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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the fiscal year ended JULY 31, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934:
For the transition period from __________ to __________.
Commission file number: 0-27756.
ALEXION PHARMACEUTICALS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3648318
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 SCIENCE PARK, SUITE 360, NEW HAVEN, CONNECTICUT 06511
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(Address of principal executive offices) (Zip Code)
203-776-1790
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.0001
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant, based upon the last sale price of the Common Stock reported on
the National Association of Securities Dealers Automated Quotation (NASDAQ)
National Market System on October 22, 1997, was $107,375,000.
The number of shares of Common Stock outstanding as of October 22, 1997 was
9,107,149 .
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DOCUMENTS INCORPORATED BY REFERENCE
(To the Extent Indicated Herein)
Portions of the registrant's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with solicitations of proxies
for the Registrant's 1997 Annual Meeting of Stockholders on December 11, 1997
are incorporated by reference in Part III, Item 11 of this Form 10-K.
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PART I.
THIS ANNUAL REPORT ON FORM 10-K AND THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE CONTAIN FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO THE
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD
LOOKING STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS
ABOUT THE COMPANY'S INDUSTRY, MANAGEMENT'S BELIEFS, AND CERTAIN ASSUMPTIONS MADE
BY THE COMPANY'S MANAGEMENT, WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS,"
"PLANS," "BELIEVES," "SEEKS," ESTIMATES," VARIATIONS OF SUCH WORDS AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN
RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE,
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY
SUCH FORWARD-LOOKING STATEMENTS. SUCH RISKS AND UNCERTAINTIES INCLUDE, BUT ARE
NOT LIMITED TO, THOSE SET FORTH HEREIN UNDER "IMPORTANT FACTORS REGARDING
FORWARD-LOOKING STATEMENTS," ATTACHED HERETO AS EXHIBIT 99, AS WELL AS THOSE
NOTED IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. UNLESS REQUIRED BY LAW,
THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
HOWEVER, READERS SHOULD CAREFULLY REVIEW THE RISK FACTORS SET FORTH IN OTHER
REPORTS OR DOCUMENTS THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND
EXCHANGE COMMISSION.
ITEM 1. BUSINESS
GENERAL
Alexion Pharmaceuticals, Inc. ("Alexion or "the Company") is a
biopharmaceutical company engaged in the research and development of proprietary
immunoregulatory compounds for the treatment of autoimmune and cardiovascular
diseases. The Company is developing C5 Complement Inhibitors and Apogens, two
classes of potential therapeutic compounds designed to selectively target
specific disease-causing segments of the immune system. The Company believes
that its C5 Complement Inhibitors and Apogens, which are based upon distinct
immunoregulatory technologies, may have the advantage of achieving a higher
level of efficacy with the potential for reduced side effects when compared to
existing therapeutic approaches. The Company will need to undertake and complete
further tests in order to confirm its belief, and there can be no assurance as
to the results of any such tests. Primary therapeutic targets for the C5
Complement Inhibitor product candidates are cardiovascular disorders, including
prevention of bleeding and inflammation in cardiopulmonary bypass ("CPB") during
open heart surgery, myocardial infarction, and autoimmune disorders including
lupus nephritis and rheumatoid arthritis. Key disease targets for the Apogen
program include the autoimmune disorders multiple sclerosis and diabetes
mellitus.
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As an outgrowth of its core technologies, the Company is developing, in
collaboration with United States Surgical Corporation ("US Surgical"), non-human
UniGraft organ products designed for transplantation into humans and, in
collaboration with Genetics Therapy Inc. ("GTI/Novartis"), a subsidiary of
Novartis, Inc., immunoprotected retroviral vector particles and producer cells
for use in gene therapy.
ALEXION'S DRUG DEVELOPMENT STRATEGY
Alexion's strategy is to develop novel immunoregulatory therapeutics for
disease states, disorders and clinical indications for which the Company
believes treatment options are either non-existent or inadequate.
Currently available therapies for certain autoimmune, cardiovascular and
neurologic diseases, in which the immune system attacks the patient's own
tissue, broadly suppress the entire immune system, thus causing potentially
severe side effects. In contrast, Alexion's proprietary compounds are designed
to be more effective with reduced side effects when compared to currently
available therapies by generally targeting only the specific disease-causing
segments of the immune system, leaving the remaining segments of the immune
system intact to perform their normal protective functions. The Company is
developing two classes of potential therapeutic compounds, C5 Complement
Inhibitors ("C5 Inhibitors") and Apogens. C5 Inhibitors are designed to
specifically block the formation of disease-causing complement proteins, while
Apogens are designed to selectively eliminate disease-causing T-cells. In the
longer term, as an outgrowth of its core technologies, the Company is developing
(i) non-human UniGraft organ products which are designed for transplantation
into humans without clinical rejection and (ii) immunoprotected retroviral
vector particles and producer cells for injectable delivery of therapeutic genes
to patients' cells.
ALEXION DRUG DEVELOPMENT PROGRAMS
The Human Immune System
The role of the human immune system is to defend the body from attack or
invasion by infectious agents or pathogens. This is accomplished through a
complex system of proteins and cells, primarily complement proteins, antibodies
and various types of white blood cells, each with a specialized function. Under
normal circumstances, complement proteins, together with antibodies and white
blood cells, act beneficially to protect the body by removing pathogenic
microorganisms, cells containing antigens (foreign proteins), and
disease-causing immune complexes (combinations of antigens and antibodies).
However, any number of stimuli, including antibodies, pathogenic microorganisms,
injured tissue, normal tissue, proteases (inflammatory enzymes) and artificial
surfaces can locally activate complement proteins in a cascade of enzymatic and
biochemical reactions (the "complement cascade") to form inflammatory byproducts
leading, for example, in the case of cardiovascular disorders such as myocardial
infarction (death of heart tissue), to additional significant damage to the
heart tissue and, in the case of rheumatoid arthritis, to severe joint
inflammation. T-cells, a type of white blood cell, play a critical role in the
normal immune response by recognizing cells containing antigens, initiating the
immune response, attacking the antigen-containing tissue and directing the
production of antibodies directed at the antigens, all of which lead to the
elimination of the antigen-bearing foreign organism. When a T-cell mistakenly
attacks host tissue, the T-cell may cause an inflammatory
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response resulting in tissue destruction and severe autoimmune disease leading,
for example, in the case of multiple sclerosis to severe and crippling
destruction of nerve fibers in the brain.
C5 Complement Inhibitor Immunotherapeutics
Alexion is developing specific and potent biopharmaceutical C5 Inhibitors
which are designed to intervene in the complement cascade at what the Company
believes to be the optimal point so that the disease-causing actions of
complement proteins generally are inhibited while the normal disease-preventing
functions of complement proteins generally remain intact. In laboratory and
animal models of human disease, Alexion has shown that C5 Inhibitors are
effective in substantially preventing inflammation during CPB, reducing tissue
damage during myocardial infarction, reducing the incidence and severity of
inflammation and joint damage in rheumatoid arthritis, enhancing survival in
lupus and preserving kidney function in nephritis (kidney inflammation). The
Company is developing two C5 Inhibitors, a short acting humanized (compatible
for human use) single chain antibody (5G1.1-SC) designed for acute therapeutic
settings such as in CPB procedures and in treating myocardial infarctions, and a
long acting humanized monoclonal antibody (5G1.1) designed for treating chronic
disorders such as lupus and rheumatoid arthritis.
Cardiopulmonary Bypass Surgery
In performing certain complex cardiac surgical procedures, it is necessary
to detour blood from the patient's heart and lungs to a cardiopulmonary
(heart-lung) bypass machine in the operating room which artificially adds oxygen
to the blood and then circulates the oxygenated blood to the organs in the
patient's body. The Company believes that excessive bleeding during and after
surgery and tissue damage during and after surgery, both significant
complications of CPB, may be the result of an inflammatory process that begins
when CPB is initiated. The CPB related inflammatory response is associated with
the rapid activation of the complement cascade caused when the patient's blood
is perfused through the CPB machine and comes into contact with artificial
surfaces. The inflammation is also characterized by activation of platelets
(cells responsible for clotting) and neutrophils (a type of white blood cell).
The Company believes that platelet activation and subsequent platelet
dysfunction during CPB impair the patient's ability to arrest the bleeding that
occurs after extensive surgery and that neutrophil activation is associated with
impaired lung, heart, brain and kidney function.
The short acting humanized single chain antibody C5 Inhibitor (5G1.1-SC) is
designed to inhibit complement activation in patients immediately before and
during CPB in order to prevent the acute bleeding complications and other organ
morbidities associated with CPB. Those effects might reduce the need for blood
transfusions, the incidence of post-operative complications, the time spent by
patients in the intensive care unit, and the scope of other required treatments
associated with CPB. Preliminary studies by the Company indicate that the
Company's C5 Inhibitor can substantially prevent activation of platelets and
neutrophils and the subsequent inflammatory process that occurs during
circulation of human blood in a closed-loop CPB circuit.
An Investigational New Drug application ("IND") was filed with the U.S.
Food and Drug Administration ("FDA") in March 1996 for the C5 Inhibitor,
5G1.1-SC and, after receiving FDA authorization, a Phase I clinical trial in
healthy male volunteers began in June 1996. Results of the Phase I trial
indicated that a single dose administration of 5G1.1-SC was safe and
well-tolerated in the study population. In September 1996, the
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Company received FDA authorization for its second clinical trial and in October
1996 commenced a Phase I/II study of 5G1.1-SC in patients undergoing CPB.
In July 1997, preliminary results from this Phase I/II clinical study of 17
patients undergoing CPB were released. Treatment with 5G1.1-SC reduced the more
than ten-fold increase in the level of activated complement byproducts
experienced by patients on placebo during CPB in a dose-dependent manner. Also,
in July, the Company announced that it was preparing to examine 5G1.1-SC in a
Phase IIa CPB clinical study including an additional 18 patients. There can be
no guarantees that clinical trials of the Company's product candidates will be
completed in a timely manner or will demonstrate sufficient safety and efficacy
to obtain the requisite regulatory approvals or will result in marketable
products.
The American Heart Association ("AHA") estimates that approximately 450,000
CPB surgical procedures were performed in the United States during 1992.
Myocardial Infarction
Myocardial infarction (heart attack) is an acute cardiovascular disorder
where the coronary arteries (the arteries feeding the heart muscle) are blocked
to such an extent that the flow of blood is insufficient to supply enough oxygen
and nutrients to keep the heart muscle alive. With insufficient supply of blood,
oxygen, and nutrients, the underperfused heart muscle may subsequently infarct
(die). Myocardial infarction most often occurs due to a blockage in a coronary
artery, caused by atherosclerosis. Upon the reduction in flow in the coronary
artery, a complicated cascade of inflammatory events commences within the blood
vessel involving platelets and leukocytes and their secreted factors, complement
proteins, and endothelial cells. This severe inflammatory response targeting the
area of the underperfused cardiac muscle is associated with subsequent
infarction of the heart muscle. In addition to the high incidence of sudden
cardiac death at the onset, severe complications associated with the initial
survival of an acute myocardial infarction include congestive heart failure,
stroke, and death.
The Company is developing the C5 Inhibitor, 5G1.1-SC (currently being
applied to the treatment of patients undergoing CPB, as discussed above) to
inhibit complement activation in patients suffering an acute myocardial
infarction in order to reduce the extent of infarcted myocardium. The Company
and its collaborators have performed preliminary preclinical studies in rodents
which have demonstrated that administration of a C5 Inhibitor, at the time of
myocardial ischemia (insufficient supply of blood to the heart muscle) and prior
to reperfusion, significantly reduces the extent of subsequent myocardial
infarction compared to control studies. There can be no assurance that the
results from preclinical studies will be predictive of results that may be
obtained in clinical trials or will be predictive of safety or efficacy in
humans.
The AHA estimates that approximately 1,000,000 Americans survived a heart
attack in 1992 and thus are potentially eligible for such drug treatment.
Rheumatoid Arthritis
Rheumatoid arthritis is an autoimmune disease directed at various organ and
tissue linings, including the lining of the joints, causing inflammation and
tissue destruction. Clinical signs and symptoms of the disease include weight
loss, joint pain, morning stiffness and fatigue. Further, the joint destruction
can progress to redness,
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swelling and pain with frequent, severe joint deformity. Rheumatoid arthritis is
generally believed to be due to T-cells which both directly attack the patient's
joints and also activate B-cells (a type of white blood cell) to produce
antibodies which deleteriously activate complement proteins in the joint,
leading to inflammation, with subsequent tissue and joint destruction.
Alexion is developing a long acting humanized recombinant monoclonal
antibody (5G1.1), a C5 Inhibitor which is designed to inhibit complement
activation and thereby reduce the severity and frequency of flares of joint
inflammation and arrest progressive tissue damage in joints caused by complement
activation. The Company has performed preclinical studies in rodent models of
rheumatoid arthritis. Treatment with the Company's specific C5 Inhibitor
substantially prevented the onset of inflammation and pathology in the joints,
the onset of clinical signs of rheumatoid arthritis, as well as ameliorated
established disease. 5G1.1 is currently in the later stages of production for
use in clinical trials. There can be no assurance that an IND will be filed, or
that the Company will be permitted to commence clinical trials on a timely
basis, and that the results from preclinical studies will be predictive of
results that may be obtained in clinical trials or will be predictive of safety
or efficacy in humans.
In the United States approximately 2,500,000 patients receive treatment
from a physician for rheumatoid arthritis.
Nephritis
The kidneys are responsible for filtering blood to remove toxic metabolites
and maintain the blood minerals that are required for normal metabolism. Each
kidney consists of millions of individual filtering units, each filtering unit
called a glomerulus. When glomeruli are damaged, the kidney can no longer
adequately maintain its normal filtering function. Clinically severe nephritis,
found in many patients suffering from systemic lupus erythematosus ("lupus" or
"SLE") and other autoimmune diseases, occurs when more than 90% of the kidney is
destroyed by disease. Kidney failure is frequently associated with hypertension,
strokes, infections, anemia, heart, lung and joint inflammation, coma and death.
Most forms of damage to the glomerulus are mediated by the immune system and
particularly by antibodies and activated complement proteins.
Alexion is developing the C5 Inhibitor 5G1.1 (also being applied to the
treatment of rheumatoid arthritis, as discussed above) for the prevention and
treatment of inflammation in lupus patients. The Company has performed
preclinical studies in a rodent model of acute nephritis. In this model, the
Company's specific C5 Inhibitor substantially prevented inflammation in the
kidney tissue. Further, in a separate chronic rodent model that spontaneously
develops a disease similar to lupus with concomitant nephritis, substantially
more animals treated with the Company's specific C5 Inhibitor survived as
compared to untreated control animals. 5G1.1 is currently in the later stages of
production for use in clinical trials. There can be no assurance that an IND
will be filed, or that the Company will be permitted to commence clinical trials
on a timely basis, and that the results from preclinical studies will be
predictive of results that may be obtained in clinical trials or will be
predictive of safety or efficacy in humans.
Alexion's proposed product to treat and prevent nephritis is directed at a
patient population which includes SLE as well as diseases with lower prevalence
such as Goodpastures disease and others. According to the Lupus Foundation, 1.4
million
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Americans suffer from lupus. Further, an estimated 70% of individuals afflicted
with Lupus suffer nephritis.
Apogen Immunotherapeutics
The Company's Apogen compounds are based upon discoveries at the National
Institutes of Health ("NIH") which are exclusively licensed to Alexion and upon
further discoveries by Alexion. These discoveries involve a mechanism by which
substantially all disease-causing T-cells are selectively eliminated in vivo in
animal models of disease. The highly specific recombinant Apogens under
development by the Company are designed to selectively eliminate disease-causing
T-cells in patients with certain autoimmune diseases including multiple
sclerosis and diabetes mellitus. The Company has demonstrated that its lead
proprietary Apogen, MP4, is effective at preventing neurologic disease in animal
models of multiple sclerosis.
Multiple Sclerosis
Multiple Sclerosis ("MS") is an autoimmune disease of the central nervous
system which hinders the ability of the brain and spinal cord to control
movement, speech and vision. MS can be severely debilitating with long term
disability a common outcome. In severe cases, the reduced motor strength may
confine the patient to a wheelchair. MS is widely believed to be due to the
attack of a patient's antigen-specific T-cells on the protective myelin sheath
surrounding nerve cells in the central nervous system.
Preclinical animal studies performed by Alexion in the experimental
autoimmune encephalomyelitis (EAE) mouse model of MS, have demonstrated that
administration of the Company's proprietary Apogen MS product candidate, MP4, at
the time of disease induction, effectively prevents the development of severe
neurologic disease and administration of MP4 after the onset of disease
ameliorates established disease. In April 1997, the Company and its
collaborators at the NIH disclosed preliminary results of testing of MP4 in a
non-human primate model of MS. MP4 therapy substantially reduced the severity
and incidence of neurologic symptoms in these preclinical studies. In in vitro
studies, Alexion and NIH scientists have observed that MP4 is also capable of
eliminating antigen-specific human T-cells from patients with MS. MP4 is
currently in the later stages of production for use in clinical trials. There
can be no assurance that an IND will be filed, or that the Company will be
permitted to commence clinical trials on a timely basis, and that the results
from preclinical studies will be predictive of results that may be obtained in
clinical trials or will be predictive of safety or efficacy in humans.
According to the National Multiple Sclerosis Society, an estimated 250,000
people in the United States suffer from MS.
Diabetes Mellitus
Type I Diabetes Mellitus, or Insulin Dependent Diabetes Mellitus ("IDDM"),
is the most severe form of diabetes and is generally believed to be caused by an
autoimmune T-cell attack and destruction of the insulin producing cells in the
pancreas. This process, which usually begins in childhood, causes reduced
production of insulin, which is responsible for the breakdown of glucose,
resulting in uncontrolled elevations in the patient's blood sugar. Without
treatment, IDDM can be fatal.
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Alexion is currently developing Apogen DM which is designed to prevent and
treat IDDM by eliminating antigen-specific T-cells which are responsible for the
pancreatic B-cell destruction. Alexion has established animal models of diabetes
and has commenced initial preclinical studies with Apogen DM prototypes.
According to the American Diabetes Association, up to 800,000 Americans are
insulin dependent diabetics. The Company intends to design its potential product
as a preventative for individuals at high risk of developing the disease and as
a therapy for patients who still have a population of insulin producing cells,
in order to arrest progression of the disease and the subsequent development of
longer term complications.
The UniGraft Program
Organ and Tissue Transplantation
As an outgrowth of its core technologies, the Company is also developing,
in collaboration with US Surgical, non-human cell and organ UniGraft products
which are designed for transplantation into humans without clinical rejection.
Rejection of non-human tissue by patients is generally believed to occur in two
stages, a very rapid hyperacute phase extending over minutes to hours and a
somewhat less rapid acute phase, extending from days to months. Hyperacute
rejection is generally believed to be mediated by naturally-occurring antibodies
in the patient, most of which target a carbohydrate antigen uniquely present on
the surface of non-human tissue (but not on the patient's own tissue). After
binding to the foreign tissue, these antibodies activate the cascade of
complement proteins on the surface of the donor tissue with subsequent
destruction of the donor tissue. Subsequently, acute rejection of xenografts
(tissue from different species) is generally believed to be mediated by T-cells,
many of which are specific to the transplanted tissue.
UniGraft products are being designed to resist both
complement/antibody-mediated hyperacute rejection and T-cell-mediated acute
rejection. Alexion has commenced studies employing the UniGraft technologies
during preclinical transplantation of genetically engineered and proprietary
porcine cells and organs. Pigs are a preferred source of organ supply because
the anatomy, size, and physiology of their hearts and other organs are similar
to human organs. Alexion has genetically engineered porcine cells that are
resistant to lysis (break-up) and activation by human complement proteins.
Alexion has also discovered and designed porcine specific antibodies which have
been demonstrated to selectively and significantly block the human T-cell
response to porcine tissue in in vitro studies. Alexion is currently employing
its immunoregulatory and molecular engineering technologies in order to develop
UniGraft hearts, lungs, livers, pancreases and kidneys.
According to the United Network of Organ Sharing, there are approximately
19,000 organ transplants performed annually in the U.S. and there are more than
50,000 patients on waiting lists for transplant organs. The Company believes
that the availability and viability of xenograft organs for transplantation
could increase the transplant market significantly.
Gene Transfer Systems
Gene therapy is an emerging field of science based on the delivery of genes
into living cells to produce therapeutic proteins intracellularly. Gene transfer
technology may permit intracellular treatment of cancers, viral infections and
other diseases. Therapeutic
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genes are carried by vectors, or gene transporters, into targeted cells. All
commonly used clinical gene transfer vectors, including modified retroviruses,
modified adenoviruses, and DNA-liposome conjugates, are large molecules that, if
injected into a patient, are recognized as foreign and subject to rejection by
the human immune system. Certain of these vectors, known as modified
retroviruses, have been particularly useful for ex vivo gene therapy because of
their versatility, efficiency, stability of expression and relative safety.
Retroviral vectors can be modified to deliver genes for a variety of different
therapeutic applications. However, as these vectors are derived from non-human
cells, they are recognized as foreign by the recipient's immune system and thus
are eliminated in human blood prior to having a significant therapeutic effect.
As an outgrowth of its core technologies, in collaboration with
GTI/Novartis the Company is applying its research in, and knowledge of, the
body's rejection response to engineer retroviral vector producer cells and
particles which, when employed in gene transfer products, would be able to
survive and function in vivo following implantation or direct injection,
respectively. By protecting retroviral vector producer cells and particles from
the initial phase of rejection, the Company believes that its proprietary gene
transfer vectors will survive in vivo and be able to deliver therapeutic genes
to patients' cells. The Company has developed proprietary retroviral-based gene
transfer vectors, producer cells, and particles which survive in human blood ex
vivo. The Company is currently evaluating various options for commercializing
its gene transfer technologies.
STRATEGIC ALLIANCES, COLLABORATIONS AND LICENSES
The Company's plan is to develop and commercialize on its own those product
candidates for which the clinical trial and marketing requirements can
realistically be managed by the Company. For certain of the Company's C5
Inhibitor and Apogen products for which greater resource commitments will be
required, a key element of Alexion's strategy is the formation of corporate
partnerships with major pharmaceutical companies for product development and
commercialization. Alexion has entered into strategic alliances with US Surgical
with respect to transplantation applications of the Company's UniGraft program
and with GTI/Novartis with respect to gene therapy applications of the Company's
UniGraft program. The Company intends to develop additional strategic alliances
with major pharmaceutical companies for certain of its other technologies. There
can be no assurance that the Company will enter into additional strategic
alliances, or, if entered into, what the terms of any strategic alliance will
be.
United States Surgical Corporation
In July 1995, the Company and US Surgical entered into the Joint
Development Agreement, pursuant to which the Company and US Surgical agreed to
collaborate to jointly develop and commercialize the Company's UniGraft
technology for organ transplantation. Pursuant to the Joint Development
Agreement, Alexion has primary responsibility for preclinical development,
clinical trials and regulatory submissions relating to the UniGraft program, and
US Surgical has primary responsibility for production, sales, marketing and
distribution of UniGraft products to the extent developed and approved for
commercialization. Further, US Surgical has committed to exclusively develop
with the Company xenotransplantation products.
In the July 1995 Joint Development Agreement, US Surgical agreed to fund
preclinical development of UniGraft products by paying to Alexion up to $6.5
million allocated as follows: (i) up to $4.0 million of the cost of preclinical
development in four
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semi-annual installments of approximately $1.0 million (the first installment of
which was paid in July 1995), and (ii) $2.5 million upon achieving certain
milestones involving development of a genetically engineered pig. Through July
31, 1997, the Company received $4.0 million in research and development support
under its collaboration with US Surgical. In addition, US Surgical had agreed to
pay $1 million upon achieving a milestone involving the transplantation of
non-primate tissue into primates (the "Primate Milestone"). In furtherance of
the joint collaboration, US Surgical also purchased $4.0 million of Common Stock
of the Company, at a price of $8.75 per share. US Surgical also purchased
approximately ten percent of the shares of Common Stock offered at the Company's
initial public offering.
If the Primate Milestone is achieved, US Surgical is to advise the Company
whether it intends to exercise its priority right to provide all clinical
funding for the UniGraft product, and the Company and US Surgical are to agree
upon milestone payments to be made by US Surgical to the Company for the first
three UniGraft products. Unless and until US Surgical determines to terminate
clinical funding for a UniGraft product, US Surgical shall have the exclusive
worldwide marketing, sales and distribution rights with respect to such UniGraft
product, including market introduction decisions and control of marketing, sales
and distribution decisions.
In September 1997, US Surgical and the Company modified the July 1995 Joint
Development Agreement. As part of the modification, US Surgical made an
additional $6.5 million payment to the Company for equity, exclusive licensing
rights, and certain xenograft manufacturing assets. Under the modified
agreement, the additional $6.5 million payment comprised: (i) a $3 million
equity investment in the Company through the purchase of 166,945 shares of the
Company's Common Stock at a price of $17.97 per share, which represented a 25%
premium over the market price on the day prior to the date of closing and (ii) a
$3.5 million payment to acquire technology and certain xenograft manufacturing
assets. Further, as part of the amended agreement, US Surgical and the Company
agreed that the preclinical milestone payments in the original agreement are
considered to have been satisfied. At October 1, 1997, US Surgical beneficially
owns an aggregate of 824,087 shares of Common Stock or approximately 9.1% of the
Company's outstanding shares.
For inventions made by the Company during the performance of the
preclinical or clinical programs outlined in the Joint Development Agreement,
the Company will own the inventions and US Surgical is granted (i) a worldwide
exclusive license to sell transplant products derived from the Company's
xenotransplantation technology; (ii) a worldwide exclusive license to sell
products (a) in the fields related to businesses in which US Surgical is engaged
and (b) not in the fields in which the Company is currently developing its
products (i.e., anti-inflammatories and gene therapy systems); and (iii) an
option to an exclusive license to sell products in fields outside those related
to businesses which US Surgical is engaged but excluding fields which the
Company is currently developing its products (e.g., anti-inflammatories and gene
therapy systems). US Surgical has agreed to pay to the Company royalties on net
sales of products. The Company has retained full rights to inventions in fields
of gene therapy systems and anti-inflammatories as well as to inventions in
fields for which US Surgical does not exercise its option.
The Joint Development Agreement may be terminated by US Surgical for any or
no reason effective on or after January 1, 1998, if notice is given by US
Surgical at least six months prior thereto. In the event of a termination by US
Surgical, all rights licensed by Alexion shall revert to Alexion.
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Genetic Therapy, Inc.
In December 1996, Alexion and GTI/Novartis entered into a License and
Collaborative Research Agreement with respect to the Company's gene transfer
technology. Under the Agreement, GTI/Novartis has been granted a worldwide
exclusive license to use the Alexion technology in its gene therapy products.
GTI/Novartis agreed to pay Alexion an initial upfront payment of $850,000
which consisted of a one-time license fee of $750,000 and a $100,000 research
and development support payment. GTI/Novartis also agreed to fund a minimum of
$400,000 per year for two years for research and development support by Alexion,
make payments to Alexion upon achievement of certain product development
milestones for gene therapy products utilizing the Alexion technology and pay
royalties on net sales, if any.
Licenses and Other Sponsored Research
The Company has obtained licenses with respect to certain issued patents
and patent applications, to supplement the research of its own scientists. The
Company has agreed to pay to its licensors royalties on sales of certain
products based on the licensed technologies, as well as, in some instances,
minimum royalty and milestone payments, and patent filing and prosecution costs.
The Company has also agreed to indemnify its licensors and, in certain
instances, the inventors, against certain liabilities, including liabilities
arising out of product liability claims and, in certain instances, under the
securities laws. Because research leading to inventions licensed from domestic
licensors are generally supported by the United States Government, the
Government has retained certain statutory rights, including a non-exclusive,
royalty-free license to use the licensed inventions, and to manufacture and
distribute products based thereon, for Government use only. A summary of certain
of such licenses, as well as the Company's other material licenses and sponsored
research, is presented below.
Yale University/Oklahoma Medical Research Foundation
The Company has obtained exclusive, worldwide licenses to certain issued
patents and patent applications and related technology from Yale and OMRF with
respect to complement inhibitors and UniGraft technology. Since obtaining the
patent licenses, the Company has made further discoveries relating to complement
inhibitors and the UniGraft technology, resulting in the filing by the Company
of numerous additional U.S. patent applications. In addition, the Company has
provided funding for separate sponsored research by certain of these inventors
and, to the extent that an invention would not be covered by an existing license
from OMRF to the Company, the Company has the first and prior right to license
any inventions in the field arising from the research.
National Institutes of Health
The Company has obtained an exclusive, worldwide license from NIH for
rights to two patent applications related to the work performed at NIH on
antigen-specific elimination of disease-causing T-cells in patients with certain
inflammatory disorders.
In further support of the Company's Apogen program, the Company and the
National Institute of Allergy and Infectious Diseases ("NIAID") have entered
into a Cooperative Research and Development Agreement (the "NIH CRADA"). The
subject
-12-
matter of the NIH CRADA includes preclinical and clinical development based upon
discoveries by NIAID regarding the antigen-specific elimination of
disease-causing T-cells in patients with certain inflammatory disorders. The
principal investigator of the NIH CRADA is the principal inventor of the
inventions licensed to the Company by NIH. NIAID has granted the Company the
first and prior right to an exclusive commercialization license for any and all
inventions or products developed pursuant to the NIH CRADA. Pursuant to the NIH
CRADA, the Company committed to pay $159,000 per year for a three-year period.
Through July 31, 1997, approximately $477,000 has been paid under such
agreement. The NIH is part of the United States Department of Health and Human
Services. In February 1997, the NIH CRADA was amended to extend the term to
December 1997 and the Company committed to pay approximately $168,000 under this
amendment.
Biotechnology Research and Development Corporation
The Company has entered into a license agreement with the Biotechnology
Research and Development Corporation ("BRDC"), under which the Company has
become the worldwide, exclusive licensee of the porcine embryonic stem cell
technology developed at the University of Illinois and sponsored by BRDC, and
related patent applications for xenotransplantation purposes. The Company
believes that this technology may assist it in its UniGraft organ
transplantation program.
In connection with the license agreement with BRDC, the Company became a
common shareholder of BRDC, which is a research management corporation. At the
present time, the Company, American Home Products Corporation, Dalgety, plc.,
The Dow Chemical Company, Mallinckrodt Group Inc., McDonald's Corporation, and
Agricultural Research and Development Corporation are common shareholders of
BRDC. BRDC is currently funding numerous research projects in biotechnology, and
each of the common shareholders, including the Company, retains the right to
license for commercial development the technologies resulting from substantially
all of these research programs. The Company paid $50,000 for the purchase of its
common stock of BRDC and has committed to an annual research contribution to the
consortium for four years. Through July 31, 1997, the Company has paid
approximately $633,000 under the agreement. However, minimum annual royalty
payments under the license agreement with BRDC have been waived so long as the
Company remains a shareholder of BRDC.
Grants
Phase II SBIR Grant
In September 1995, Alexion was awarded a $750,000 Phase II SBIR (Small
Business Innovation Research Program) grant from the National Heart, Lung, and
Blood Institute of the NIH. The award was made in support of the research and
clinical development of the Company's C5 Inhibitor to treat complications of
cardiovascular surgery. As of July 31, 1997, the Company has received the full
amount of the above grant payment.
ATP/NIST
In August 1995, the Company was awarded cost-shared funding from the
Commerce Department's National Institute of Standards and Technology ("NIST")
under its Advanced Technology Program ("ATP"). Through the ATP, the Company may
-13-
receive up to approximately $2.0 million over three years to support the
Company's UniGraft program in universal donor organs for transplantation.
Medical Research Council License
In March 1996, the Company entered into a license agreement with the
Medical Research Council under which the Company has become the worldwide
non-exclusive licensee of certain patents related to the humanization and
production of monoclonal antibodies.
Enzon License
In May 1996, the Company licensed from Enzon, Inc. on a worldwide
non-exclusive basis certain patents related to single chain antibodies.
PATENTS AND PROPRIETARY RIGHTS
The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file patent applications
to protect technology, inventions and improvements to its technologies that are
considered important to the development of its business. The Company also relies
upon trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain its competitive position.
The Company has filed several U.S. patent applications and international
(PCT) counterparts of certain of these applications. In addition, the Company
has exclusively licensed several additional United States patent applications
and issued U.S. patents. Of the Company's owned and licensed patents and patent
applications as of July 31, 1997, approximately 27% relate to technologies or
products in the C5 Inhibitor program, 15% relate to the Apogen program, 12%
relate to the Gene Transfer program and 46% relate to the UniGraft program.
The Company's success will depend in part on its ability to obtain United
States and foreign patent protection for its products, preserve its trade
secrets and proprietary rights, and operate without infringing on the
proprietary rights of third parties or having third parties circumvent the
Company's rights. Because of the length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, the health care industry has traditionally placed considerable
importance on obtaining patent and trade secret protection for significant new
technologies, products and processes. There can be no assurance that any patents
will issue from any of the patent applications owned by or licensed to the
Company. Further, even if patents were to issue, there can be no assurance that
they will provide the Company with significant protection against competitive
products or otherwise be commercially valuable. In addition, patent law relating
to certain of the Company's fields of interest, particularly as to the scope of
claims in issued patents, is still developing and it is unclear how this
uncertainty will affect the Company's patent rights. Litigation, which could be
costly and time consuming, may be necessary to enforce patents issued to the
Company and/or to determine the scope and validity of others' proprietary
rights, in either case in judicial or administrative proceedings. The Company's
competitive position is also dependent upon unpatented trade secrets which
generally are difficult to protect. There can be no assurance that others will
not independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets, that
-14-
the Company's trade secrets will not be disclosed or that the Company can
effectively protect its rights to unpatented trade secrets. As the biotechnology
industry expands and more patents are issued, the risk increases that the
Company's potential products may give rise to claims that they infringe the
patents of others. Any such infringement litigation would be costly and time
consuming to the Company.
The Company is aware of broad patents owned by third parties relating to
the manufacture, use, and sale of recombinant humanized antibodies, recombinant
humanized single chain antibodies and genetically engineered animals. The
Company has received notice from certain of these parties regarding the
existence of certain of these patents which the owners claim may be relevant to
the development and commercialization of certain of the Company's proposed
products. With respect to certain of these patents, the Company has acquired or
is attempting to acquire certain licenses which it believes are relevant for the
expeditious development and commercialization of certain of its products as
currently contemplated. With regard to another of these patents, the Company has
identified and is testing various approaches which it believes should not
infringe this patent and which should permit commercialization of its products.
There can be no assurance that the owner of this patent will not seek to enforce
the patent against the Company's so-modified commercial products or against the
development activities related to the non-modified products. Although the
Company believes that it can obtain licenses to the patents necessary for its
contemplated commercial products, there can be no assurance that the Company
will be able to obtain licenses on commercially reasonable terms. If the Company
does not obtain necessary licenses, it could encounter delays in product market
introductions while it attempts to design around such patents, or could find
that the development, manufacture or sale of products requiring such licenses
could be foreclosed. Further, there can be no assurance that owners of patents
that the Company does not believe are relevant to the Company's product
development and commercialization will not seek to enforce their patents against
the Company. Such action could result in litigation which would be costly and
time consuming. There can be no assurance that the Company would be successful
in such litigations. The Company is currently unaware of any such threatened
action.
Certain of the licenses by which the Company obtained its rights in and to
certain technologies require the Company to diligently commercialize or attempt
to commercialize such technologies. There can be no assurance that the Company
will meet such requirements, and failure to do so for a particular technology
could result in the Company losing its rights to that technology.
Currently, the Company has not sought to register its potential trademarks
and there can be no assurance that the Company will be able to obtain
registration for such trademarks.
It is the Company's policy to require its employees, consultants, members
of its scientific advisory board, and parties to collaborative agreements to
execute confidentiality agreements upon the commencement of employment or
consulting relationships or a collaboration with the Company. These agreements
provide that all confidential information developed or made known during the
course of relationship with the Company is to be kept confidential and not
disclosed to third parties except in specific circumstances. In the case of
employees, the agreements provide that all inventions resulting from work
performed for the Company, utilizing property of the Company or relating to the
Company's business and conceived or completed by the individual during
employment shall be the exclusive property of the Company to the extent
permitted by applicable law. There can be no assurance, however, that these
agreements will provide
-15-
meaningful protection of the Company's trade secrets or adequate remedies in the
event of unauthorized use or disclosure of such information.
GOVERNMENT REGULATION
The preclinical and clinical testing, manufacture, labeling, storage,
record keeping, advertising, promotion, export, and marketing, among other
things, of the Company's proposed products are subject to extensive regulation
by governmental authorities in the United States and other countries. In the
United States, pharmaceutical products are regulated by the FDA under the
Federal Food, Drug, and Cosmetic Act and other laws, including, in the case of
biologics, the Public Health Service Act. At the present time, the Company
believes that its products will be regulated by the FDA as biologics.
The steps required before a novel biologic may be approved for marketing in
the United States generally include (i) preclinical laboratory tests and in vivo
preclinical studies, (ii) the submission to the FDA of an IND for human clinical
testing, which must become effective before human clinical trials may commence,
(iii) adequate and well-controlled human clinical trials to establish the safety
and efficacy of the product, (iv) the submission to the FDA of a Biologics
License Application ("BLA") and (v) FDA review and approval of the BLA. The
testing and approval process requires substantial time, effort and financial
resources and there can be no assurance that any approval will be granted on a
timely basis, if at all. Following approval, if granted, the establishment or
establishments where the product is manufactured are subject to inspection by
the FDA and must comply with current good manufacturing practice ("cGMP")
regulations, enforced by the FDA through its facilities inspection program.
Manufacturers of biologics also may be subject to state regulation.
Preclinical tests include laboratory evaluation of the product, as well as
animal studies to assess the potential safety and efficacy of the product.
Compounds must be produced according to applicable cGMP regulations and
preclinical safety tests must be conducted in compliance with FDA regulations
regarding Good Laboratory Practices. 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 be commenced. The IND will automatically become effective 30 days
after receipt by the FDA, unless the FDA before that time requests an extension
to review or raises concerns or questions about the conduct of the trials as
outlined in the IND. In such latter case, the IND sponsor and the FDA must
resolve any outstanding concerns before clinical trials can proceed. There can
be no assurance that submission of an IND will result in FDA authorization to
commence clinical trials.
Clinical trials involve the administration of the investigational product
to healthy volunteers or to patients, under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with
protocols that detail, inter alia, the objectives of the study, the parameters
to be used to monitor safety and the efficacy criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND. Further, each clinical
study must be reviewed and approved by an independent Institutional Review
Board.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into human
subjects, the drug is tested for safety (adverse effects) and, as appropriate,
for absorption, metabolism,
-16-
distribution, excretion, pharmacodynamics and pharmacokinetics. Phase II usually
involves studies in a limited patient population to (i) evaluate preliminarily
the efficacy of the drug for specific, targeted indications, (ii) determine
dosage tolerance and optimal dosage and (iii) identify possible adverse effects
and safety risks. Phase III trials are undertaken to further evaluate clinical
efficacy and to test further for safety within an expanded patient population at
geographically dispersed clinical study sites. There can be no assurance that
Phase I, Phase II, or Phase III testing will be completed successfully within
any specific time period, if at all, with respect to any of the Company's
product candidates. Furthermore, 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.
The results of the preclinical studies and clinical studies, together with
detailed information on the manufacture and composition of the product, are
submitted to the FDA in the form of a BLA requesting approval for the
manufacture, marketing and commercial shipment of the product. The FDA may deny
a BLA if applicable regulatory criteria are not satisfied, require additional
testing or information, or require postmarketing testing and surveillance to
monitor the safety or efficacy of a product. There can be no assurance that FDA
approval of any BLA submitted by the Company will be granted on a timely basis
or at all. Moreover, if regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which it may be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing. Among the conditions for BLA approval is the requirement that the
prospective manufacturers quality control and manufacturing procedures conform
to cGMP regulations, which must be followed at all times in the manufacture of
the approved product. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, monies and effort in
the area of production and quality control to ensure full compliance.
Both before and after approval is obtained, a product, its manufacturer,
and the holder or the holders of the BLA for the product are subject to
comprehensive regulatory oversight. Violations of regulatory requirements at any
stage, including the preclinical and clinical testing process, the review
process, or thereafter (including after approval) may result in various adverse
consequences, including the FDA's delay in approving or refusal to approve a
product, withdrawal of an approved product from the market, and/or the
imposition of criminal penalties against the manufacturer and/or BLA holder. In
addition, later discovery of previously unknown problems may result in
restrictions on a product, manufacturer, or BLA holder, including withdrawal of
the product from the market. Also, new government requirements may be
established that could delay or prevent regulatory approval of the Company's
products under development.
For clinical investigation and marketing outside the United States, the
Company is also subject to foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The foreign regulatory
approval process includes all of the risks associated with FDA approval set
forth above.
COMPETITION
The pharmaceutical and biotechnology industries are characterized by
rapidly evolving technology and intense competition. Many companies, including
major pharmaceutical and chemical companies, as well as specialized
biotechnology companies, are engaged in activities similar to those of the
Company. Certain of these companies
-17-
have substantially greater financial and other resources, larger research and
development staffs, and more extensive marketing and manufacturing organizations
than the Company. Many of these companies have significant experience in
preclinical testing, human clinical trials, product manufacturing, marketing and
distribution and other regulatory approval procedures. In addition, colleges,
universities, governmental agencies and other public and private research
organizations conduct research and may market commercial products on their own
or through joint ventures. These institutions are becoming more active in
seeking patent protection and licensing arrangements to collect royalties for
use of technology that they have developed. These institutions also compete with
the Company in recruiting and retaining highly qualified scientific personnel.
The Company competes with large pharmaceutical companies that produce and
market synthetic compounds and with specialized biotechnology firms in the
United States, Europe and elsewhere, as well as a growing number of large
pharmaceutical companies that are applying biotechnology to their operations.
Many biotechnology companies have focused their developmental efforts in the
human therapeutics area, and many major pharmaceutical companies have developed
or acquired internal biotechnology capabilities or have made commercial
arrangements with other biotechnology companies. A number of biotechnology and
pharmaceutical companies are developing new products for the treatment of the
same diseases being targeted by the Company; in some instances such products
have already entered clinical trials. Other companies are engaged in research
and development based on complement proteins, T-cell therapeutics, gene therapy
and xenotransplantation.
T-Cell Sciences, Inc. ("T-Cell Sciences") and Chiron Corporation have both
publicly announced intentions to develop complement inhibitors to treat diseases
related to trauma and inflammation indications and the Company is aware that
SmithKline Beecham PLC, Merck & Co., Inc. and CytoMed Inc. are attempting to
develop similar therapies. T-Cell Sciences has initiated clinical trials for a
proposed complement inhibitor to treat acute respiratory distress syndrome
(ARDS), myocardial infarction, and lung transplantation. The Company believes
that its potential C5 Inhibitors differ substantially from those of its
competitors due to the Company's compounds' demonstrated ability to specifically
intervene in the complement cascade at what the Company believes to be the
optimal point so that the disease-causing actions of complement proteins
generally are inhibited while the normal disease-preventing functions of
complement proteins generally remain intact as do other aspects of immune
function.
The Company further believes that, under conditions of inflammation, a
complement inhibitor compound which only indirectly addresses the harmful
activity of complement may be bypassed by pathologic mechanisms present in the
inflamed tissue. Each of Bayer, Immunex Corporation, Pharmacia & Upjohn and
Rhone-Poulenc Rorer Inc. sells a product which is used clinically to reduce
surgical bleeding during CPB, but have little effect on other significant
inflammatory morbidities associated with CPB. The Company believes that each of
these drugs does not significantly prevent complement activation and subsequent
inflammation that lead to blood loss and organ damage during CPB surgery, but
instead each drug attempts to reduce blood loss by shifting the normal blood
thinning/blood clotting balance in the blood towards enhanced blood clotting.
While Trasylol (Bayer) has been demonstrated to reduce perioperative blood loss
in a subset of high risk patients, administration of each of these three drugs
to patients with heart disease has been associated with clinical complications
of enhanced blood clotting, including myocardial infarction. The Company is also
aware of announced and ongoing clinical trials of certain companies, including
Autoimmune, Inc., ImmuLogic
-18-
Pharmaceutical Corporation, Neurocrine Biosciences, Inc., and Anergen, Inc.
employing T-cell specific tolerance technologies and addressing patients with
multiple sclerosis or diabetes mellitus. Baxter Healthcare Corporation and
Novartis, Inc., in collaboration with Biotransplant Inc., have publicly
announced intentions to commercially develop xenograft organs and the Company is
aware that Diacrin Inc. and Genzyme Tissue Repair, Inc. are also working in this
field.
MANUFACTURING, MARKETING, SALES, CLINICAL TESTING AND REGULATORY COMPLIANCE
Alexion manufactures its requirements for preclinical and clinical
development using both internal and contract manufacturing resources. The
Company, with financial assistance from the State of Connecticut, has
established pilot manufacturing facilities suitable for the fermentation and
purification of certain of its recombinant compounds for clinical studies. The
Company's pilot plant has the capacity to manufacture under cGMP regulations.
The Company intends to secure the production of initial clinical supplies of
certain other recombinant products through third party manufacturers. In each
case, the Company anticipates that product finishing, vial filling, quality
assurance and packaging will be contracted through third parties.
In the longer term, the Company may develop large-scale manufacturing
capabilities for the commercialization of some of its products. The key factors
which will be given consideration when making the determination of which
products will be manufactured internally and which through contractual
arrangements will include the availability and expense of contracting this
activity, control issues and the expertise and level of resources required for
Alexion to manufacture products.
The Company has not invested in the development of commercial
manufacturing, marketing, distribution or sales capabilities. Although the
Company has established a pilot manufacturing facility for the production of
material for clinical trials for certain of its potential products, it has
insufficient capacity to manufacture more than one product candidate at a time
or to manufacture its product candidates for later stage clinical development or
commercialization. If the Company is unable to develop or contract for
additional manufacturing capabilities on acceptable terms, the Company's ability
to conduct human clinical testing will be materially adversely affected,
resulting in delays in the submission of products for regulatory approval and in
the initiation of new development programs, which could have a material adverse
effect on the Company's competitive position and the Company's prospects for
achieving profitability. In addition, as the Company's product development
efforts progress, the Company will need to hire additional personnel skilled in
clinical testing, regulatory compliance, and, if the Company develops products
with commercial potential, marketing and sales. There can be no assurance that
the Company will be able to acquire, or establish third-party relationships to
provide, any or all of these resources or be able to obtain required personnel
and resources to manufacture, or perform testing or engage in marketing,
distribution and sales on its own.
HUMAN RESOURCES
As of October 1, 1997, the Company had 51 full-time employees, of whom 43
were engaged in research, development, and manufacturing, and eight in
administration
-19-
and finance. Doctorates are held by 17 of the Company's employees. Each of the
Company's employees has signed a confidentiality agreement.
ITEM 2. PROPERTIES
The Company's headquarters, research and development facility, and pilot
manufacturing facility are located in New Haven, Connecticut, within close
proximity to Yale University. At this facility, the Company leases and occupies
a total of approximately 29,000 square feet of space, which includes
approximately 14,900 square feet of research laboratories and 5,200 square feet
of space dedicated to the pilot manufacturing facility. The Company leases its
facilities under three operating leases expiring in June 1998, December 1997, an
March 1999, respectively, each with an option for up to an additional three
years. Current monthly rental on the facilities is approximately $30,000. The
Company believes the laboratory space will be adequate for its existing research
and development activities.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-20-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") National Market System
under the symbol ALXN. The following table sets forth the range of high and low
sales prices for the Common Stock on the Nasdaq National Market System for the
periods indicated since February 29, 1996 when the Company's Common Stock
commenced trading.
High Low
FISCAL 1996 ------ -----
Third Quarter
(February 29, 1996 -- April 30, 1996) ........... $ 9.50 $8.38
Fourth Quarter
(May 1, 1996 -- July 31, 1996) .................. $11.75 $6.00
High Low
FISCAL 1997 ------ -----
First Quarter
(August 1, 1996 -- October 31, 1996) ............ $10.50 $6.00
Second Quarter
(November 1, 1996 -- January 31, 1997) .......... $13.00 $8.38
Third Quarter
(February 1, 1997 -- April 30, 1997) ............ $12.50 $8.38
Fourth Quarter
(May 1, 1997 -- July 31, 1997) .................. $11.63 $7.69
As of October 22, 1997, the number of stockholders of record of the
Company's Common Stock was approximately 700. The closing sale price of the
Company's Common Stock on October 22, 1997 was $14.25 per share.
RECENT SALE OF UNREGISTERED SECURITIES
On July 8, 1997, the Company completed the private placement of 1,450,000
shares of its Common Stock to certain institutional investors. Robertson,
Stephens & Company LLC served as placement agent in the transaction. The
aggregate offering price for the Common Stock sold was $11,237,500, the
aggregate proceeds to the Company was $10,563,250 and the aggregate Placement
Agent's Fee was $674,250. The Company relied on the exemption afforded by
Section 4(2) of, and Regulation D promulgated under, the Securities Act of 1933,
as amended (the "Act").
On September 8, 1997, the Company completed the private placement of
400,000 shares of Series B Preferred Stock for aggregate consideration of
$10,000,000 to a single institutional investor. Robertson, Stephens & Company
LLC served as an advisor to the Company in connection with this transaction and
earned a $400,000 fee from the Company. The Series B Preferred Stock is
automatically convertible into 935,782 shares of Common Stock on March 4, 1998
or at anytime prior thereto at the election of the holder. The conversion price
of $10.686 per share represented a 3% premium to the closing bid of price
($10.375) on the day of pricing. The Series B Preferred Stock will
-21-
pay a dividend of $2.25 per share on March 4, 1998, payable in cash or the
Company's Common Stock at the discretion of the Company. The Company relied on
the exemption afforded by Section 4(2) of, and Regulation D promulgated under,
the Act.
On September 30, 1997, the Company sold 166,945 shares of its Common Stock
to United States Surgical Corporation ("US Surgical") for aggregate
consideration of $3,000,000 represents a price of $17.97 per share (representing
a 25% premium over the market price on the day prior to the date of closing).
The sale of Common Stock was made in connection with the modification of a joint
development agreement by and between the Company and US Surgical. No entity
acted as placement agent or an advisor in connection with this sale. The Company
relied on the exemption afforded by Section 4(2) under the Act.
DIVIDEND POLICY
The Company has never paid cash dividends. The Company does not expect to
declare or pay any dividends on the Company's Common Stock in the foreseeable
future, but instead intends to retain all earnings, if any, to invest in the
Company's operations. The payment of future dividends is within the discretion
of the Board of Directors and will depend upon the Company's future earnings, if
any, its capital requirements, financial condition and other relevant factors.
-22-
ITEM 6. SELECTED FINANCIAL DATA
For the Fiscal Years Ended
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
STATEMENTS OF OPERATIONS DATA:
Contract research revenues ............. $ 3,810,600 $ 2,640,239 $ 136,091 $ -- $ --
----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development ............. 9,079,141 6,629,157 5,637,431 5,519,035 2,969,327
General and administrative ........... 2,826,783 1,843,093 1,591,886 1,860,887 1,131,114
----------- ----------- ----------- ----------- -----------
Total operating expenses ........ 11,905,924 8,472,250 7,229,317 7,379,922 4,100,441
----------- ----------- ----------- ----------- -----------
Operating loss ......................... (8,095,324) (5,832,011) (7,093,226) (7,739,922) (4,100,441)
Other income (expense), net ............ 843,754 397,495 (29,195) 93,770 32,613
----------- ----------- ----------- ----------- -----------
Net loss ............................... $(7,251,570) $(5,434,516) $(7,122,421) $(7,286,152) $(4,067,828)
=========== =========== =========== =========== ===========
Net loss per common share (1) .......... $(.97) $(.95) $(1.76) $(1.89) $(1.77)
===== ===== ====== ====== ======
Shares used in computing
net loss per common share (1) ........ 7,450,762 5,746,697 4,055,966 3,857,044 2,301,179
========= ========= ========= ========= =========
July 31, July 31, July 31, July 31, July 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Cash, cash equivalents,
and marketable securities ............ $22,748,896 $18,597,751 $ 5,701,465 $ 4,209,200 $ 6,859,947
Working capital ........................ 20,567,120 17,031,891 3,558,788 3,014,418 6,388,533
Total assets ........................... 24,260,561 20,453,980 7,927,276 6,983,361 8,334,274
Deficit accumulated during
the development stage ................ (31,826,251) (24,574,681) (19,140,165) (12,017,744) (4,731,592)
Stockholders' equity ................... 21,846,400 18,284,925 5,119,217 4,699,846 7,224,900
- -------------
(1) Computed as described in Note 2 of Notes to Financial Statements.
-23-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This report contains forward-looking statements which involve risks and
uncertainties. Such statements are subject to certain factors which may cause
the Company's plans and results to differ significantly from plans and results
discussed in forward-looking statements. Factors that might cause or contribute
to such differences include, but are not limited to, those discussed in
"Important Factors Regarding Forward-Looking Statements" attached hereto as
Exhibit 99.
OVERVIEW
Since its inception in January 1992, Alexion has devoted substantially all
of its resources to its drug discovery, research and product development
programs. To date, Alexion has not received any revenues from the sale of
products. The Company has been unprofitable since inception, and expects to
incur substantial and increasing operating losses for the next several years due
to expenses associated with product research and development, preclinical and
clinical testing, regulatory activities and manufacturing development and
scale-up. As of July 31, 1997, the Company has incurred a cumulative net loss of
$31.8 million.
The Company's plan is to develop and commercialize on its own those product
candidates for which the clinical trial and marketing requirements can be funded
by the Company. For certain of the Company's C5 Inhibitor and Apogen products
for which greater resources will be required, Alexion's strategy is to form
corporate partnerships with major pharmaceutical companies for product
development and commercialization. Alexion has entered into a strategic alliance
with US Surgical with respect to the Company's UniGraft program and with
GTI/Novartis with respect to the Company's gene transfer technology, and intends
to seek additional strategic alliances with major pharmaceutical companies
although no assurances can be given that such alliances will be successfully
entered into.
The Company recognizes research and development revenues when the
development expenses are incurred and the related work is performed under the
terms of the contracts. Any revenue contingent upon future expenditures by the
Company is deferred and recognized as the expenditures are incurred. Any
revenues contingent upon the achievement of milestones will be recognized when
the milestones are achieved.
RESULTS OF OPERATIONS
Years Ended July 31, 1997, 1996, and 1995
The Company earned grant, license, and contract research revenues of $3.8
million, $2.6 million, and $136,000 for the fiscal years ended July 31, 1997,
1996, and 1995, respectively. The increase in fiscal 1997 was primarily due to
the $1.1 million of revenues the Company received from GTI/Novartis which
represented a one-time upfront license fee of $750,000 and contract research and
development revenues of $350,000. The increase in fiscal year 1996 revenues as
compared to fiscal 1995 resulted principally from Company's revenues received
from U.S. Surgical of approximately $2.0 million from a collaborative research
and development agreement and the funding of $246,000 from the NIST's ATP grant.
The revenues in fiscal 1995 resulted from the receipt of
-24-
funds from two SBIR grants from the NIH. See "Item 1. Business--Strategic
Alliances, Collaborations and Licenses."
During the fiscal years ended July 31, 1997, 1996, and 1995, the Company
expended $9.1 million, $6.6 million, and $5.6 million, respectively, on research
and development activities. Increases in research and development spending were
primarily attributable to expanded preclinical development of the company's
research programs which included the manufacturing product development for the
Company's C5 Inhibitor and Apogen product candidates and the initiation of
clinical trials following authorization by the FDA of the Company's IND for its
lead C5 inhibitor product candidate. See Item 1. "Business--Alexion's Drug
Development Programs, Cardiopulmonary Bypass Surgery".
The Company's general and administrative expenses were $2.8 million, $1.8
million, and $1.6 million for the fiscal years ended July 31, 1997, 1996 and
1995, respectively. The increase in general and administrative expenses in
fiscal 1997 consisted of $523,000 related to increased expenses associated with
facilities' expansion, employee benefits, and increased travel and
administrative costs attributable to increased clinical, regulatory, and
scientific conference activities. The remaining balance $477,000 of the increase
was related to increased costs for outside professional services and insurance
related to business development, recruiting, patent and legal activities as a
public company.
Other income (expense), net, representing primarily net investment income
(expenses), was $843,754, $397,495, and ($29,195) for the fiscal years ended
July 31, 1997, 1996, and 1995, respectively. This fluctuation over the past
three years was due primarily to greater investment income from higher cash
balances available for investment and a more favorable investment market during
fiscal year 1997 as compared to the prior two fiscal years.
As a result of the above factors, the Company had incurred net losses of
$7.3 million, $5.4 million, and $7.1 million for the fiscal years ended July 31,
1997, 1996 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception through July 31, 1997, the Company has financed its
operations and capital expenditures primarily through its private placements and
initial public offering of equity securities resulting in approximately $52.3
million of aggregate net proceeds. The Company has financed the purchase of
certain equipment through $1.2 million of secured notes payable to a financing
institution and $378,000 of capital lease obligations. Through July 31, 1997,
the Company has also received approximately $5.2 million in research and
development support under its collaborations with US Surgical and GTI/Novartis.
The Company has also received $1.1 million from its SBIR grants from the NIH and
$660,000 under the ATP grant from NIST.
All of the foregoing proceeds have been used to fund operating activities
of approximately $26.5 million and investments of approximately $2.9 million and
$975,000 in equipment and licensed technology rights and patents, respectively,
through July 31, 1997. As of July 31, 1997, the Company had working capital of
approximately $20.6 million and total cash, cash equivalents, and marketable
securities amounted to approximately $22.7 million.
-25-
The Company increased its cash and cash equivalents by $7.25 million during
the twelve months ended July 31, 1997. This increase resulted principally from
cash flows provided by (i) financing activities which provided $10.79 million
from the net proceeds received from the issuance of common stock and $185,000
from the return of security deposits offset by $320,000 in repayments of notes
payable and (ii) investing activities which generated $3.12 million from the net
proceeds of maturing marketable securities offset by equipment purchases of
$749,000. These cash inflows were offset by the $5.72 million cash outflow used
in operating activities primarily as a result of $7.25 million of operating
losses. At July 31, 1997, approximately $16.74 million of cash is held in
short-term highly liquid investments with original maturities of less than three
months.
Subsequent to the Company's fiscal year end on July 31, 1997, the Company
received the following significant additional proceeds. In September 1997, the
Company received approximately $9.5 million in net proceeds from the issuance of
shares of Series B Preferred Stock to a single institutional investor. At the
end of September 1997, US Surgical and the Company modified the July 1995 Joint
Development Agreement. As part of the modification, US Surgical made an
additional $6.5 million payment to the Company for equity, exclusive licensing
rights, and certain manufacturing assets. See "Item 1. Strategic Alliances,
Collaborations and Licenses--United States Surgical Corporation". See "Item 5.
Market for Registrant's Common Equity and Related Stockholder Matters--Recent
Sale of Unregistered Securities".
The Company leases its administrative and research and development
facilities under three operating leases expiring in June 1998, December 1997 and
March 1999 each with a renewal option for up to an additional three years.
The Company is obligated to make payments pursuant to certain of its
licensing and research and development agreements. The Company is scheduled to
pay $142,000, $77,000 and $72,000 (assuming no termination of these agreements)
during the fiscal years ending July 31, 1998, 1999 and 2000, respectively. In
addition, the Company is obligated to make certain future milestone payments,
aggregating up to $400,000 to certain of its licensors, with regards to
receiving regulatory approval on the Company's anticipated IND filings as well
as upon certain patent issuances. See "Item 1. Business--Strategic Alliances,
Collaborations and Licenses."
The Company anticipates that its existing available capital resources and
interest earned on available cash and marketable securities should be sufficient
to fund its operating expenses and capital requirements as currently planned for
at least the next eighteen months. While the Company currently has no material
commitments for capital expenditures, the Company's future capital requirements
will depend on many factors, including the progress of the Company's research
and development programs, progress in clinical trials, the time and costs
involved in obtaining regulatory approvals, the costs involved in obtaining and
enforcing patents and any necessary licenses, the ability of the Company to
establish development and commercialization relationships, and the costs of
manufacturing scale-up. See "Item 1. Business--Alexion's Drug Development
Strategy."
The Company expects to incur substantial additional costs, including costs
associated with research, preclinical and clinical testing, manufacturing
process development, and additional capital expenditures associated with
facility expansion and manufacturing requirements in order to commercialize its
products currently under development. The Company will need to raise substantial
additional funds through
-26-
additional financings including public or private equity offerings and
collaborative research and development arrangements with corporate partners.
There can be no assurance that funds will be available on terms acceptable to
the Company, if at all, or that discussions with potential collaborative
partners will result in any agreements. The unavailability of additional
financing could require the Company to delay, scale back or eliminate certain of
its research and product development programs or to license third parties to
commercialize products or technologies that the Company would otherwise
undertake itself, any of which could have a material adverse effect on the
Company.
As of July 31, 1997, the Company had approximately $13.4 million and $1.1
million of net operating loss and tax credit carryforwards for tax reporting
purposes, respectively, which expire commencing in fiscal 2008. The Tax Reform
Act of 1986 (the "Tax Act") contains certain provisions that may limit the
Company's ability to utilize net operating loss and tax credit carryforwards in
any given year if certain events occur, including cumulative changes in
ownership interests in excess of 50% over a three-year period. There can be no
assurance that ownership changes in future periods will not significantly limit
the Company's use of its existing net operating loss and tax credit
carryforwards.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data of the Company
required in this item are set forth at the pages indicated in Item 14(a)(1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND KEY EMPLOYEES
Name Age Position
---- --- --------
John H. Fried, Ph.D. ............. 68 Chairman of the Board of Directors
Leonard Bell, M.D. ............... 39 President, Chief Executive Officer,
Secretary, Treasurer, Director
David W. Keiser .................. 46 Executive Vice President, Chief
Operating Officer
Timothy F. Howe .................. 39 Director
Max Link, Ph.D. .................. 57 Director
Joseph A. Madri, Ph.D., M.D. ..... 51 Chairman of the Scientific Advisory
Board, Director
Leonard Marks, Jr., Ph.D. ........ 76 Director
Eileen M. More ................... 51 Director
Stephen P. Squinto, Ph.D. ........ 41 Vice President of Research,
Molecular Sciences
Louis A. Matis, M.D. ............. 47 Vice President of Research,
Immunobiology
Bernadette L. Alford, Ph.D. ...... 48 Vice President of Regulatory Affairs
& Project Management
James A. Wilkins, Ph.D. .......... 45 Senior Director of Process
Development
Barry P. Luke .................... 39 Senior Director of Finance and
Administration, Assistant
Secretary
John H. Fried, Ph.D. has been the Chairman of the Board of Directors of the
Company since April 1992. Since 1992, Dr. Fried has been President of Fried &
Co., Inc., a health technology venture firm. Dr. Fried was a director of Syntex
Corp. ("Syntex"), a life sciences and health care company, from 1982 to 1994 and
he served as Vice Chairman of Syntex from 1985 to January 1993 and President of
the Syntex Research Division from 1976 to 1992. Dr. Fried has originated more
than 200 U.S. Patents and has authored more than 80 scientific publications. Dr.
Fried is also a director of Corvas International Incorporated, a development
stage company principally engaged in research in the field of cardiovascular
therapeutics. Dr. Fried received his B.S. in Chemistry and Ph.D. in Organic
Chemistry from Cornell University.
Leonard Bell, M.D. is the principal founder of the Company, and has been a
Director of the Company since February 1992 and the Company's President and
Chief Executive Officer, Secretary and Treasurer since January 1992. From 1991
to 1992, Dr. Bell was an Assistant Professor of Medicine and Pathology and
co-Director of the Program in Vascular Biology at the Yale University School of
Medicine. From 1990 to 1992, Dr. Bell was an attending physician at the Yale-New
Haven Hospital and an Assistant Professor in the Department of Internal Medicine
at the Yale University School of Medicine. Dr. Bell was the recipient of the
Physician Scientist Award from the National Institutes of Health and
Grant-in-Aid from the American Heart Association as well as various honors and
awards from academic and professional organizations. His work has resulted in
more than 20 scientific publications and three patent applications. Dr. Bell
also serves as a Director of the Biotechnology Research and Development
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Corporation and the Connecticut Technology Council. Dr. Bell received his A.B.
from Brown University and M.D. from Yale University School of Medicine. Dr. Bell
is currently an Adjunct Assistant Professor of Medicine and Pathology at Yale
University School of Medicine.
David W. Keiser has been Executive Vice-President and Chief Operating
Officer of the Company since July 1992. From 1990 to 1992, Mr. Keiser was Senior
Director of Asia Pacific Operations for G.D. Searle & Company Limited
("Searle"), a manufacturer of pharmaceutical products. From 1986 to 1990, Mr.
Keiser was successively Licensing Manager, Director of Product Licensing and
Senior Director of Product Licensing for Searle. From 1984 to 1985, Mr. Keiser
was New Business Opportunities Manager for Mundipharma AG, a manufacturer of
pharmaceutical products, in Basel, Switzerland where he headed pharmaceutical
licensing and business development activities in Europe and the Far East. From
1978 to 1983, he was Area Manager for F. Hoffmann La Roche Ltd., a manufacturer
of pharmaceutical products, in Basel, Switzerland. Mr. Keiser received his B.A.
from Gettysburg College.
Timothy F. Howe has been a Director of the Company since April 1995. Mr.
Howe is a principal of Collinson Howe Venture Partners, Inc. ("CHVP") where he
has been a Vice President since 1990. CHVP is a venture capital management firm
specializing in life sciences investments and as a result of the stock ownership
of certain funds advised by it, CHVP is a principal stockholder of the Company.
From 1985 to 1990, Mr. Howe was employed by Schroders Incorporated specializing
in venture capital investing. Mr. Howe received his B.A. from Columbia College
and M.B.A. from Columbia Graduate School of Business.
Max Link, Ph.D. has been a Director of the Company since April 1992. From
May 1993 to June 1994, Dr. Link was Chief Executive Officer of Corange
(Bermuda), the parent company of Boehringer Mannheim Therapeutics, Boehringer
Mannheim Diagnostics and DePuy Orthopedics. From 1992 to 1993, Dr. Link was
Chairman of the Board of Sandoz Pharma, Ltd. ("Sandoz"), a manufacturer of
pharmaceutical products. From 1987 to 1992, Dr. Link was the Chief Executive
Officer of Sandoz Pharma and a member of the Executive Board of Sandoz, Ltd.,
Basel. Prior to 1987, Dr. Link served in various capacities with the United
States operations of Sandoz, including as President and Chief Executive Officer.
Dr. Link is also a director of Protein Design Labs, Inc., Cell Therapeutics,
Inc., and Procept, Inc., each a publicly held pharmaceutical company, as well as
Human Genome Sciences Inc., a genomics company.
Joseph A. Madri, Ph.D., M.D. is a founder of the Company and has been
Chairman of the Company's Scientific Advisory Board since March 1992 and a
Director of the Company since February 1992. Since 1980, Dr. Madri has been on
the faculty of the Yale University School of Medicine and is currently a
Professor of Pathology and Biology. Dr. Madri serves on the editorial boards of
numerous scientific journals and he is the author of over 150 scientific
publications. Dr. Madri works in the areas of regulation of angiogenesis,
vascular cell-matrix interactions, cell-cell interactions,
lymphocyte-endothelial cell interactions and endothelial and smooth muscle cell
biology. Dr. Madri received his B.S. and M.S. in Biology from St. John's
University and M.D. and Ph.D. in Biological Chemistry from Indiana University.
Leonard Marks, Jr., Ph.D. has been a Director of the Company since April
1992. Since 1985 Dr. Marks has served as an independent corporate director and
management consultant. Dr. Marks currently serves as a director of Airlease
Management Services, an aircraft leasing company (a subsidiary of Bank America
Leasing & Capital Corporation)
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and Northern Trust Bank of Arizona, a commercial and trust bank subsidiary of
Northern Trust of Chicago. Prior to 1985, Dr. Marks held various positions in
academia and in the corporate sector including Executive Vice President, Castle
& Cooke, Inc. from 1972 to 1985. Dr. Marks received his B.A. in Economics from
Drew University and an M.B.A. and Doctorate in Business Administration from
Harvard University.
Eileen M. More has been a Director of the Company since December 1993. Ms.
More has been associated since 1978 with Oak Investment Partners ("Oak") and has
been a General Partner of Oak since 1980. Oak is a venture capital firm and a
principal stockholder of the Company. Ms. More is Chairman Emeritus of the
Connecticut Venture Group. Ms. More is currently a director of several private
high technology and biotechnology firms including Coral Therapeutics, Inc.,
Instream Corporation, OraPharma, Inc., Pharmacopeia, Inc., and Teloquent
Communication Corporation. Ms. More studied mathematics at the University of
Bridgeport and is a Chartered Financial Analyst.
Stephen P. Squinto, Ph.D. is a founder of the Company and has held the
positions of Vice President of Research, Molecular Sciences since August 1994,
Senior Director of Molecular Sciences from July 1993 to July 1994 and Director
of Molecular Development from April 1992 to July 1993. From 1989 to 1992, Dr.
Squinto held various positions at Regeneron Pharmaceuticals, Inc., most recently
serving as Senior Scientist and Assistant Head of the Discovery Group. From 1986
to 1989, Dr. Squinto was an Assistant Professor of Biochemistry and Molecular
Biology at Louisiana State University Medical Center. Dr. Squinto's work has led
to over 40 scientific papers in the fields of gene regulation, growth factor
biology and gene transfer. Dr. Squinto's work is primarily in the fields of
regulation of eukaryotic gene expression, mammalian gene expression systems and
growth receptor and signal transduction biology. Dr. Squinto received his B.A.
in Chemistry and Ph.D. in Biochemistry and Biophysics from Loyola University of
Chicago.
Louis A. Matis, M.D. has been the Vice President of Research, Immunobiology
of the Company since August 1994. From January 1993 to July 1994, Dr. Matis
served as the Director of the Company's Program in Immunobiology. Prior to
joining the Company, from 1977 to 1992, Dr. Matis held various appointments at
the NIH and the FDA. From 1990 to 1992, Dr. Matis was a Senior Investigator in
the Laboratory of Immunoregulation at the National Cancer Institute and from
1987 to 1990 he was a Senior Staff Fellow in the Molecular Immunology Laboratory
at the Center for Biologics Evaluation and Research associated with the FDA. Dr.
Matis is the author of more than 100 scientific papers in the fields of T-cell
biology. Dr. Matis has received numerous awards including the NIH Award of
Merit. Dr. Matis received his B.A. from Amherst College and M.D. from the
University of Pennsylvania Medical School.
Bernadette L. Alford, Ph.D. has been the Vice President of Regulatory
Affairs and Project Management since joining the Company in September 1994. From
1989 to July 1994, Dr. Alford was a corporate officer and Vice President of
Regulatory and Quality Affairs at Repligen Corporation ("Repligen"), a publicly
held biotechnology company, where she was responsible for the filing of all INDs
with the FDA. From 1987 to 1989, Dr. Alford was Director of Quality Assurance
and Regulatory Affairs at Repligen. From 1978 to 1987, Dr. Alford held various
scientific and management positions at Collaborative Research Inc. Dr. Alford
received a B.S. in Biology from Marywood College and an M.S. in Biology and
Ph.D. in Molecular Biology from Texas University.
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James A. Wilkins, Ph.D. has been Senior Director of Process Development of
the Company since August 1995 and prior thereto was Director of Process
Development from September 1993. From 1989 to 1993, Dr. Wilkins was Group Leader
of the Protein Chemistry Department at Otsuka America Pharmaceutical, Inc. From
1987 to 1989, Dr. Wilkins was a Scientist in Recovery Process Development at
Genentech, Inc. and from 1982 to 1987, he was an Associate Research Scientist in
the Thomas C. Jenkins Department of Biophysics at Johns Hopkins University. He
is the author of more than 25 presentations and scientific articles in the
fields of protein refolding and protein biochemistry. Dr. Wilkins received a
B.A. in Biology from University of Texas and a Ph.D. in Biochemistry from
University of Tennessee.
Barry P. Luke has been Senior Director of Finance and Administration
since August 1995 and prior thereto was Director of Finance and Accounting from
May 1993. From 1989 to 1993, Mr. Luke was Chief Financial Officer, Secretary and
Vice President--Finance and Administration at Comtex Scientific Corporation, a
publicly held distributor of electronic news and business information. From 1985
to 1989, he was Controller and Treasurer of Softstrip, Inc., a manufacturer of
computer peripherals and software. From 1982 to 1985, Mr. Luke was a member of
the Corporate Audit Staff at the General Electric Company. Mr. Luke received a
B.A. in Economics from Yale University and an M.B.A. in management and marketing
from the University of Connecticut.
The Company and each of the executive officers are parties to employment
agreements.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
information under the captions "Compensation of Executive Officers and
Directors" contained in the Proxy Statement.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of October 1, 1997
(except as otherwise noted in the footnotes) regarding the beneficial ownership
(as defined by the Securities and Exchange Commission (the "SEC")) of the
Company's Common Stock of: (i) each person known by the Company to own
beneficially more than five percent of the Company's outstanding Common Stock;
(ii) each director and each named executive officer; and (iii) all directors and
named executive officers of the Company as a group.
Number of Percentage of
Number of Shares Outstanding
Name and Address Beneficially Shares of
of Beneficial Owner (1) Owned (2) Common Stock
- ----------------------- ---------------- -------------
BB Biotech AG ............................... 935,782 9.3%
Vordergrasse 3
8200 Schaffhausen
CH/Switzerland (3)
Collinson Howe Venture Partners ............. 747,491 8.2%
1055 Washington Boulevard, 5th floor
Stamford, Connecticut 06901 (4)
Biotechnology Investment Group, L.L.C. ...... 697,575 7.7%
c/o Collinson Howe Venture Partners
1055 Washington Boulevard, 5th floor
Stamford, Connecticut 06901 (5) (6)
United States Surgical Corporation .......... 824,087 9.1%
150 Glover Avenue
Norwalk, Connecticut 06856 (7)
Mehta and Isaly Asset Management, Inc. ...... 773,500 8.5%
41 Madison Avenue -- 40th Floor
New York, NY 10010 (8)
Pioneering Management Corporation ........... 500,000 5.5%
60 State Street
Boston, MA 02109 (9)
Oak Investment Partners ..................... 495,884 5.4%
c/o Oak Investment Partners V
One Gorham Island
Westport, Connecticut 06880 (10)
INVESCO Global Health Sciences Fund ......... 466,776 5.1%
c/o INVESCO Trust Company
attn: Health Care Group
7800 E. Union Avenue, Ste. 800
Denver, Colorado 80237 (11)
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PRELIM PRELIM
Number of Percentage of
Number of Shares Outstanding
Name and Address Beneficially Shares of
of Beneficial Owner (1) Owned (2) Common Stock
- ----------------------- ---------------- -------------
Timothy F. Howe (12) ........................ 750,891 8.3%
Eileen M. More (13) ......................... 519,284 5.7%
Leonard Bell, M.D. (14) ..................... 334,850 3.6%
John H. Fried, Ph.D. (15) ................... 86,936 *
Stephen P. Squinto, Ph.D. (16) .............. 111,700 1.2%
David W. Keiser (17) ........................ 89,800 *
Joseph Madri, Ph.D., M.D. (18) .............. 53,400 *
Louis A. Matis, M.D. (19) ................... 83,150 *
Max Link, Ph.D. (20) ........................ 21,423 *
Leonard Marks, Jr., Ph.D. (21) .............. 11,900 *
Bernadette L. Alford, Ph.D. (22) ............ 32,600 *
Directors and Executive Officers
as a group (11 persons) (23) ............. 2,095,934 21.8%
- ----------
* Less than one percent
(1) Unless otherwise indicated, the address of all persons is 25 Science Park,
Suite 360, New Haven, Connecticut 06511.
(2) To the Company's knowledge, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes in this table.
(3) This figure is based upon information set forth in a Schedule 13D dated
September 8, 1997, filed jointly by BB Biotech AG and Biotech Target, S.A.
Includes 935,782 shares of Common Stock which are convertible automatically
on March 9, 1998, or at the election of the holder at any time after
September 9, 1997, from the Company's Series B Preferred Stock. Biotech
Target, S.A., a Panamanian corporation, which purchased the Series B
Preferred Stock, is a wholly-owned subsidiary of BB Biotech AG. BB Biotech
AG is a holding company incorporated in Switzerland.
(4) Collinson Howe Venture Partners, Inc. ("CHVP") is a venture capital
investment management firm which is the managing member of Biotechnology
Investment Group, L.L.C. ("Biotechnology Group"), and is the investment
advisor to Schroders, Inc., Schroder Ventures Limited Partnership
("Schroder Partnership") and Schroder Ventures U.S. Trust ("Schroder
Trust"). As such, CHVP shares beneficial ownership of the shares listed
above which include (i) 697,575 shares, 21,052 shares, 16,842 and 4,210
shares of Common
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Stock owned by Biotechnology Group, Schroders, Inc., Schroder Partnership
and Schroder Trust, respectively, and (ii) 7,812 shares issuable upon the
exercise of warrants owned by Schroders, Inc. Timothy F. Howe, a director
of the Company, is the Vice President and a stockholder of CHVP. As such he
has shared investment and voting power over the shares beneficially owned
by CHVP.
(5) Biotechnology Group is a limited liability company which invests in and
otherwise deals with securities of biotechnology and other companies. The
members of Biotechnology Group are (i) the managing member, CHVP, an
investment management firm of which Jeffrey J. Collinson is President, sole
director and majority stockholder and Timothy F. Howe, a director of the
Company, is a Vice President and a stockholder, (ii) The Edward Blech Trust
("EBT"), and (iii) Wilmington Trust Company ("WTC"), as voting trustee
under a voting trust agreement (the "Voting Trust Agreement"), among WTC,
Biotechnology Group and BIO Holdings L.L.C. ("Holdings"). The managing
member of Biotechnology Group is CHVP. Each of Citibank, N.A. ("Citibank")
and Holdings has the right pursuant to the Voting Trust Agreement to direct
the actions of WTC as a member of Biotechnology Group. WTC, as the member
holding a majority interest in Holdings, has the right to direct the
actions of Holdings under the Voting Trust Agreement. Citibank, pursuant to
a separate voting trust agreement among WTC, David Blech and Holdings, has
the right to direct the actions of WTC as a member of Holdings with respect
to the rights of Holdings under the Voting Trust Agreement.
(6) By virtue of their status as members of the Biotechnology Group, each of
CHVP and EBT may be deemed the beneficial owner of all shares held of
record by Biotechnology Group (the "Biotechnology Group Shares"). By virtue
of his status as the majority owner and controlling person of CHVP, Jeffrey
J. Collinson may also be deemed the beneficial owner of the Biotechnology
Group Shares. Each of CHVP, EBT and Jeffrey J. Collinson disclaims
beneficial ownership of any Biotechnology Group Shares except to the
extent, if any, of such person's actual pecuniary interest therein.
(7) Includes 166,945 shares of Common Stock purchased by United States Surgical
Corporation from the Company on September 30, 1997. See "Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters-- Recent Sale of
Unregistered Securities."
(8) This figure is based upon information set forth in a Schedule 13D/A dated
July 8, 1997, filed by a group consisting of Samuel D. Isaly, Viren Mehta
and certain entities affiliated with these individuals including
Pharma/Health, M and I Investors, Inc., Caduceus Capital, L.P., Caduceus
Capital Management, Inc. and Worldwide Health Services Portfolio.
(9) This figure is based upon information set forth in a Schedule 13G dated
January 9, 1997, filed by Pioneering Management Corporation.
(10) Includes 408,571 shares owned by Oak Investment V Partners and 9,189 shares
owned by Oak Investment V Affiliates, two affiliated limited partnerships
(collectively, "Oak Investments"). In addition, Oak Investments' beneficial
ownership includes 78,124 shares which may be acquired upon the exercise of
warrants.
(11) Includes 31,250 shares which may be acquired upon the exercise of warrants.
(12) Consists of shares beneficially owned by CHVP (See footnote 4 above).
Includes 3,400 shares which may be acquired upon the exercise of options
within 60 days of October 1, 1997. Excludes 3,400 shares obtainable through
the exercise of options granted to Mr. Howe which are not exercisable
within 60 days of October 1, 1997. Mr. Howe disclaims beneficial ownership
of shares held or beneficially owned by CHVP.
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(13) Includes 23,400 shares of Common Stock which may be acquired upon the
exercise of options granted to Eileen More and 495,844 shares owned by Oak
Investments (See note 10). Excludes 3,400 shares obtainable through the
exercise of options granted to Ms. More which are not exercisable within 60
days of October 1, 1997. Ms. More is a General Partner at Oak Investments.
(14) Includes 176,250 shares of Common Stock that may be acquired upon the
exercise of options within 60 days of October 1, 1997 and 300 shares, in
aggregate, held in the names of Dr. Bell's three minor children. Excludes
308,750 shares obtainable through the exercise of options granted to Dr.
Bell which are not exercisable within 60 days of October 1, 1997 and 90,000
shares held in trust for Dr. Bell's children of which Dr. Bell disclaims
beneficial ownership. Dr. Bell disclaims beneficial ownership of the shares
held in the name of his minor children.
(15) Includes 4,686 shares that may be acquired upon the exercise of warrants
and 10,900 shares that may be acquired on the exercise of options that are
exercisable within 60 days of October 1, 1997. Excludes 3,400 shares
obtainable through the exercise of options granted to Dr. Fried which are
not exercisable within 60 days of October 1, 1997.
(16) Includes 55,000 shares of Common Stock which may be acquired upon the
exercise of options granted to Dr. Squinto within 60 days of October 1,
1997 and 4,200 shares, in aggregate, held in the names of Dr. Squinto's two
minor children of which 4,000 shares are in two trusts managed by his wife.
Excludes 85,000 shares obtainable through the exercise of options granted
to Dr. Squinto which are not exercisable within 60 days of October 1, 1997.
Dr. Squinto disclaims beneficial ownership of the shares held in the name
of his minor children and the foregoing trusts.
(17) Includes 47,500 shares which may be acquired upon the exercise of options
within 60 days of October 1, 1997 and 300 shares, in aggregate, held in the
names of Mr. Keiser's three minor children. Excludes 102,500 shares
obtainable through the exercise of options granted to Mr. Keiser, which are
not exercisable within 60 days of October 1, 1997. Mr. Keiser disclaims
beneficial ownership of the shares held in the name of his minor children.
(18) Includes 8,400 shares that may be acquired upon the exercise of options
within 60 days of October 1, 1997. Excludes 3,400 shares obtainable through
the exercise of options granted to Dr. Matis which are not exercisable
within 60 days of October 1, 1997.
(19) Includes 65,000 shares of Common Stock which may be acquired upon the
exercise of options granted to Dr. Matis within 60 days of October 1, 1997
and 150 shares, in aggregate, held in the names of Dr. Matis' three minor
children. Excludes 85,000 shares obtainable through the exercise of
options, granted to Dr. Matis, which are not exercisable within 60 days of
October 1, 1997. Dr. Matis disclaims beneficial ownership of the shares
held in the name of his minor children.
(20) Excludes 3,400 shares obtainable through the exercise of options, granted
to Dr. Link, which are not exercisable within 60 days of October 1, 1997.
(21) Includes 10,900 shares which may be acquired upon the exercise of options
within 60 days of October 1, 1997. Excludes 3,400 shares obtainable through
the exercise of options granted to Dr. Marks, which are not exercisable
within 60 days of October 1, 1997.
(22) Consists of 32,500 shares of Common Stock which may be acquired upon the
exercise of options granted to Dr. Alford within 60 days of October 1, 1997
and 100 shares held in the
-35-
name of Dr. Alford's minor child. Excludes 73,250 shares obtainable through
the exercise of options, granted to Dr. Alford, which are not exercisable
within 60 days of October 1, 1997.
(23) Consists of shares beneficially owned by Drs. Alford, Bell, Fried, Link,
Madri, Marks, Matis and Squinto and Mr. Keiser, Mr. Howe and Ms. More.
Includes 90,622 shares of Common Stock which may be acquired upon the
exercise of warrants within 60 days of October 1, 1997 and 433,250 shares
of Common Stock which may be acquired upon the exercise of options within
60 days of October 1, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1995, the Company entered into a series of agreements with US
Surgical relating to a collaboration for the development of non-human UniGraft
organ products designed for transplantation into humans. In furtherance of the
joint collaboration, US Surgical also purchased $4.0 million of the Company's
Common Stock, at a price of $8.75 per share and agreed to fund up to $7.5
million for the completion of preclinical research and development of the
UniGraft program, a portion of which was dependent on the achievement of
development milestones. US Surgical, a principal stockholder of the Company,
purchased approximately ten percent of the shares of Common Stock offered at the
Company's initial public offering. Through July 31, 1997, the Company
received $4.0 million in research and development support under its
collaboration with US Surgical.
In September 1997, US Surgical and the Company modified the July 1995 Joint
Development Agreement. As part of the modification, US Surgical made an
additional $6.5 million payment to the Company for equity, exclusive licensing
rights, and certain manufacturing assets. Under the modified agreement, the
additional $6.5 million payment comprised: (i) a $3 million equity investment in
the Company through the purchase of 166,945 shares of the Company's Common Stock
at a price of $17.97 per share, which represented a 25% premium over the market
price on the day prior to the date of closing and (ii) a $3.5 million payment to
acquire technology and certain xenograft manufacturing assets. Further, as part
of the amended agreement, US Surgical and the Company agreed that the
preclinical milestone payments in the original agreement are considered to have
been satisfied. At October 1, 1997, US Surgical beneficially owned an aggregate
of 824,087 shares of Common Stock or approximately 9.1% of the Company's
outstanding shares of common stock.
-36-
In June and October 1992, the Company entered into certain patent licensing
agreements with Oklahoma Medical Research Foundation ("OMRF") and Yale
University ("Yale"). The agreements provide that the Company agreed to pay such
institutions royalties based on sales of products incorporating technology
licensed thereunder and also license initiation fees, including annual minimum
royalties that increase in amount based on the status of product development and
the passage of time. Under policies of OMRF and Yale, the individual inventors
of patents are entitled to receive a percentage of the royalties and other
license fees received by the licensing institution. Certain founders of and
scientific advisors to the Company are inventors under such patent and patent
applications (including Drs. Bell and Madri, directors of the Company, and Dr.
Squinto, the Vice President of Research, Molecular Sciences of the Company, with
respect to patent applications licensed from Yale) and, therefore, entitled to
receive a portion of such royalties and other fees payable by the Company.
During the fiscal year ended July 31, 1997 the Company was not required to make
any payments pursuant to the above-referenced license agreements.
In June 1992, the Company and OMRF entered into a research agreement with
respect to the development of complement inhibitors, pursuant to which Drs.
Peter Sims and Theresa Wiedmer, scientific advisors to the Company, serve as
principal investigators. Per the research agreement, the Company paid an
aggregate of $1,000,000 over a four-year period through October 1, 1996. There
can be no assurance that the research agreement will result in discoveries
useful to the Company. As the principal investigators under the sponsored
research programs under the research agreement, Drs. Sims and Wiedmer will
directly benefit from the payments. During the fiscal year ended July 31, 1997
the Company was not required to make any payments pursuant to the
above-referenced research agreement.
In addition, the Company had signed in June 1992 four-year consulting
contracts with Drs. Sims and Wiedmer. For fiscal year ended July 31, 1996, Drs.
Sims and Wiedmer were paid by the Company directly less than $60,000 and in
fiscal year ended July 31, 1997, no payments were made direct to Drs. Sims and
Wiedmer by the Company. As of July 31, 1997, the Company has not renewed the
consulting contracts. Dr. Sims is currently the Associate Director for Research
of The Blood Center of Southeastern Wisconsin and the research operations of
Drs. Sims and Wiedmer are conducted at The Blood Center. OMRF has assigned to
The Blood Center, and The Blood Center has accepted, all rights,
responsibilities and obligations of OMRF under the research and development
agreement. Drs. Sims and Wiedmer are married to each other.
-37-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The financial statements required by this item are submitted in a separate
section beginning on page F-1 of this report.
(2) Financial Statement Schedules
Schedules have been omitted because of the absence of conditions under
which they are required or because the required information is included in the
financial statements or notes thereto.
(3) Exhibits:
3.1 Certificate of Incorporation, as amended.*(1)
3.2 Bylaws.*(1)
4.1 Specimen Common Stock Certificate.*(1)
10.1 Employment Agreement, dated April 1, 1997, between the Company and
Dr. Leonard Bell.(2)
10.2 Employment Agreement, dated October 22, 1997, between the Company
and David W. Keiser.
10.3 Employment Agreement, dated October 22, 1997, between the Company
and Dr. Stephen P. Squinto.
10.4 Employment Agreement, dated October 22, 1997 between the Company
and Dr. Louis A. Matis.
10.5 Employment Agreement, dated July 1993, between the Company and Dr.
James A. Wilkins, as amended.*(1)
10.6 Employment Agreement, dated July 1994, between the Company and Dr.
Bernadette L. Alford, as amended.*(1)
10.7 Administrative Facility Lease, dated August 23, 1995, between the
Company and Science Park Development Corporation.*(1)
10.8 Research and Development Facility Lease, dated August 23, 1995,
between the Company and Science Park Development Corporation.*(1)
10.9 Option Agreement, dated April 1, 1992 between the Company and Dr.
Leonard Bell.*(1)
-38-
10.10 Company's 1992 Stock Option Plan, as amended.*(1)
10.11 Company's 1992 Outside Directors Stock Option Plan, as
amended.*(1)
10.12 Registration Agreement, dated December 4, 1992, by the Company for
the benefit of certain individuals listed on schedules thereto, as
amended.*(1)
10.13 Amendment to Registration Agreement, dated July 31, 1995, between
the Company and United States Surgical Corporation.*(1)
10.14 Agreement, dated June 15, 1993, by the Company for the benefit of
certain individuals listed on schedules thereto, as amended.*(1)
10.15 Form of Investor Rights Agreement, dated December 23, 1994,
between the Company and the purchasers of the Company's Series A
Preferred Stock, as amended.*(1)
10.16 Stock Purchase Agreement, dated July 31, 1995, between the Company
and United States Surgical Corporation.*(1)
10.17 Form of Warrant to purchase shares of the Company's Common Stock
issued pursuant to certain of the Company's private
placements.*(1)
10.18 Form of Warrant to purchase shares of the Company's Common Stock
issued to the Placement Agent of certain of the Company's private
placements.*(1)
10.19 Form of Warrant to purchase shares of the Company's Common Stock
issued to certain warrantholders of the Company in connection with
a Warrant Exchange.*(1)
10.20 License Agreement dated as of May 27, 1992 between the Company and
Yale University, as amended September 23, 1992.*(1)+
10.21 Exclusive License Agreement dated as of June 19, 1992 among the
Company, Yale University and Oklahoma Medical Research
Foundation.*(2)
10.22 Research & Development Agreement dated as of June 19, 1992 between
the Company and Oklahoma Medical Research Foundation.*(1)+
10.23 License Agreement dated as of September 30, 1992 between the
Company and Yale University, as amended July 2, 1993.*(1)+
10.24 License Agreement dated as of August 1, 1993 between the Company
and Biotechnology Research and Development Corporation ("BRDC"),
as amended as of July 1, 1995.*(1)+
10.25 Cooperative Research and Development Agreement dated December 10,
1993 between the Company and the National Institutes of
Health.*(1)+
-39-
10.26 License Agreement dated January 25, 1994 between the Company and
The Austin Research Institute.*(1)+
10.27 Exclusive Patent License Agreement dated April 21, 1994 between
the Company and the National Institutes of Health.*(1)+
10.28 License Agreement dated July 22, 1994 between the Company and The
Austin Research Institute.*(1)+
10.29 License Agreement dated as of January 10, 1995 between the Company
and Yale University.*(1)+
10.30 Joint Development Agreement dated as of July 31, 1995 between the
Company and United States Surgical Corporation.*(1)+
10.31 Advanced Technology Program ("ATP"), Cooperative Agreement
70NANB5H, National Institute of Standards and Technology, entitled
"Universal Donor Organs for Transplantation," dated September 15,
1995.*(1)+
10.32 U.S. Department of Health and Human Services, National Heart, Lung
and Book Institute, Small Business Research Program, Phase II
Grant Application, entitled "Role of Complement Activation in
Cardiopulmonary Bypass," dated December 14, 1994; and Notice of
Grant Award dated September 21, 1995.*(1)+
10.33 Research Subcontract Agreement dated as of October 1, 1995 between
the Company and Tufts University.*(1)+
10.34 Agreement to be Bound by Shareholders Agreement dated as of August
1, 1993 between the Company and BRDC.*(1)
10.35 Agreement to be Bound by Master Agreement dated as of August 1,
1993 between the Company and BRDC.*(1)
10.36 Research and Development Facility Lease, dated April 1, 1996,
between the Company and Science Park Development Corporation.*(3)
10.37 License Agreement dated March 27, 1996 between the Company and
Medical Research Council.*(3)+
10.38 License Agreement dated May 8, 1996 between the Company and Enzon,
Inc.*(3)+
10.39 License and Collaborative Research Agreement between Alexion
Pharmaceuticals, Inc. and Genetic Therapy, Inc.*(3)+
10.40 Amended Joint Development Agreement as of September 1997 between
the Company and United States Surgical Corporation.*(4)++
10.41 Form Stock Purchase Agreement dated June 1997.
10.42 Stock Purchase Agreement dated September 9, 1997 by and between
the Company and BB Biotech.
10.43 Stock Purchase Agreement dated September 30, 1997 by and between
the Company and U.S. Surgical.*(4)++
23.1 Consent of Arthur Andersen LLP
99 Important Factors Regarding Forward-Looking Statements
-40-
- -----------
* Previously filed
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (Reg. No. 333-00202).
(2) Incorporated by reference to the Company's Amendment No. 1 to Registration
Statement on Form S-1 (Reg. No. 333-19905) filed on April 4, 1997.
(3) Incorporated by reference to the Company's Annual report on Form 10-K for
the fiscal year ended July 31, 1996.
(4) Incorporated by reference to the Company's Current Report on Form 8-K
dated October 1, 1997.
+ Confidential treatment was granted for portions of such document.
++ A request for confidential treatment has been made for portions of such
document, Confidential Portions have been omitted and filed separately with
the Commission as required by Rule 24b-2.
(b) Reports on Form 8-K
Current Report on Form 8-K dated June 17, 1997 relating to the Company's
sale of 1,450,000 shares of the Company's Common Stock.
Current Report on Form 8-K dated July 9, 1997 relating to the Company's
sale of shares referenced above.
Current Report on Form 8-K dated September 9, 1997 relating to the
Company's sale of $10,000,000 of Series B Preferred Stock.
Current Report on Form 8-K dated October 1, 1997 relating to the
Amendment to the Joint Development Agreement with United States
Surgical Corporation and the sale of the Company's Common Stock to
United States Surgical.
(c) Exhibits.
See (a) (3) above
(d) Financial Statement Schedules
See (a) (2) above
-41-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ALEXION PHARMACEUTICALS, INC.
By: /s/ LEONARD BELL
----------------------------------
Leonard Bell, M.D.
President, Chief Executive Officer,
Secretary and Treasurer
By: /s/ DAVID W. KEISER
-----------------------------------
David W. Keiser
Executive Vice President and
Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1934 this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ LEONARD BELL President, Chief Executive October 24, 1997
- ---------------------------- Officer, Secretary,
Leonard Bell, M.D Treasurer and Director
(principal executive officer)
/s/ DAVID W. KEISER Executive Vice President and October 24, 1997
- ---------------------------- Chief Operating Officer
David W. Keiser (principal financial officer)
/s/ BARRY P. LUKE Senior Director of Finance October 24, 1997
- ---------------------------- and Administration (principal
Barry P. Luke accounting officer)
/s/ JOHN H. FRIED Chairman of the Board of October 24, 1997
- ---------------------------- Directors
John H. Fried, Ph.D.
/s/ TIMOTHY F. HOWE Director October 24, 1997
- ----------------------------
Timothy F. Howe
/s/ MAX LINK Director October 24, 1997
- ----------------------------
Max Link, Ph.D.
/s/ JOSEPH A. MADRI Director October 24, 1997
- ----------------------------
Joseph A. Madri, Ph.D., M.D.
/s/ LEONARD MARKS Director October 24, 1997
- ----------------------------
Leonard Marks, Jr., Ph.D.
/s/ EILEEN M. MORE Director October 24, 1997
- ----------------------------
Eileen M. More
-42-
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants ................................ F-2
Balance Sheets as of July 31, 1996 and 1997 ............................. F-3
Statements of Operations for the Years Ended July 31, 1995,
1996, 1997, and for the Period from Inception (January 28, 1992)
Through July 31, 1997 ................................................. F-4
Statements of Stockholders' Equity for the Period from
Inception (January 28, 1992) Through July 31, 1997 .................... F-5
Statements of Cash Flows for the Years Ended July 31, 1995,
1996, 1997, and for the Period from Inception (January 28, 1992)
Through July 31, 1997 ................................................. F-6
Notes to Financial Statements ........................................... F-7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Alexion Pharmaceuticals, Inc.:
We have audited the accompanying balance sheets of Alexion Pharmaceuticals, Inc.
(a Delaware corporation in the development stage) as of July 31, 1996 and 1997,
and the related statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended July 31, 1997, and for the
period from inception (January 28, 1992) through July 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alexion Pharmaceuticals, Inc.
as of July 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended July 31, 1997, and for the
period from inception (January 28, 1992) through July 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Hartford, Connecticut
August 29, 1997 (except with
respect to the matters discussed
in Note 16, as to which the date
is September 30, 1997)
F-2
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
BALANCE SHEETS
July 31,
---------------------------
1996 1997
------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................... $ 9,491,217 $ 16,742,516
Marketable securities ........................ 9,106,534 6,006,380
Prepaid expenses ............................. 466,731 232,385
----------- ------------
Total current assets ................... 19,064,482 22,981,281
----------- ------------
EQUIPMENT, net ................................. 592,271 786,495
----------- ------------
OTHER ASSETS:
Licensed technology rights, net .............. 330,365 242,366
Patent application costs, net ................ 194,004 168,691
Organization costs, net ...................... 5,280 --
Security deposits and other assets ........... 267,578 81,728
----------- ------------
797,227 492,785
----------- ------------
Total assets ........................... $20,453,980 $ 24,260,561
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of notes payable ............. $ 322,508 $ 130,000
Current obligations under capital
leases ..................................... 28,593 7,768
Accounts payable ............................. 280,913 727,553
Accrued expenses ............................. 400,577 1,201,770
Deferred revenue ............................. 1,000,000 347,070
----------- ------------
Total current liabilities .............. 2,032,591 2,414,161
----------- ------------
NOTES PAYABLE, less current portion
included above ............................... 128,264 --
----------- ------------
OBLIGATIONS UNDER CAPITAL LEASES,
less current portion included above .......... 8,200 --
----------- ------------
COMMITMENTS AND CONTINGENCIES
(Notes 1, 9 and 11)
STOCKHOLDERS' EQUITY:
Convertible preferred stock $.0001 par
value; 5,000,000 shares authorized;
no shares are issued or outstanding
at July 31, 1996 and 1997 .................. -- --
Common stock $.0001 par value; 25,000,000
shares authorized; 7,334,909 and 8,858,012
issued at July 31, 1996 and 1997,
respectively .............................. 733 886
Additional paid-in capital ................... 42,858,975 53,671,867
Deficit accumulated during the
development stage .......................... 24,574,681) (31,826,251)
Treasury stock, at cost, 11,875 shares ....... (102) (102)
----------- ------------
Total stockholders' equity ............. 18,284,925 21,846,400
----------- ------------
Total liabilities and
stockholders' equity ................. $20,453,980 $ 24,260,561
=========== ============
The accompanying notes are an integral part of
these financial statements.
F-3
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Years For the Period
Ended July 31, From Inception
----------------------------------------- (January 28, 1992)
1995 1996 1997 Through July 31, 1997
----------- ------------ ------------ ---------------------
CONTRACT RESEARCH REVENUES ....... $ 136,091 $ 2,640,239 $ 3,810,600 $ 6,586,930
----------- ----------- ----------- ------------
OPERATING EXPENSES:
Research and development ....... 5,637,431 6,629,157 9,079,141 30,233,969
General and administrative ..... 1,591,886 1,843,093 2,826,783 9,517,649
----------- ----------- ----------- ------------
Total operating
expenses ................. 7,229,317 8,472,250 11,905,924 39,751,618
----------- ----------- ----------- ------------
OPERATING LOSS ................... (7,093,226) (5,832,011) (8,095,324) (33,164,688)
OTHER INCOME (EXPENSE), net ...... (29,195) 397,495 843,754 1,338,437
----------- ----------- ----------- ------------
Net loss ................... $(7,122,421) $(5,434,516) $(7,251,570) $(31,826,251)
=========== =========== =========== ============
NET LOSS PER COMMON SHARE
(Note 2) ....................... $ (1.76) $ (.95) $ (.97)
=========== =========== ===========
SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE ...... 4,055,966 5,746,697 7,450,762
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Convertible
Preferred Stock Common Stock Additional
----------------- -------------------- Paid-In
Shares Amount Shares Amount Capital
------ ------ ------ ------ ---------
Initial issuance of common stock ...... -- $ -- 1,200,000 $ 120 $ 1,080
Deferred offering costs ............... -- -- -- -- --
Net loss .............................. -- -- -- -- --
--------- --------- --------- -------- ------------
BALANCE, July 31, 1992 .................. -- -- 1,200,000 120 1,080
Issuance of common stock and
warrants, net of issuance costs
of $1,230,362 ....................... -- -- 1,531,399 153 10,755,239
Conversion of advances from
stockholder into common stock
and warrants ........................ -- -- 160,000 16 1,199,984
Repurchase of common stock and warrants -- -- -- -- --
Net loss .............................. -- -- -- -- --
--------- --------- --------- -------- ------------
BALANCE, July 31, 1993 .................. -- -- 2,891,399 289 11,956,303
Issuance of common stock and warrants,
net of issuance costs of $296,017 ... -- -- 646,872 65 4,878,918
Repurchase of common stock ............ -- -- -- -- --
Deferred offering costs ............... -- -- -- -- --
Net change in unrealized losses
on marketable securities ............ -- -- -- -- (62,883)
Net loss .............................. -- -- -- -- --
--------- --------- --------- -------- ------------
BALANCE, July 31, 1994 .................. -- -- 3,538,271 354 16,772,338
Issuance of common stock
from exercise of stock options ...... -- -- 1,500 -- 11,250
Issuance of Series A convertible
preferred stock, net of
issuance costs of $195,241 .......... 1,986,409 199 -- -- 3,578,737
Issuance of common stock, net
of issuance costs of $150,000 ....... -- -- 457,142 46 3,849,954
Net change in unrealized losses
on marketable securities ............ -- -- -- -- 46,606
Net loss .............................. -- -- -- -- --
--------- --------- --------- -------- ------------
BALANCE, July 31, 1995 .................. 1,986,409 $ 199 3,996,913 $ 400 $ 24,258,885
========= ========= ========= ======== ============
Deficit
Accumulated Treasury Stock, Total
During the Deferred at cost Stockholders'
Development Offering ----------------- Equity
Stage Costs Shares Amount (Deficiency
------------ ---------- ------ ------ -------------
Initial issuance of common stock ...... $ -- $ -- -- $ -- $ 1,200
Deferred offering costs ............... -- (66,613) -- -- (66,613)
Net loss .............................. (663,764) -- -- -- (663,764)
------------ ---------- ------- ------- ------------
BALANCE, July 31, 1992 .................. (663,764) (66,613) -- -- (729,177)
Issuance of common stock and
warrants, net of issuance costs
of $1,230,362 ....................... -- 66,613 -- -- 10,822,005
Conversion of advances from
stockholder into common stock
and warrants ........................ -- -- -- -- 1,200,000
Repurchase of common stock and warrants -- -- 10,000 (100) (100)
Net loss .............................. (4,067,828) -- -- -- (4,067,828)
------------ ---------- ------- ------- ------------
BALANCE, July 31, 1993 .................. (4,731,592) -- 10,000 (100) 7,224,900
Issuance of common stock and warrants,
net of issuance costs of $296,017 ... -- -- -- -- 4,878,983
Repurchase of common stock ............ -- -- 1,875 (2) (2)
Deferred offering costs ............... -- (55,000) -- -- (55,000)
Net change in unrealized losses
on marketable securities ............ -- -- -- -- (62,883)
Net loss .............................. (7,286,152) -- -- -- (7,286,152)
------------ ---------- ------- ------- -----------
BALANCE, July 31, 1994 .................. (12,017,744) (55,000) 11,875 (102) 4,699,846
Issuance of common stock
from exercise of stock options ...... -- -- -- -- 11,250
Issuance of Series A convertible
preferred stock, net of
issuance costs of $195,241 .......... -- 55,000 -- -- 3,633,936
Issuance of common stock, net
of issuance costs of $150,000 ....... -- -- -- -- 3,850,000
Net change in unrealized losses
on marketable securities ............ -- -- -- -- 46,606
Net loss .............................. (7,122,421) -- -- -- (7,122,421)
------------ ---------- ------- ------- ------------
BALANCE, July 31, 1995 .................. $(19,140,165) $ -- 11,875 $ (102) $ 5,119,217
============ ========== ======= ======= ============
The accompanying notes are an integral part of these financial statements.
F-5(a)
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Convertible Accumulated
Preferred Stock Common Stock Additional During the
------------------------- ------------------------ Paid-In Development
Shares Amount Shares Amount Capital Stage
------ ------ ---------- --------- ---------- ------------
BALANCE, July 31, 1995 ............... 1,986,409 $ 199 3,996,913 400 $24,258,885 $(19,140,165)
Issuance of common stock in
initial public offering, net
of issuance costs of $2,468,940 .. -- -- 2,530,000 253 18,403,307 --
Conversion of Series A convertible
preferred stock into common stock (1,986,409) (199) 794,554 79 120 --
Issuance of common stock from
exercise of stock options ........ -- -- 13,442 1 70,361 --
Net change in unrealized losses
on marketable securities ......... -- -- -- -- 3,802 --
Compensation expense related
to grant of stock options ........ -- -- -- -- 122,500 --
Net loss ........................... -- -- -- -- -- (5,434,516)
------------ ------- ---------- ------ ----------- ------------
BALANCE, July 31, 1996 ............... -- -- 7,334,909 733 42,858,975 (24,574,681)
Issuance of common stock, net of
issuance costs of $813,835 ....... -- -- 1,450,000 145 10,423,520 --
Issuance of common stock from
exercise of stock options ........ -- -- 34,937 4 83,066 --
Issuance of common stock from
exercise of warrants ............. -- -- 38,166 4 286,242 --
Net change in unrealized losses
on marketable securities ......... -- -- -- -- 20,064 --
Net loss ........................... -- -- -- -- -- (7,251,570)
------------ ------- --------- ------ ----------- ------------
BALANCE, July 31, 1997 ............... -- $ -- 8,858,012 $ 886 $53,671,867 $(31,826,251)
============ ======= ========= ====== =========== ============
Treasury Stock, Total
Deferred at cost Stockholders'
Offering ----------------- Equity
Costs Shares Amount (Deficiency
---------- ------ ------ -------------
BALANCE, July 31, 1995 ............... $ -- 11,875 $(102) $ 5,119,217
Issuance of common stock in
initial public offering, net
of issuance costs of $2,468,940 .. -- -- -- 18,403,560
Conversion of Series A convertible
preferred stock into common stock -- -- -- --
Issuance of common stock from
exercise of stock options ........ -- -- -- 70,362
Net change in unrealized losses
on marketable securities ......... -- -- -- 3,802
Compensation expense related
to grant of stock options ........ -- -- -- 122,500
Net loss ........................... -- -- -- (5,434,516)
------ ------ ----- -----------
BALANCE, July 31, 1996 ............... -- 11,875 (102) 18,284,925
Issuance of common stock, net of
issuance costs of $813,835 ....... -- -- -- 10,423,665
Issuance of common stock from
exercise of stock options ........ -- -- -- 83,070
Issuance of common stock from
exercise of warrants ............. -- -- -- 286,246
Net change in unrealized losses
on marketable securities ......... -- -- -- 20,064
Net loss ........................... -- -- -- (7,251,570)
------ ------ ----- ------------
BALANCE, July 31, 1997 ............... $ -- 11,875 $(102) $ 21,846,400
====== ====== ===== ============
The accompanying notes are an integral part of these financial statements.
F-5(b)
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Period
For the Years Ended July 31, From Inception
------------------------------------------------ (January 28, 1992)
1995 1996 1997 Through July 31, 1997
---- ---- ---- ---------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $(7,122,421) $(5,434,516) $(7,251,570) $(31,826,251)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ....................... 786,628 811,120 698,404 3,095,980
Compensation expense related to grant of
stock options ..................................... -- 122,500 -- 122,500
Net realized loss (gain) on marketable securities ... 28,956 9,156 (624) 44,766
Change in assets and liabilities -
Prepaid expenses .................................. (14,361) (294,269) 234,346 (232,385)
Accounts payable .................................. (99,483) (37,604) 446,640 727,553
Accrued expenses .................................. (15,411) (175,620) 801,193 1,201,770
Deferred revenue .................................. 1,000,000 -- (652,930) 347,070
----------- ----------- ----------- ------------
Net cash used in operating activities ........ (5,436,092) (4,999,233) (5,724,541) (26,518,997)
----------- ----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchases of) proceeds from marketable securities, net . 1,795,575 (8,443,001) 3,119,187 (5,998,578)
Purchases of equipment .................................. (356,710) (332,427) (749,214) (2,921,957)
Licensed technology costs ............................... (32,500) -- -- (615,989)
Patent application costs ................................ (53,746) (41,714) (23,168) (358,972)
Organization costs ...................................... -- -- -- (63,530)
----------- ----------- ----------- ------------
Net cash (used in) provided by investing
activities ................................. 1,352,619 (8,817,142) 2,346,805 (9,959,026)
----------- ----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of preferred and
common stock .......................................... 7,440,186 18,473,922 10,792,981 52,342,664
Deferred offering costs ................................. 55,000 -- -- --
Advances from stockholder ............................... -- -- -- 1,200,000
Repayments of capital lease obligations ................. (87,034) (103,447) (29,024) (370,295)
Borrowings under notes payable .......................... -- -- -- 1,179,135
Repayments of notes payable ............................. (273,528) (322,333) (320,772) (1,049,135)
Security deposits and other assets ...................... 219,039 180,238 185,850 (81,728)
Repurchase of common stock .............................. -- -- -- (102)
----------- ----------- ----------- ------------
Net cash provided by financing activities .... 7,353,663 18,228,380 10,629,035 53,220,539
----------- ----------- ----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................. 3,270,190 4,412,005 7,251,299 16,742,516
CASH AND CASH EQUIVALENTS, beginning of period ............ 1,809,022 5,079,212 9,491,217 --
----------- ----------- ----------- ------------
CASH AND CASH EQUIVALENTS, end of period .................. $ 5,079,212 $ 9,491,217 $16,742,516 $ 16,742,516
=========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes .............................. $ 6,554 $ -- $ -- $ 30,684
=========== =========== =========== ============
Cash paid for interest expense .......................... $ 176,716 $ 108,593 $ 47,328 $ 405,965
=========== =========== =========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Conversion of advances from stockholder into common
stock ................................................. $ -- $ -- $ -- $ 1,200,000
=========== =========== =========== ============
Equipment acquired pursuant to capital lease
obligations ........................................... $ -- $ -- $ -- $ 378,064
=========== =========== =========== ============
The accompanying notes are an integral part of these financial statements.
F-6
ALEXION PHARMACEUTICALS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1. Organization and Operations:
Alexion Pharmaceuticals, Inc. (the "Company") was organized in January 1992
and is engaged in the research and development of proprietary
immunoregulatory compounds for the treatment of cardiovascular disorders
(inflammation and perioperative bleeding associated with cardiopulmonary
bypass, myocardial infarction, and stroke) and autoimmune diseases (lupus
nephritis, rheumatoid arthritis, and multiple sclerosis). As an outgrowth
of its core technologies, the Company is developing, in collaboration with
third parties (see Note 10), non-human organ ("xenograft" organs) products
designed for transplantation into humans without clinical rejection and
immunoprotected retroviral vectors and producer cells for gene therapy.
The Company is in the development stage and is devoting substantially all
of its efforts toward product research and development. The Company has
incurred losses since inception and has cumulative net losses of $31.8
million through July 31, 1997. The Company has made no product sales to
date and has recognized cumulative revenue from research grants and funding
of $6.6 million through July 31, 1997. During 1996, the Company completed
an initial public offering (IPO) of 2,530,000 shares of common stock
resulting in net proceeds of approximately $18.4 million. During 1997, the
Company completed an offering of 1,450,000 shares of common stock resulting
in net proceeds of approximately $10.4 million (see Note 12). In addition,
the Company has received various grants to fund certain research activities
(see Note 10).
The Company will need additional financing to obtain regulatory approvals,
fund operating losses, and, if deemed appropriate, establish a
manufacturing, sales and marketing capability. In addition to the normal
risks associated with development stage companies, there can be no
assurance that the Company's research and development will be successfully
completed, that adequate patent protection for the Company's technology
will be obtained, that any products developed will obtain necessary
government regulatory approval or that any approved products will be
commercially viable. In addition, the Company operates in an environment of
rapid change in technology, substantial competition from pharmaceutical and
biotechnology companies and is dependent upon the services of its employees
and its consultants.
The Company expects to incur substantial expenditures in the foreseeable
future for the research and development and commercialization of its
products. The Company's management believes that, based upon its current
business plans, the cash and marketable securities aggregating $22.7
million as of July 31, 1997 will be sufficient to fund operations of the
Company through at least calendar 1998.
F-7
The Company will require funds in addition to those previously described,
which it will seek to raise through public or private equity or debt
financings, collaborative or other arrangements with corporate sources, or
through other sources of financing. The Company has no banking or other
capital sources and no arrangements or commitments with regard to obtaining
any further funds.
2. Summary of Significant Accounting Policies:
Cash and cash equivalents --
Cash and cash equivalents are stated at cost, which approximates market,
and include short-term highly liquid investments with original maturities
of less than three months.
Marketable securities --
The Company invests in marketable securities of highly rated financial
institutions and investment-grade debt instruments and limits the amount of
credit exposure with any one entity.
The Company has classified its marketable securities as "available for
sale" and, accordingly, carries such securities at aggregate fair value.
Unrealized gains or losses are included in stockholders' equity as a
component of additional paid-in capital. At July 31, 1997, the Company's
marketable securities had a maximum maturity of approximately one year.
The following is a summary of marketable securities at July 31, 1996 and
1997:
Unrealized
Amortized Gains Fair
Cost (Losses) Value
---------- ----------- ----------
U.S. government obligations ........ $5,268,177 $ (481) $5,267,696
Municipal obligations .............. 80,000 (390) 79,610
Corporate bonds .................... 3,770,832 (11,604) 3,759,228
---------- -------- ----------
Total marketable
securities at
July 31, 1996 ............... $9,119,009 $(12,475) $9,106,534
========== ======== ==========
U.S. government obligations ........ $ 498,216 $3,034 $ 501,250
Municipal obligations .............. 4,000,535 4,145 4,004,680
Corporate bonds .................... 1,500,038 412 1,500,450
---------- -------- ----------
Total marketable
securities at
July 31, 1997 ............... $5,998,789 $ 7,591 $6,006,380
========== ======== ==========
F-8
Equipment --
Equipment is recorded at cost and is depreciated over estimated useful
lives of the assets involved. Depreciation commences at the time the assets
are placed in service and is computed using the straight-line method over
the useful lives of the equipment of three to four years. Maintenance and
repairs are charged to expense when incurred.
Equipment under capital leases is depreciated over the lesser of the lease
term or the estimated useful life.
Long-lived assets --
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of" (SFAS 121). SFAS
121 requires a company to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. The adoption of this standard did not have a
material impact on the Company's results of operations or financial
position.
Licensed technology rights --
Licensed technology rights are amortized over the shorter of the license
term or seven years, using the straight-line method. The Company reviews
licensed technology rights on a periodic basis and capitalized costs which
provide no future benefit are expensed. Accumulated amortization as of July
31, 1996 and 1997 amounted to $285,624 and $373,623, respectively (see
Note 9).
Patent application costs --
Costs incurred in filing for patents are capitalized. Capitalized costs
related to unsuccessful patent applications are expensed when it becomes
determinable that such applications will not be successful. Capitalized
costs related to successful patent applications are amortized over a seven
year period or the remaining life of the patent, whichever is shorter,
using the straight-line method. Accumulated amortization as of July 31,
1996 and 1997 amounted to $141,801 and $190,282, respectively.
Revenue recognition --
Contract research revenues are recognized as the related work is performed
under the terms of the contracts and expenses for development activities
are incurred. Any revenue contingent upon future funding by the Company is
deferred and recognized as the future funding is expended. Any revenues
resulting from the achievement of milestones would be recognized when the
milestone is achieved.
Research and development expenses --
Research and development costs are expensed in the period incurred.
F-9
Use of estimates in the preparation of financial statements --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
New accounting pronouncements --
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share", which establishes new standards for computing
and presenting earnings per share. SFAS 128 is effective for financial
statements issued for periods ending after December 31, 1997 and earlier
adoption is not permitted. The Company believes that the impact of adoption
of this statement will not have a material effect on net loss per share as
reported in the accompanying financial statements.
In July 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income", which establishes standards for reporting
and display of comprehensive income and its components in a full set of
general purpose financial statements. The objective of the statement is to
report a measure of all changes in equity of an enterprise that result from
transactions and other economic events of the period other than
transactions with owners ("comprehensive income"). SFAS No. 130 is
effective for financial statements issued for fiscal years beginning after
December 15, 1997 with earlier application permitted. The Company believes
that the impact of adoption of this statement will not have a significant
effect on the Company's financial position and results of operations.
Net loss per common share --
Net loss per common share is computed using the weighted average number of
common shares outstanding during the period. Common equivalent shares
including those from stock options and warrants are excluded from the
computation as their effect is antidulitive, except pursuant to the
requirements of the SEC. Pursuant to these requirements, common stock
issued by the Company during the 12 months immediately preceding the
initial public offering, plus shares of common stock which became issuable
during the same period pursuant to the grant of common stock options and
warrants, have been included in the calculation of weighted average number
of common shares outstanding for the period from August 1, 1994 to April
30, 1996 using the treasury stock method.
F-10
3. Equipment:
A summary of equipment as of July 31, 1996 and 1997 is as follows:
July 31,
--------------------------
1996 1997
---- ----
Laboratory equipment .................... $2,038,304 $2,645,553
Office equipment ........................ 112,351 230,432
Furniture ............................... 22,088 45,971
Equipment under capital leases .......... 378,064 378,064
---------- ----------
2,550,807 3,300,020
Less -- Accumulated depreciation
and amortization ...................... 1,958,536 2,513,525
---------- ----------
$ 592,271 $ 786,495
========== ==========
4. Security Deposits and Other Assets:
A summary of security deposits and other assets as of July 31, 1996 and
1997, is as follows:
July 31,
--------------------------
1996 1997
---- ----
Amounts held in deposit as
collateral for notes payable
(see Note 7) .......................... $183,444 $ -
Other ................................... 84,134 81,728
-------- -------
$267,578 $81,728
======== =======
5. Accrued Expenses:
A summary of accrued expenses as of July 31, 1996 and 1997, is as follows:
July 31,
--------------------------
1996 1997
---- ----
Research and development ................ $ 86,369 $ 590,000
Payroll and employee benefits ........... 23,000 354,395
Professional fees ....................... 225,990 185,281
Other ................................... 65,218 72,094
-------- ----------
$400,577 $1,201,770
======== ==========
F-11
6. Deferred Revenue:
Deferred revenue results from cash received in advance of revenue
recognition under research and development contracts (see Notes 1 and 10).
7. Notes Payable:
Notes payable consist of borrowings under a lease financing arrangement
with a financing company for the purchase of certain laboratory equipment.
Borrowings against this line of credit are secured by the laboratory
equipment and related security deposits (cash collateral equal to 30%-40%
of equipment cost) (see Note 4). The Company has no additional borrowing
capacity under these agreements as of July 31, 1997. Upon certain
conditions, the amounts held as security deposits can be reduced and the
funds released to the Company. After completion of the Company's IPO in
1996 and the Company's common stock offering in 1997, all the security
deposits relating to the lease financing arrangement were returned to the
Company, including earned interest. Under the terms of the financing, the
Company is required to make monthly payments of principal and interest
through fiscal 1998, based upon an average interest rate of approximately
15% per annum.
8. Obligations Under Capital Leases:
Obligations under capital leases principally represent leases of laboratory
equipment. Under the terms of the leases the Company is required to make
monthly payments of principal and interest through fiscal 1998, at interest
rates ranging from approximately 10%-12% per annum.
9. License and Research & Development Agreements:
The Company has entered into a number of license and research & development
agreements since its inception. These agreements have been made with
various research institutions, universities, and government agencies in
order to advance and obtain technologies management believes important to
the Company's overall business strategy.
License agreements generally provide for an initial fee followed by annual
minimum royalty payments. Additionally, certain agreements call for future
payments upon the attainment of agreed to milestones, such as, but not
limited to, Investigational New Drug (IND) application or Product License
Approval (PLA). These agreements require minimum royalty payments based
upon sales developed from the applicable technologies, if any. The
Company's policy is to amortize capitalized licensed technology over a
seven year period or under the license term, whichever is shorter, using
the straight-line method.
F-12
Research & development agreements generally provide for the Company to fund
future project research for one to four years. Based upon these agreements,
the Company may obtain exclusive and non-exclusive rights and options to
the applicable technologies developed as a result of the applicable
research. The Company's policy is to expense research and development
payments as incurred.
The minimum payments (assuming non-termination of the above agreements) as
of July 31, 1997, for each of the next five years are as follows:
Year Research &
Ending License Development
July 31, Agreements Agreements
-------- ---------- -----------
1998 $32,000 $109,811
1999 27,000 50,000
2000 22,000 50,000
2001 22,000 50,000
2002 22,000 50,000
Should the Company achieve certain milestones related to product
development and product license applications and approvals, additional
payments would be required if the Company elects to continue and maintain
its licenses. The agreements also require the Company to fund certain costs
associated with the filing of patent applications.
10. Contract Research Revenues:
Contract research revenues recorded by the Company during the three years
ended July 31, 1997 consisted of research and development support under
collaborations with third parties and various government grants from the
National Institute of Health and the Department of Commerce.
In July 1995, the Company entered into a research and development agreement
with a third party. This third party agreed to fund pre-clinical
development of the Company's xenotransplant products in return for
exclusive worldwide manufacturing, marketing and distribution rights of
such products by paying the Company up to $7.5 million allocated as
follows: (1) up to $4.0 million of the cost of pre-clinical development in
four semi-annual installments of up to $1.0 million and (2) $3.5 million
upon achieving certain milestones. In furtherance of this joint
collaboration, the third party also purchased $4.0 million of the Company's
common stock (see Note 12). For the years ended July 31, 1996 and 1997, the
Company recognized $2.0 and $1.8 million, respectively of revenue related
to this agreement. As of July 31, 1997, the Company had received all of the
preclinical funding available under this agreement. Additionally, during
fiscal 1996 the third party purchased an additional $1.8 million of common
stock offered in the Company's IPO.
F-13
In December 1996, the Company entered into a license and collaborative
research agreement with a third party relating to the Company's gene
transfer technology. Under the agreement, the third party has been granted
a worldwide exclusive license to use the Company's technology in its gene
therapy products. The third party agreed to pay the Company an initial
payment of $850,000 (consisting of a non-refundable license fee of $750,000
and a one-time research support payment of $100,000) and to fund a minimum
of $400,000 per year for two years for research and development support by
the Company. The third party will also make payments to the Company upon
achievement of certain product development milestones for gene therapy
products utilizing the Company's technology and pay royalties on net sales,
if any. For the year ended July 31, 1997, the Company recognized $1,083,330
of revenue related to this agreement.
11. Commitments:
The Company has entered into three-year and five-year employment agreements
with its executives. These agreements provide that these individuals will
receive aggregate annual base salaries of approximately $916,000 as of July
31, 1997. These individuals may also receive discretionary bonus awards, as
determined by the Board of Directors.
As of July 31, 1997, the Company leases its administrative and research and
development facilities under three operating leases expiring in June 1998,
December 1997, and March 1999 respectively, each with an option for up to
an additional three years.
Future minimum annual rental payments as of July 31, 1997, under these
leases and other noncancellable operating leases (primarily for equipment)
are approximately $308,000 and $37,000 for the years ended July 31, 1998
and 1999, respectively.
12. Common Stock and Series A Preferred Stock:
Fiscal 1993 Bridge Financing and Private Placements --
In December 1992, the Company obtained approximately $5.2 million of equity
financing (the "Bridge Financing") through the issuance of common stock and
warrants to purchase shares of common stock and the conversion of advances
from a stockholder. The Company sold Bridge Units (consisting of 531,424
shares of common stock and warrants to purchase shares of common stock --
see Note 13) for gross proceeds of approximately $4.0 million. In
connection with the sale of the Bridge Units by the Company, $1.2 million
of advances from a stockholder were converted into Bridge Units consisting
of 160,000 shares of common stock and warrants to purchase shares of common
stock.
In June 1993, the Company raised $8 million in a private placement through
the issuance of Placement Units consisting of an aggregate of 999,975
shares of common stock and warrants to purchase shares of common stock (see
Note 13).
F-14
Fiscal 1994 Private Placements --
In October and December 1993, the Company raised $5.2 million in a private
placement through the sale of Placement Units consisting of an aggregate of
646,872 shares of common stock and warrants to purchase shares of common
stock.
Fiscal 1995 Private Placements --
From December 1994 to March 1995, the Company raised approximately $3.8
million through the sale of 1,986,409 shares of Series A convertible
preferred stock. Each share of Series A preferred stock had equal voting
rights with the Company's common stock.
On July 31, 1995, the Company received gross proceeds of $4.0 million
through the sale of 457,142 shares of common stock to a corporate partner
(see Notes 1 and 10). The Company granted exclusive worldwide rights to
market its xenotransplantation products to this shareholder in an exchange
for a commitment by this shareholder to contribute to subsequent research
and development, make certain milestone payments, and pay royalties on any
future product sales.
Fiscal 1996 Initial Public Offering --
During fiscal 1996, the Company completed an IPO of 2,530,000 shares of
common stock at a price of $8.25 per share of common stock, resulting in
net proceeds of approximately $18.4 million. In connection with the
Company's IPO the preferred stockholders converted all of their shares into
794,554 shares of common stock.
Fiscal 1997 Common Stock Offering --
In July, 1997, the Company completed a private placement offering for
1,450,000 shares of common stock, resulting in net proceeds of
approximately $10.4 million.
Rights to Purchase Preferred Stock --
In February 1997, the Board of Directors of the Company declared a dividend
of one preferred stock purchase right for each outstanding share of common
stock. Under certain conditions, each right may be exercised to purchase
one one-hundredth of a share of a new series of preferred stock at an
exercise price of $75, subject to adjustment. The rights may be exercised
only after a public announcement that a party acquired 20% or more of the
Company's common stock or after commencement or public announcement to make
a tender offer for 20% or more of the Company's common stock. The rights,
which do not have voting rights, expire on March 6, 2002, and may be
redeemed by the Company at a price of $.01 per right at any time prior to
their expiration or the acquisition of 20% or more of the Company's stock.
The preferred stock purchasable upon exercise of the rights will have a
minimum preferential dividend of $10 per year, but will be entitled to
receive, in the aggregate, a
F-15
dividend of 100 times the dividend declared on a share of common stock. In
the event of a liquidation, the holders of the shares of preferred stock
will be entitled to receive a minimum liquidation payment of $100 per
share, but will be entitled to receive a aggregate liquidation payment
equal to 100 times the payment to be made per share of common stock.
In the event that the Company is acquired in a merger, other business
combination transaction, or 50% or more of its assets, cashflow, or earning
power are sold, proper provision shall be made so that each holder of a
right shall have the right to receive, upon exercise thereof at the then
current exercise price, that number of shares of common stock of the
surviving company which at the time of such transaction would have a market
value of two times the exercise price of the right.
13. Stock Options and Warrants:
Stock Options --
Under the Company's 1992 Stock Option Plan and 1992 Stock Option Plan for
Directors (the Plans), incentive and nonqualified stock options may be
granted for up to a maximum of 480,000 shares of common stock to directors,
officers, key employees and consultants of the Company at no less than fair
market value on the date of grant. In September 1996, the Plans were
amended by shareholders' majority consent to increase the number of shares
covered by the Plans to 1,800,000. Options generally become exercisable in
equal proportions over three to four years and remain exercisable for up to
ten years after the grant date, subject to certain conditions.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation (SFAS 123). SFAS 123 requires
the measurement of the fair value of stock options or warrants to be
included in the statement of income or disclosed in the notes to financial
statements. The Company has determined that it will continue to account for
stock-based compensation for employees under Accounting Principles Board
Opinion No. 25 and elect the disclosure-only alternative under SFAS 123.
The Company has computed the pro forma discloses required under SFAS 123
for options granted in fiscal 1996 and 1997 using the Black-Scholes option
pricing model prescribed by SFAS 123. The weighted average assumptions used
are as follows:
1996 1997
---- ----
Risk free interest rate ............ 6.25% 6.25%
Expected dividend yield ............ 0% 0%
Expected lives ..................... 5 years 5 years
Expected volatility ................ 53% 53%
F-16
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates of awards under these plans
consistent with the method of SFAS 123, the Company's net loss and pro
forma net loss per common share would have been increased to the pro forma
amounts indicated below:
1996 1997
---- ----
Net loss:
As reported ........................ $(5,434,516) $(7,251,570)
Pro forma .......................... (5,540,770) (7,815,053)
Pro forma net loss per common share:
As reported ...................... (.95) (.97)
Pro forma ........................ (.96) (1.05)
Because SFAS 123 method of accounting has not been applied to options
granted prior to August 1, 1995, the result pro forma compensation cost may
not be representative of that to be expected in future years.
A summary of the status of the Company's stock options plan at July 31,
1995, 1996 and 1997 and changes during the years then ended is presented in
the table and narrative below:
1995 1996 1997
--------------------- --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
---------- --------- ------- --------- ------- ---------
Outstanding at August 1 ............ 448,669 $7.85 842,324 $3.45 1,207,334 $ 5.46
Granted/reissued ................... 671,284 $2.38 405,800 $9.62 337,250 $10.37
Exercised .......................... (1,500) $7.50 (13,442) $5.23 (34,937) $ 2.38
Cancelled .......................... (276,129) $7.96 (27,348) $5.46 (25,363) $ 6.19
-------- --------- ---------
Outstanding at July 31 ............. 842,324 $3.45 1,207,334 $5.46 1,484,284 $ 6.63
======== ========= =========
Options exercisable at
July 31 .......................... 203,652 $5.99 363,492 $4.43 574,690 $ 4.98
Weighted-average fair
value of options
granted during the
year ............................. $5.38 $ 5.40
During 1996, options to purchase 388,300 shares of common stock were
granted at an exercise price equal to the fair value of the stock at the
date of grant. The weighted average exercise price of these options was
$9.94 per share. The weighted average fair value of these options at the
date of grant was $5.27 per option. In addition, options to purchase 17,500
shares of common stock were granted at an exercise price of $2.50 per share
which was less than the fair value of the stock at the date of grant. The
weighted average fair value of these options at the date of grant was $7.73
per option.
F-17
The following table presents weighted average price and life information
about significant option groups outstanding at July 31, 1997.
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise prices Outstanding Life (Yrs) Price Exercisable Price
--------------- ----------- ---------- -------- ----------- --------
Less than $2.51 ........ 624,484 7.4 $ 2.38 331,438 $ 2.38
$2.51 - $8.24 .......... 150,000 4.9 $ 7.57 148,500 $ 7.57
$8.25 - $12.125 ........ 709,800 9.2 $10.18 94,752 $10.00
--------- -------
1,484,284 8.0 $ 6.63 574,690 $ 4.98
========= =======
In December 1994, the Company offered certain holders of outstanding stock
options the opportunity to tender these options in exchange for stock
options at an exercise price of $2.375 per share which represented the then
current fair market value at such date, as determined by the Board of
Directors. As such, these outstanding stock options were cancelled and
reissued at an exercise price of $2.375 per share.
The Company recorded compensation expense of $122,500 on certain
nonqualified stock options which were granted to employees during fiscal
1996 and immediately vested. This charge was based on the difference
between the fair value of the Company's common stock on the date of grant
and the option exercise price.
Warrants --
In connection with private placements in fiscal 1993 and 1994, the Company
had issued warrants to purchase 1,295,363 shares of common stock at an
exercise price of $15.00 per share ($12.50 in the case of the placement
agent, comprising 131,249 shares of common stock). In February 1995, the
Company offered warrantholders the opportunity to exchange existing
warrants for new warrants that could purchase fewer shares at a reduced
exercise price. Warrantholders were entitled to receive new warrants
representing the right to purchase one-half the number of shares of common
stock that the warrantholder was entitled to originally purchase at a
reduced exercise price of $7.50. In connection with this offer,
warrantholders with existing warrants to purchase 1,101,028 shares of
common stock at $15.00 and $12.50 per share exchanged these warrants for
new warrants to purchase 550,501 shares of common stock at $7.50 per share.
The remaining original warrants continue to entitle the warrantholders to
purchase 194,334 shares of common stock at $12.50 to $15.00 per share.
During fiscal 1997, warrants to purchase 38,166 shares of common stock were
exercised with an aggregate purchase price of $286,246.
All warrants may be redeemed by the Company for $.05 per common share
following an initial public offering when a share of the Company's common
stock equals or exceeds 200% of the exercise price. The warrants expire on
December 4, 1997. No value was assigned to the warrants in the accompanying
balance sheets.
F-18
In connection with the Company's public offering, the Company sold to its
underwriter for nominal consideration, warrants to purchase 220,000 shares
of common stock. These warrants are initially exercisable at a price of
$9.90 per share for a period of forty-two (42) months commencing on August
27, 1997.
14. 401(k) Plan:
The Company has a 401(k) plan. Under the plan, employees may contribute up
to 12 percent of their compensation with a maximum of $9,500 per employee
in calendar year 1997. Effective May 1996 Company matching contributions of
$.25 for each dollar deferred (up to the first 6% deferred) have been
authorized by the Board of Directors. The Company had matching
contributions of approximately $6,000 and $31,000 for the years ended July
31, 1996 and 1997, respectively.
15. Federal Income Taxes:
At July 31, 1997, the Company has available for tax reporting purposes, net
operating loss carryforwards of approximately $13,400,000 which expire
commencing in fiscal 2008. The Company also has research and development
credit carryovers of approximately $1,100,000 which expire commencing in
fiscal 2008. The Tax Reform Act of 1986 contains certain provisions that
may limit the Company's ability to utilize net operating loss and tax
credit carryforwards in any given year if certain events occur, including
cumulative changes in ownership interests in excess of 50% over a
three-year period. There can be no assurance that ownership changes in
future periods will not significantly limit the Company's use of its
existing net operating loss and tax credit carryforwards.
The Company follows SFAS No. 109, "Accounting for Income Taxes". This
statement requires that deferred income tax assets and liabilities reflect
the impact of "temporary differences" between the amount of assets and
liabilities for financial reporting purposes and such amounts as measured
by tax laws and regulations.
The components of deferred income taxes as of July 31, 1997 are as follows:
Deferred tax assets:
Net operating loss carryforwards .................... $ 13,400,000
Tax credit carryforwards ............................ 1,100,000
Other ............................................... 370,000
------------
Total deferred tax assets ............................. 14,870,000
Valuation allowance for deferred tax assets ........... (14,870,000)
------------
Net deferred tax assets ............................... $ --
============
The Company has not yet achieved profitable operations. Accordingly,
management believes the tax benefits as of July 31, 1997 do not satisfy the
realization criteria set forth in SFAS No. 109 and has recorded a valuation
allowance for the entire deferred tax asset.
F-19
16. Subsequent Events:
In September 1997, the Company sold 400,000 shares of convertible preferred
stock to an investor for gross proceeds of $10 million. This stock is
convertible automatically in six months, or at the election of the holder
at any time after the date of issuance, into 935,782 shares of common
stock. The investor is entitled to a dividend of $2.25 per share of
convertible preferred stock if this stock is held for six months. The
dividend, if paid, is payable in cash or the Company's common stock at the
discretion of the Company. The Company has an option to redeem the
convertible preferred stock under certain conditions, as defined. Should
the Company elect to exercise this option, the Company is required to fund
such redemption and related dividends in cash.
In September 1997, the Company modified its July 1995 research and
development agreement with a third party (See Note 10). As part of the
modification, the third party made an additional $6.5 million payment to
the Company for equity, exclusive licensing rights and certain xenograft
manufacturing assets. Under the modified agreement, the additional $6.5
million payment consisted of: (i) a $3 million equity investment in the
Company through the purchase of 166,945 shares of the Company's common
stock and (ii) a $3.5 million payment to acquire exclusive licensing rights
and certain xenograft manufacturing assets. Further, as part of the
modified agreement, the third party and the Company agreed that the
preclinical milestone payments in the original agreement are considered to
have been satisfied.
F-20
EXHIBIT INDEX
Exhibit No.
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10.2 Employment Agreement, dated October 22, 1997, between the Company
and David W. Keiser.
10.3 Employment Agreement, dated October 22, 1997, between the Company
and Dr. Stephen P. Squinto.
10.4 Employment Agreement, dated October 22, 1997, between the Company
and Dr. Louis A. Matis.
10.41 Form Stock Purchase Agreement dated June 1997.
10.42 Stock Purchase Agreement dated September 9, 1997 by and between
the Company and B B Biotech.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
99 Important Factors Regarding Forward-Looking Statements.