mundinger)
/s/ Philip N. Nudelman, Ph.D. Director
____________________________________
(Philip N. Nudelman)
II-4
Index to Exhibits
Exhibit
Number Description
------- -----------
1.1 Form of Underwriting Agreement.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
23.1 (included in Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (see page II-4 of this Registration Statement).