1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 2001
Commission File Number 000-31191
The Medicines Company
(Exact Name of Registrant as Specified in Its Charter)
Delaware 04-3324394
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Cambridge Center, Cambridge, MA 02142
(Address of Principle Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (617) 225-9099
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date: As of May 3, 2001, there were
30,391,948 shares of Common Stock, $0.001 par value per share, outstanding.
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THE MEDICINES COMPANY
TABLE OF CONTENTS
Part I. Financial Information................................................................................... 1
Item 1 - Unaudited Condensed Consolidated Financial Statements................................................ 1
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................................... 8
Item 3 - Quantitative and Qualitative Disclosures About Market Risk........................................... 19
Part II. Other Information...................................................................................... 20
Item 2 - Changes in Securities and Use of Proceeds............................................................ 20
SIGNATURES ...................................................................................................... 21
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PART I. FINANCIAL INFORMATION
ITEM 1 - UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THE MEDICINES COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
MARCH 31, DECEMBER 31,
2001 2000
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $26,299,211 $36,802,356
Marketable securities 32,670,642 42,522,729
Accrued interest receivable 1,183,528 1,392,928
------------- -------------
60,153,381 80,718,013
------------- -------------
Accounts receivable 1,792,124 --
Inventory 2,050,500 1,963,491
Prepaid expenses and other current assets 394,450 465,650
------------- -------------
Total current assets 64,390,455 83,147,154
Fixed assets, net 947,718 965,832
Other assets 462,661 250,144
------------- -------------
Total assets $65,800,834 $84,363,130
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $3,706,243 $5,987,213
Accrued expenses 11,014,368 9,136,934
------------- -------------
Total current liabilities 14,720,611 15,124,147
Stockholders' equity:
Common stock, $.001 par value, 75,000,000 shares authorized at March 31, 2001
and December 31, 2000, respectively; 30,391,948 and 30,320,455 issued and
outstanding at March 31, 2001 and December 31, 2000, respectively 30,392 30,320
Additional paid-in capital 279,297,727 279,126,337
Deferred compensation (12,234,762) (13,355,694)
Accumulated deficit (215,616,020) (196,560,034)
Accumulated other comprehensive loss (397,114) (1,946)
--------------- -------------
Total stockholders' equity 51,080,223 69,238,983
------------- -------------
Total liabilities and stockholders' equity $65,800,834 $84,363,130
============= =============
See accompanying notes to condensed consolidated financial statements.
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THE MEDICINES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
THREE MONTHS ENDED MAR. 31,
---------------------------
2001 2000
------------ ------------
Net revenue $ 1,861,288 $ --
Operating expenses:
Cost of revenue 332,400 --
Research and development 12,595,197 10,641,866
Selling, general and administrative 9,058,936 1,197,971
------------ ------------
Total operating expenses 21,986,533 11,839,837
------------ ------------
Loss from operations (20,125,245) (11,839,837)
Other income (expense):
Interest income 1,069,259 103,835
Interest expense -- (7,507,025)
------------ ------------
Net loss (19,055,986) (19,243,027)
Dividends and accretion to redemption
value of redeemable preferred stock -- (1,529,756)
------------ ------------
Net loss attributable to
common stockholders $(19,055,986) $(20,772,783)
============ ============
Basic and diluted net loss attributed
to common stockholders per
common share $ (0.63) $ (32.91)
Unaudited pro forma basic and
diluted net loss attributable to
common stockholders per common
share $ (0.63) $ (0.55)
Shares used in computing net loss
attributable to common stockholders
per common share:
Basic and diluted 30,247,599 631,276
Unaudited pro forma basic and diluted 30,247,599 21,407,651
See accompanying notes to condensed consolidated financial statements.
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THE MEDICINES COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
THREE MONTHS ENDED MAR. 31,
---------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $(19,055,986) $(19,243,027)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 104,829 62,994
Amortization of discount on convertible notes -- 7,320,267
Amortization of deferred stock compensation 1,120,932 150,000
Loss on sales of fixed assets 251 --
Changes in operating assets and liabilities:
Accrued interest receivable 209,400 28,547
Accounts receivable (1,792,124) --
Inventory (87,009) --
Prepaid expenses and other current assets 69,762 (92,073)
Other assets (212,102) (1,422)
Accounts payable (2,280,050) 2,159,075
Accrued expenses 1,885,622 1,412,312
------------ ------------
Net cash used in operating activities (20,036,475) (8,203,327)
Cash flows from investing activities:
Purchases of marketable securities (1,457,913) --
Maturities and sales of marketable securities 10,926,379 541,400
Purchase of fixed assets (94,658) (23,200)
------------ ------------
Net cash provided by investing activities 9,373,808 518,200
Cash flows from financing activities:
Proceeds from issuance of convertible notes and
warrants -- 13,348,779
Proceeds from issuances of common stock, net 171,472 --
Repurchases of common stock (10) (20)
------------ ------------
Net cash provided by financing activities 171,462 13,348,759
Effect of exchange rate changes on cash (11,940) (11,695)
------------ ------------
Increase (decrease) in cash and cash equivalents (10,503,145) 5,651,937
Cash and cash equivalents at beginning of period 36,802,356 6,643,266
------------ ------------
Cash and cash equivalents at end of period $ 26,299,211 $ 12,295,203
============ ============
See accompanying notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. NATURE OF BUSINESS
The Medicines Company (the Company) was incorporated in Delaware on July 31,
1996. The Company is a pharmaceutical company engaged in the acquisition,
development and commercialization of late-stage development drugs. As a result
of the U.S. Food and Drug Administration approval of Angiomax (bivalirudin) for
use as an anticoagulant in patients with unstable angina undergoing percutaneous
transluminal coronary angioplasty in December 2000, and the commencement of
sales of Angiomax in the first quarter of 2001, the Company is no longer
considered to be a development-stage enterprise, as defined in Statement of
Financial Accounting Standards No. 7.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, the accompanying financial
statements include all adjustments, including normal recurring accruals,
considered necessary for a fair presentation of the Company's financial
position, results of operations, and cash flows for the periods presented.
The results of operations for the three months ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ended December 31, 2001. These condensed consolidated financial statements
should be read in conjunction with the audited financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000,
filed with the Securities and Exchange Commission.
Cash, Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Cash equivalents
consist of investments in money market funds, corporate bonds and taxable
auction securities. These investments are carried at cost, which approximates
fair value. Marketable securities consist of securities with original maturities
of greater than three months. The Company classifies its marketable securities
as available-for-sale. Securities under this classification are recorded at fair
market value and unrealized gains and losses are recorded as a separate
component of stockholders' equity.
The Medicines Company currently holds a $3.0 million principal investment in
Southern California Edison 5 7/8% bonds which was due January 15, 2001, which is
accounted for in accordance with Statement of Financial Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The Company
classifies these securities as available-for-sale and
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
carries them at fair market value based on the quoted market price. The Company
has exposure to market risk related to the fluctuation of the Southern
California Edison bonds' price, which fluctuation has increased significantly as
a result of events which occurred after December 31, 2000, including the
non-payment of principal and interest on the bonds at maturity on January 15,
2001. At March 31, 2001, the value of the Company's investment in these Southern
California Edison bonds had declined to approximately $2.5 million. Subsequent
to March 31, 2001, payment of interest was resumed on the Southern California
Edison bonds.
Revenue Recognition
The Company recognizes revenue from product sales when there is pervasive
evidence that an arrangement exists, delivery has occurred, the price is fixed
and determinable, and collectibility is reasonably assured. Revenue is recorded
net of applicable allowances, including estimated allowances for returns,
rebates and other discounts.
3. NET LOSS AND UNAUDITED PRO FORMA NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted, and
unaudited pro forma basic and diluted, net loss per share for the three months
ended March 31, 2001 and 2000. The unaudited pro forma basic and diluted net
loss per share for the three months ended March 31, 2000 gives effect to the
conversion of redeemable convertible preferred stock and accrued dividends and
convertible notes and accrued interest as if converted at the date of original
issuance. All redeemable convertible preferred stock and convertible notes were
converted during 2000. Accordingly, the basic and diluted net loss per share and
unaudited pro forma basic and diluted net loss per share for the three months
ended March 31, 2001 are the same.
THREE MONTHS ENDED MAR. 31,
---------------------------
2001 2000
------------ ------------
Basic and diluted
Net loss $(19,055,986) $(19,243,027)
Dividends and accretion to redemption
value of redeemable preferred stock -- (1,529,756)
------------ ------------
Net loss attributable to common stockholders $(19,055,986) $(20,772,783)
============ ============
Weighted average common shares outstanding 30,335,939 832,277
Less: unvested restricted common shares
Outstanding (88,340) (201,001)
------------ ------------
Weighted average common shares used to
compute net loss per share 30,247,599 631,276
============ ============
Basic and diluted net loss per share $ (0.63) $ (32.91)
============ ============
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
THREE MONTHS ENDED MAR. 31,
---------------------------
2001 2000
------------ ------------
Unaudited pro forma basic and diluted
Net loss $(19,055,986) $(19,243,027)
Interest expense on convertible notes -- 7,507,025
Dividends and accretion to redemption
value of redeemable preferred stock -- --
------------ ------------
Net loss to compute pro forma net loss per share $(19,055,986) $(11,736,002)
============ ============
Weighted average common shares used to
compute pro forma net loss per share 30,247,599 631,276
Weighted average number of common shares
assuming the conversion of all redeemable
convertible preferred stock and convertible notes
and accrued interest at the date of original
issuance -- 20,776,375
------------ ------------
Weighted average common shares used to
compute pro forma net loss per share 30,247,599 21,407,651
============ ============
Unaudited pro forma basic and diluted pro
forma net loss per share $ (0.63) $ (0.55)
============ ============
Options to purchase 3,287,175 and 1,159,355 shares of common stock as of March
31, 2001 and 2000, respectively, have not been included in the computation of
diluted net loss per share as their effect would have been antidilutive.
Outstanding warrants to purchase 3,269,564 shares of common stock as of March
31, 2001 were also excluded from the computation of diluted net loss per share
as their effect would have been antidilutive.
During the three months ended March 31, 2000, the Company issued options to
purchase 587,942 shares of common stock, respectively, at exercise prices below
the estimated fair value of the Company's common stock as of the date of grant
of such options, based on the estimated price (as of the date of grant) of the
Company's common stock in connection with the Company's initial public offering.
The total deferred compensation associated with options granted during the three
months ended March 31, 2000 was approximately $3.9 million.
Included in the results of operations for the three months ended March 31, 2001
and 2000 is compensation expense of approximately $1.1 million and $150,000,
respectively, associated with options issued in 2000 at exercise prices below
the estimated fair value of the Company's common stock as of the date of grant
of such options.
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited)
4. COMPREHENSIVE INCOME LOSS
Comprehensive losses for the three months ended March 31, 2001 and 2000 were
$19,451,000 and $19,253,000 respectively. Comprehensive loss is comprised
primarily of net loss and unrealized losses on marketable securities.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The effective
date of this statement was deferred to fiscal years beginning after June 15,
2000 by SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of SFAS No. 133." The Company
adopted this new standard and it did not have a material impact on the Company's
financial condition or results of operations.
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ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We acquire, develop and commercialize biopharmaceutical products that are in
late stages of development or have been approved for marketing. In December
2000, we received marketing approval from U.S. Food and Drug Administration (the
"FDA") for Angiomax (bivalirudin), our lead product, for use as an anticoagulant
in combination with aspirin in patients with unstable angina undergoing coronary
balloon angioplasty. Coronary angioplasty is a procedure used to restore normal
blood flow in an obstructed artery in the heart. We began selling Angiomax in
the United States in January 2001. In August and September 2000, we consummated
our initial public offering resulting in $101.4 million in net proceeds.
Since our inception, we have incurred significant losses. Most of our
expenditures to date have been for research and development activities and
selling, general and administrative expenses. Research and development expenses
represent costs incurred for product acquisition, clinical trials, activities
relating to regulatory filings, and manufacturing development efforts. We
generally outsource our clinical and manufacturing development activities to
independent organizations to maximize efficiency and minimize our internal
overhead. We expense our research and development costs as they are incurred.
Selling, general and administrative expenses consist primarily of salaries and
related expenses, general corporate activities and costs associated with product
marketing activities. Interest expense consists of costs associated with
convertible notes which were issued in 2000 and 1999 to fund our business
activities.
We expect to continue to incur operating losses during the balance of fiscal
2001 and for the foreseeable future as a result of research and development
activities attributable to new and existing products and costs associated with
the commercialization and launch of our products. In 2001, we expect increased
cash outlays for research and development costs associated with our ongoing
clinical trials and manufacturing development activities. We also expect
increased outlays during 2001 for sales, general and administrative costs
related to selling and marketing activities of Angiomax, the Company's lead
product. We will need to generate significant revenues to achieve and maintain
profitability. During the first quarter of 2001, we recorded revenue for the
initial shipment of Angiomax.
In March 1997, we acquired exclusive worldwide commercial rights from Biogen,
Inc., to the technology, patents, trademarks, inventories, know-how and all
regulatory and clinical information related to Angiomax. Under the Biogen
license, we paid $2.0 million upon execution of the license agreement and are
obligated to pay up to an additional $8.0 million upon reaching certain
milestones, including the first sale of Angiomax for certain indications. In
addition, we will pay royalties on future sales of Angiomax and on any
sublicense royalties earned.
In August 1999, we acquired exclusive worldwide rights from GyneLogix, Inc. to
the patents and know-how related to the biotherapeutic agent CTV-05. Under the
GyneLogix license, we have paid $400,000 and are obligated to pay up to an
additional $100,000 upon reaching certain development and regulatory milestones
and to fund agreed-upon operational costs of GyneLogix
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related to the development of CTV-05 on a monthly basis subject to a limitation
of $50,000 per month. In addition, we will pay royalties on future sales of
CTV-05 and on any sublicense royalties earned.
In July 1998, we acquired from Immunotech S.A., a wholly-owned subsidiary of
Beckman Coulter, Inc., exclusive worldwide rights to IS-159, which is under
clinical investigation for the treatment of acute migraine headache. Under the
Immunotech license, we paid $1.0 million upon execution of the license agreement
and are obligated to pay up to an additional $4.5 million upon reaching certain
development and regulatory milestones. In addition, we will pay royalties on
future sales of IS-159 and on any sublicense royalties earned. We are seeking a
collaborator to develop IS-159 and do not intend to initiate further studies of
IS-159 until we enter into a collaborative agreement.
During the three months ended March 31, 2000, we recorded deferred stock
compensation on the grant of stock options of approximately $3.9 million,
representing the difference between the exercise price of such options and the
fair market value of our common stock at the date of grant of such options. The
exercise prices of these options were below the estimated fair market value of
our common stock as of the date of grant based on the estimated initial public
offering (the "IPO") price of our common stock.
We amortize deferred stock compensation over the respective vesting periods of
the individual stock options. We recorded amortization expense for deferred
compensation of approximately $1.1 million and $150,000 for the three months
ended March 31, 2001 and 2000, respectively. We expect to record amortization
expense for the deferred compensation as follows: approximately $3.1 million for
the remainder of 2001, approximately $3.9 million for 2002, approximately $3.9
million for 2003 and approximately $1.4 million for 2004.
We have not generated taxable income to date. At December 31, 2000, net
operating losses available to offset future taxable income for federal income
tax purposes were approximately $122.2 million. If not utilized, federal net
operating loss carryforwards will expire at various dates beginning in 2011 and
ending 2020. We have not recognized the potential tax benefit of our net
operating losses in our statements of operations. The future utilization of our
net operating loss carryforwards may be limited pursuant to regulations
promulgated under the Internal Revenue Code of 1986, as amended.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2001 and 2000
Product Revenue. With the commercial launch of the Company's lead product,
Angiomax, in January 2001, the Company reported product revenue of $1.9 million
for the three months ended March 31, 2001. The Company had not reported revenue
prior to this time.
Cost of Revenue. Cost of revenue for the three months ended March 31, 2001 was
$332,000, or 18% as a percentage of product revenue. Cost of revenue includes
cost of manufacturing Angiomax, logistical costs associated with distributing
Angiomax, and accrued royalties. The cost of manufacturing as a percentage of
product revenue was low in the first quarter of 2001 and
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is expected to continue to run at, or near, this level through most of 2001
because cost associated with the manufacture of Angiomax incurred by the Company
prior to date of FDA approval of Angiomax in December 2000 was expensed as
research and development expense.
Research and Development Expenses. Research and development expenses increased
18% to $12.6 million for the three months ended March 31, 2000, from $10.6
million for the three months ended March 31, 2000. The increase in research and
development expenses of $2.0 million was primarily due to increased enrollment
rates of the Company's Phase 3 clinical trial of Angiomax in acute myocardial
infraction, called HERO-2, and our Phase 3b trial of Angiomax in angioplasty,
called REPLACE. Also contributing to the increase was the manufacture of
Angiomax bulk product produced using the Chemilog process, which we will
continue to expense as research and development until the process is approved by
the FDA. The increase in research and development expenses was partly offset by
a reduction in manufacturing development expenses given the receipt of the first
batch of pre-FDA approved Angiomax bulk drug substance manufactured by UCB
Bioproducts during the first quarter of 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 656% to $9.1 million for the three months
ended March 31, 2001, from $1.2 million for the three months ended March 31,
2000. The increase in selling, general and administrative expenses of $7.9
million was primarily due to an increase in marketing and selling expenses and
corporate infrastructure costs arising from an increase in activity relating to
the commercial launch of Angiomax during the three months ended March 31, 2001.
Interest Income and Interest Expense. Interest income increased 930% to $1.1
million for the three months ended March 31, 2001, from $104,000 for the three
months ended March 31, 2000. The increase in interest income of $965,000 was
primarily due to interest income arising from investment of the proceeds of the
Company's IPO in August 2000.
Interest expense was $7.5 million for the three months ended March 31, 2000 and
related to interest charges and amortization of discount on our convertible
notes issued in October 1999 and March 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001, we had $59.0 million in cash, cash equivalents and
marketable securities, as compared to $79.3 million as of December 31, 2000.
In August and September 2000, we received $101.4 million in net proceeds from
the sale of common stock in our IPO at a price of $16.00 per share. Prior to the
IPO, we had received net proceeds of $79.4 million from the private placement of
equity securities, primarily redeemable convertible preferred stock, and $19.4
million from the issuance of convertible notes and warrants.
For the three months ended March 31, 2001, we used net cash of $20.0 million in
operating activities. This consisted of a net loss of $19.1 million, combined
with a decrease in accounts payable of $2.3 million and an increase in accounts
receivable of $1.8 million, partly offset by an increase in accrued expenses of
$1.9 million, and non-cash amortization of deferred
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compensation of $1.1 million. We generated approximately $9.4 million of cash
from net investing activities, which consisted principally of the maturity or
sale of marketable securities, partly offset by the purchase of fixed assets of
$95,000. We received $171,000 from financing activities, primarily from
purchases of stock by employees.
We expect to devote substantial resources to our research and development
efforts and to our sales, marketing and manufacturing programs associated with
the commercialization of our products. Our funding requirements will depend on
numerous factors, including whether Angiomax is commercially successful, the
progress, level and timing of our research and development activities, the cost
and outcomes of regulatory reviews, the continuation or termination of third
party manufacturing or sales and marketing arrangements, the cost and
effectiveness of our sales and marketing programs, the status of competitive
products, our ability to defend and enforce our intellectual property rights and
the establishment of additional strategic or licensing arrangements with other
companies or acquisitions.
We believe, based on our current operating plan, including anticipated sales of
Angiomax, that our current cash, cash equivalents and marketable securities will
be sufficient to fund our operations for at approximately 12 months. If our
existing resources are insufficient to satisfy our liquidity requirements due to
slower than anticipated sales of Angiomax or otherwise, or if we acquire
additional product candidates, we may need to sell additional equity or debt
securities. The sale of additional equity and debt securities may result in
additional dilution to our stockholders, and we cannot be certain that
additional financing will be available in amounts or on terms acceptable to us,
if at all. If we are unable to obtain this additional financing, we may be
required to reduce the scope of our planned research, development and
commercialization activities, which could harm our financial condition and
operating results.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This quarterly report on Form 10-Q contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. For this purpose, any statements
contained in this report that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates", "plans," "expects," "intends", "may" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the Company's actual results
to differ materially from those indicated by such forward-looking statements
contained in this Report and presented elsewhere by management from time to
time. These factors include the risk factors set forth below.
Risks Related to Our Business
WE HAVE A HISTORY OF NET LOSSES, AND WE EXPECT TO CONTINUE TO INCUR NET LOSSES
AND MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY
We have incurred net losses since our inception, including net losses of
approximately $19.1 million for the three months ended March 31, 2001. As of
March 31, 2001, we had an accumulated deficit of approximately $215.6 million.
We expect to make substantial expenditures to further develop and commercialize
our products, including costs and expenses
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associated with clinical trials, regulatory approval and commercialization of
products. As a result, we are unsure when we will become profitable, if at all.
OUR BUSINESS IS VERY DEPENDENT ON THE COMMERCIAL SUCCESS OF ANGIOMAX
Other than Angiomax, our products are in clinical phases of development and,
even if approved by the FDA, are a number of years away from entering the
market. As a result, Angiomax will account for almost all of our revenues for
the foreseeable future. The commercial success of Angiomax will depend upon its
acceptance by physicians, patients and other key decision-makers as a
therapeutic and cost-effective alternative to heparin and other products used in
current practice. If Angiomax is not commercially successful, we will have to
find additional sources of revenues or curtail or cease operations.
FAILURE TO RAISE ADDITIONAL FUNDS IN THE FUTURE MAY AFFECT THE DEVELOPMENT,
MANUFACTURE AND SALE OF OUR PRODUCTS
Our operations to date have generated substantial and increasing needs for cash.
Our negative cash flow from operations is expected to continue into the
foreseeable future. The clinical development of Angiomax for additional
indications, the development of our other product candidates and the acquisition
and development of additional product candidates by us will require a commitment
of substantial funds. Our future capital requirements are dependent upon many
factors and may be significantly greater than we expect.
We believe, based on our current operating plan, including anticipated sales of
Angiomax, that our current cash, cash equivalents and marketable securities will
be sufficient to fund our operations for at approximately 12 months. If our
existing resources are insufficient to satisfy our liquidity requirements due to
slower than anticipated sales of Angiomax or otherwise, or if we acquire
additional product candidates, we may need to sell additional equity or debt
securities. The sale of additional equity and debt securities may result in
additional dilution to our stockholders, and we cannot be certain that
additional financing will be available in amounts or on terms acceptable to us,
if at all. If we are unable to obtain this additional financing, we may be
required to reduce the scope of our planned research, development and
commercialization activities, which could harm our financial condition and
operating results.
WE CANNOT EXPAND THE INDICATIONS FOR ANGIOMAX UNLESS WE RECEIVE FDA APPROVAL FOR
EACH ADDITIONAL INDICATION. FAILURE TO EXPAND THESE INDICATIONS WILL LIMIT THE
SIZE OF THE COMMERCIAL MARKET FOR ANGIOMAX
We received in December 2000 approval from the FDA for the use of Angiomax as an
anticoagulant in combination with aspirin in patients with unstable angina
undergoing coronary balloon angioplasty. One of our key objectives is to expand
the indications for which the FDA will approve Angiomax. In order to do this, we
will need to conduct additional clinical trials and obtain FDA approval for each
proposed indication. If we are unsuccessful in expanding the approved indication
for the use of Angiomax, the size of the commercial market for Angiomax will be
limited.
FAILURE TO OBTAIN REGULATORY APPROVAL IN FOREIGN JURISDICTIONS WILL PREVENT US
FROM MARKETING ANGIOMAX ABROAD
We intend to market our products in international markets, including Europe. In
order to market our products in the European Union and many other foreign
jurisdictions, we must obtain separate regulatory approvals. In February 1998,
we submitted a Marketing Authorization Application to the European Agency for
the Evaluations of Medicinal Products, or the EMAE,
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for use in unstable angina patients undergoing angioplasty. Following extended
interaction with European regulatory authorities, the Committee of Proprietary
Medicinal Products of the EMEA voted in October 1999 not to recommend Angiomax
for approval in angioplasty. The United Kingdom and Ireland dissented from this
decision. We have withdrawn our application to the EMEA and are in active dialog
with European regulators to determine our course of action including seeking
approval of Angiomax in Europe on a country-by-country basis. We may not be able
to obtain approval from any or all of the jurisdictions in which we seek
approval to market Angiomax. Obtaining foreign approvals may require additional
trials and additional expense.
THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS MAY BE TERMINATED OR
DELAYED, AND THE COSTS OF DEVELOPMENT AND COMMERCIALIZATION MAY INCREASE, IF
THIRD PARTIES WHO WE RELY ON TO MANUFACTURE AND SUPPORT THE DEVELOPMENT AND
COMMERCIALIZATION OF OUR PRODUCTS DO NOT FULFILL THEIR OBLIGATIONS
Our development and commercialization strategy entails entering into
arrangements with corporate and academic collaborators, contract research
organizations, contract sales organizations, distributors, third-party
manufacturers, licensors, licensees and others to conduct development work,
manage our clinical trials and manufacture, market and sell our products.
Although we manage these services, we do not have the expertise or the resources
to conduct such activities on our own and, as a result, are particularly
dependent on third parties in most areas.
We may not be able to maintain our existing arrangements with respect to the
commercialization of Angiomax or establish and maintain arrangements to develop
and commercialize any additional products on terms that are acceptable to us.
Any current or future arrangements for the development and commercialization of
our products may not be successful. If we are not able to establish or maintain
our agreements relating to Angiomax or any additional products on terms which we
deem favorable, our financial condition would be materially adversely effected.
Third parties may not perform their obligations as expected. The amount and
timing of resources that third parties devote to developing, manufacturing and
commercializing our products may not be within our control. Furthermore, our
interests may differ from those of third parties that manufacture or
commercialize our products. Disagreements that may arise with these third
parties could delay or lead to the termination of the development or
commercialization of our product candidates, or result in litigation or
arbitration, which would be time consuming and expensive. If any third party
that manufactures or supports the development or commercialization of our
products breaches or terminates its agreement with us, or fails to conduct its
activities in a timely manner, such breach, termination or failure could:
- - delay the development or commercialization of Angiomax, our other
product candidates or any additional product candidates that we may
acquire or develop;
- - require us to undertake unforeseen additional responsibilities or
devote unforeseen additional resources to the development or
commercialization of our products; or
- - result in the termination of the development or commercialization of
our products.
WE ARE CURRENTLY DEPENDENT ON A SINGLE SUPPLIER FOR THE PRODUCTION OF ANGIOMAX
BULK DRUG SUBSTANCE AND A DIFFERENT SINGLE SUPPLIER TO CARRY OUT ALL FILL-FINISH
ACTIVITIES FOR ANGIOMAX
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Currently, we obtain all of our Angiomax bulk drug substance from one
manufacturer, UCB Bioproducts S.A., and rely on another manufacturer, Ben Venue
Laboratories, Inc., to carry out all fill-finish activities for Angiomax, which
includes final formulation and transfer of the drug into vials where it is then
freeze-dried and sealed. The FDA requires that all manufacturers of
pharmaceuticals for sale in or from the United States achieve and maintain
compliance with the FDA's current Good Manufacturing Practice, or cGMP,
regulations and guidelines. There are a limited number of manufacturers that
operate under cGMP regulations capable of manufacturing Angiomax. The FDA has
inspected Ben Venue Laboratories for cGMP compliance for the manufacture of
Angiomax and UCB Bioproducts for cGMP compliance in the manufacture of
pharmaceutical ingredients generally. Ben Venue Laboratories and UCB Bioproducts
have informed us that they have no material deficiencies in cGMP compliance. We
do not currently have alternative sources for production of Angiomax bulk drug
substance or to carry out fill-finish activities. In the event that either of
our current manufacturers is unable to carry out its respective manufacturing
obligations to our satisfaction, we may be unable to obtain alternative
manufacturing, or obtain such manufacturing on commercially reasonable terms or
on a timely basis.
Any delays in the manufacturing process may adversely impact our ability to meet
commercial demands for Angiomax on a timely basis and supply product for
clinical trials of Angiomax.
IF WE DO NOT SUCCEED IN DEVELOPING A SECOND GENERATION PROCESS FOR THE
PRODUCTION OF BULK ANGIOMAX DRUG SUBSTANCE, OUR GROSS MARGINS MAY BE BELOW
INDUSTRY AVERAGES
We are currently developing with UCB Bioproducts a second generation process for
the production of bulk Angiomax drug substance. This process involves limited
changes to the early manufacturing steps of our current process in order to
improve our gross margins on the future sales of Angiomax. If we cannot develop
the process successfully or regulatory approval of the process is not obtained
or is delayed, then our ability to improve our gross margins on future sales of
Angiomax may be limited.
CLINICAL TRIALS OF OUR PRODUCT CANDIDATES ARE EXPENSIVE AND TIME CONSUMING, AND
THE RESULTS OF THESE TRIALS ARE UNCERTAIN
Before we can obtain regulatory approvals for the commercial sale of any product
which we wish to develop, we will be required to complete pre-clinical studies
and extensive clinical trials in humans to demonstrate the safety and efficacy
of such product. We are currently conducting four clinical trials of Angiomax
for use in the treatment of ischemic heart disease. There are numerous factors
which could delay our clinical trials or prevent us from completing these trials
successfully. We, or the FDA, may suspend a clinical trial at any time on
various grounds, including a finding that patients are being exposed to
unacceptable health risks.
The rate of completion of clinical trials depends in part upon the rate of
enrollment of patients. Patient enrollment is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites, the eligibility criteria for the trial, the existence of
competing clinical trials and the availability of alternative or new treatments.
In particular, the patient population targeted by some of our clinical trials
may be small. Delays in future planned patient enrollment may result in
increased costs and program delays.
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In addition, clinical trials, if completed, may not show any potential product
to be safe or effective. Results obtained in pre-clinical studies or early
clinical trials are not always indicative of results that will be obtained in
later clinical trials. Moreover, data obtained from pre-clinical studies and
clinical trials may be subject to varying interpretations. As a result, the FDA
or other applicable regulatory authorities may not approve a product in a timely
fashion, or at all.
OUR FAILURE TO ACQUIRE AND DEVELOP ADDITIONAL PRODUCT CANDIDATES OR APPROVED
PRODUCTS WILL IMPAIR OUR ABILITY TO GROW
As part of our growth strategy, we intend to acquire and develop additional
pharmaceutical product candidates or approved products. The success of this
strategy depends upon our ability to identify, select and acquire pharmaceutical
products in late-stage development or that have been approved that meet the
criteria we have established. Because we do not have, nor intend to establish,
internal scientific research capabilities, we are dependent upon pharmaceutical
and biotechnology companies and other researchers to sell or license product
candidates to us.
Identifying suitable product candidates and approved products and proposing,
negotiating and implementing an economically viable acquisition is a lengthy and
complex process. In addition, other companies, including those with
substantially greater financial, marketing and sales resources, may compete with
us for the acquisition of product candidates and approved products. We may not
be able to acquire the rights to additional product candidates and approved
products on terms that we find acceptable, or at all.
IF WE BREACH ANY OF THE AGREEMENTS UNDER WHICH WE LICENSE COMMERCIALIZATION
RIGHTS TO PRODUCTS OR TECHNOLOGY FROM OTHERS, WE COULD LOSE LICENSE RIGHTS THAT
ARE IMPORTANT TO OUR BUSINESS
We license commercialization rights to products and technology that are
important to our business, and we expect to enter into additional licenses in
the future. For instance, we acquired our first three products through exclusive
licensing arrangements. See "Business -- License Agreements" for a description
of the terms of these licenses. Under these licenses we are subject to
commercialization and development, sublicensing, royalty, insurance and other
obligations. If we fail to comply with any of these requirements, or otherwise
breach these license agreements, the licensor may have the right to terminate
the license in whole or to terminate the exclusive nature of the license. In
addition, upon the termination of the license we may be required to license to
the licensor the intellectual property that we developed.
OUR ABILITY TO MANAGE OUR BUSINESS EFFECTIVELY COULD BE HAMPERED IF WE ARE
UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND CONSULTANTS
The biopharmaceutical industry has experienced a high rate of turnover of
management personnel in recent years. We are highly dependent on our ability to
attract and retain qualified personnel for the acquisition, development and
commercialization activities we conduct or sponsor. If we lose one or more of
the members of our senior management, including our chief executive officer, Dr.
Clive A. Meanwell, or other key employees or consultants, our business and
operating results could be seriously harmed. Our ability to replace these key
employees may be difficult and may take an extended period of time because of
the limited number of individuals in the biotechnology industry with the breadth
of skills and experience required to develop and commercialize products
successfully. Competition to hire from this limited pool is intense, and we may
be unable to hire, train, retain or motivate such additional personnel.
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WE FACE SUBSTANTIAL COMPETITION, WHICH MAY RESULT IN OTHERS DISCOVERING,
DEVELOPING OR COMMERCIALIZING COMPETING PRODUCTS BEFORE OR MORE SUCCESSFULLY
THAN WE DO
The biopharmaceutical industry is highly competitive. Our success will depend on
our ability to develop products and apply technology and our ability to
establish and maintain a market for our products. Potential competitors in the
United States and other countries include major pharmaceutical and chemical
companies, specialized biotechnology firms, universities and other research
institutions. Many of our competitors have substantially greater research and
development capabilities and experience, and greater manufacturing, marketing
and financial resources than we do. Accordingly, our competitors may develop
products or other novel technologies that are more effective, safer or less
costly than any that have been competing or are being developed by us or may
obtain FDA approval for products more rapidly than we are able. Technological
development by others may render our products or product candidates
noncompetitive. We may not be successful in establishing or maintaining
technological competitiveness.
BECAUSE THE MARKET FOR THROMBIN INHIBITORS IS COMPETITIVE, OUR PRODUCT MAY NOT
OBTAIN WIDESPREAD USE
We plan to position Angiomax as a replacement for heparin, which is widely-used
and inexpensive, for use in patients with ischemic heart disease. Because
heparin is inexpensive and has been widely used for many years, medical
decision-makers may be hesitant to adopt our alternative treatment. In addition,
due to the high incidence and severity of cardiovascular diseases, the market
for thrombin inhibitors is large and competition is intense and growing. There
are a number of thrombin inhibitors currently on the market, awaiting regulatory
approval and in development, including orally administered agents.
THE LIMITED RESOURCES OF THIRD-PARTY PAYORS MAY LIMIT THE USE OF OUR PRODUCTS
In general, anticoagulant drugs may be classified in three groups: drugs that
directly or indirectly target and inhibit thrombin, drugs that target and
inhibit platelets and drugs that break down fibrin. Because each group of
anticoagulants acts on different components of the clotting process, we believe
that there will be continued clinical work to determine the best combination of
drugs for clinical use. We expect Angiomax to be used with aspirin alone or in
conjunction with other therapies. Although we do not plan to position Angiomax
as a direct competitor to platelet inhibitors or fibrinolytic drugs, platelet
inhibitors and fibrinolytic drugs may compete with Angiomax for the use of
hospital financial resources. Many U.S. hospitals receive a fixed reimbursement
amount per procedure for the angioplasties and other treatment therapies they
perform. Because this amount is not based on the actual expenses the hospital
incurs, U.S. hospitals may have to choose among Angiomax, platelet inhibitors
and fibrinolytic drugs.
FLUCTUATIONS IN OUR OPERATING RESULTS COULD AFFECT THE PRICE OF OUR COMMON STOCK
Our operating results may vary from period to period based on the amount and
timing of sales of Angiomax to customers in the United States, the availability
and timely delivery of a sufficient supply of Angiomax, the timing and expenses
of clinical trials, the availability and timing of third-party reimbursement and
the timing of approval for our product candidates. If our operating results do
not match the expectations of securities analysts and investors as a result of
these and other factors, the trading price of our common stock may fluctuate.
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Risks Related to Our Industry
IF WE DO NOT OBTAIN FDA APPROVALS FOR OUR PRODUCTS OR COMPLY WITH GOVERNMENT
REGULATIONS, WE MAY NOT BE ABLE TO MARKET OUR PRODUCTS AND MAY BE SUBJECT TO
STRINGENT PENALTIES
Except for Angiomax, which has been approved for sale in the United States and
New Zealand, we do not have a product approved for sale in the United States or
any foreign market. We must obtain approval from the FDA in order to sell our
product candidates in the United States and from foreign regulatory authorities
in order to sell our product candidates in other countries. We must successfully
complete our clinical trials and demonstrate manufacturing capability before we
can file with the FDA for approval to sell our products. The FDA could require
us to repeat clinical trials as part of the regulatory review process. Delays in
obtaining or failure to obtain regulatory approvals may:
- - delay or prevent the successful commercialization of any of our product
candidates;
- - diminish our competitive advantage; and
- - defer or decrease our receipt of revenues or royalties.
The regulatory review and approval process is lengthy, expensive and uncertain.
Extensive pre-clinical data, clinical data and supporting information must be
submitted to the FDA for each additional indication to obtain such approvals,
and we cannot be certain when we will receive these regulatory approvals, if
ever.
In addition to initial regulatory approval, our products and product candidates
will be subject to extensive and rigorous ongoing domestic and foreign
government regulation, as we discuss in more detail in "Business -- Government
Regulation." Any approvals, once obtained, may be withdrawn if compliance with
regulatory requirements is not maintained or safety problems are identified.
Failure to comply with these requirements may also subject us to stringent
penalties.
WE MAY NOT BE ABLE TO OBTAIN OR MAINTAIN PATENT PROTECTION FOR OUR PRODUCTS, AND
WE MAY INFRINGE THE PATENT RIGHTS OF OTHERS
The patent positions of pharmaceutical and biotechnology companies like us are
generally uncertain and involve complex legal, scientific and factual issues.
Our success depends significantly on our ability to:
- - obtain patents;
- - protect trade secrets;
- - operate without infringing the proprietary rights of others; and
- - prevent others from infringing our proprietary rights.
We may not have any patents issued from any patent applications that we own or
license. If patents are granted, the claims allowed may not be sufficiently
broad to protect our technology. In addition, issued patents that we own or
license may be challenged, invalidated or circumvented. Our patents also may not
afford us protection against competitors with similar
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technology. Because patent applications in the United States are maintained in
secrecy until patents issue, others may have filed or maintained patent
applications for technology used by us or covered by our pending patent
applications without our being aware of these applications. In all, we
exclusively license 10 issued U.S. patents and a broadly filed portfolio of
corresponding foreign patents and patent applications. We have not yet filed any
independent patent applications.
We may not hold proprietary rights to some patents related to our product
candidates. In some cases, others may own or control these patents. As a result,
we may be required to obtain licenses under third-party patents to market some
of our product candidates. If licenses are not available to us on acceptable
terms, we will not be able to market these products.
We may become a party to patent litigation or other proceedings regarding
intellectual property rights. The cost to us of any patent litigation or other
proceeding, even if resolved in our favor, could be substantial. If any patent
litigation or other intellectual property proceeding in which we are involved is
resolved unfavorably to us, we may be enjoined from manufacturing or selling our
products and services without a license from the other party, and we may be held
liable for significant damages. We may not be able to obtain any required
license on commercially acceptable terms, or at all.
IF WE ARE NOT ABLE TO KEEP OUR TRADE SECRETS CONFIDENTIAL, OUR TECHNOLOGY AND
INFORMATION MAY BE USED BY OTHERS TO COMPETE AGAINST US
We rely significantly upon unpatented proprietary technology, information,
processes and know-how. We seek to protect this information by confidentiality
agreements with our employees, consultants and other third-party contractors, as
well as through other security measures. We may not have adequate remedies for
any breach by a party to these confidentiality agreements. In addition, our
competitors may learn or independently develop our trade secrets.
WE COULD BE EXPOSED TO SIGNIFICANT LIABILITY CLAIMS IF WE ARE UNABLE TO OBTAIN
INSURANCE AT ACCEPTABLE COSTS AND ADEQUATE LEVELS OR OTHERWISE PROTECT OURSELVES
AGAINST POTENTIAL PRODUCT LIABILITY CLAIMS
Our business exposes us to potential product liability risks which are inherent
in the testing, manufacturing, marketing and sale of human healthcare products.
Product liability claims might be made by consumers, health care providers or
pharmaceutical companies or others that sell our products. These claims may be
made even with respect to those products that are manufactured in licensed and
regulated facilities or otherwise possess regulatory approval for commercial
sale.
These claims could expose us to significant liabilities that could prevent or
interfere with the development or commercialization of our products. Product
liability claims could require us to spend significant time and money in
litigation or pay significant damages. We are currently covered, with respect to
our commercial sales in the United States and New Zealand and our clinical
trials, by primary product liability insurance in the amount of $20.0 million
per occurrence and $20.0 million annually in the aggregate on a claims-made
basis. This coverage may not be adequate to cover any product liability claims.
As we commercialize our products, we may wish to increase our product liability
insurance. Product liability coverage is expensive. In the future, we may not be
able to maintain or obtain such product liability insurance on reasonable terms,
at a reasonable cost or in sufficient amounts to protect us against losses due
to product liability claims.
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ITEM 3- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is confined to our cash, cash equivalents and
marketable securities. We place our investments in high-quality financial
instruments, primarily money market funds and corporate debt securities with
maturities or auction dates of less than one year, which we believe are subject
to limited credit risk. We currently do not hedge interest rate exposure. At
March 31, 2001, we held $59.0 million in cash, cash equivalents, and marketable
securities, all due within one year, which had an average interest rate of
approximately 6.5%.
The Medicines Company currently holds a $3.0 million principal investment in
Southern California Edison 5 7/8% bonds which was due January 15, 2001, which is
accounted for in accordance with Statement of Financial Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." We classify
these securities as available-for-sale and carry them at fair market value based
on the quoted market price. We have exposure to market risk related to the
fluctuation of the Southern California Edison bonds' price, which fluctuation
has increased significantly as a result of events which occurred after December
31, 2000, including the non-payment of principal and interest on the bonds at
maturity on January 15, 2001. At March 31, 2001, the value of the Company's
investment in these Southern California Edison bonds had declined to
approximately $2.5 million. Subsequent to March 31, 2001, payment of interest
was resumed on the Southern California Edison bonds.
Most of our transactions are conducted in U.S. dollars. We do have certain
development and commercialization agreements with vendors located outside the
United States. Transactions under certain of these agreements are conducted in
U.S. dollars, subject to adjustment based on significant fluctuations in
currency exchange rates. Transactions under certain other of these agreements
are conducted in the local foreign currency. If the exchange rate undergoes a
change of 10%, we do not believe that it would have a material impact on our
results of operations or cash flows.
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PART II- OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
In its IPO, the Company sold 6,900,000 shares of common stock
(including an over-allotment option of 900,000 shares) pursuant to a
Registration Statement on Form S-1 (Registration No. 333-37404) that
was declared effective by the Securities and Exchange Commission on
August 7, 2000. Of the aggregate net proceeds of approximately $101.4
million from the IPO, from August 7, 2000 through March 31, 2001, the
Company used approximately $42.4 million for general corporate
purposes, including operations, working capital and capital
expenditures, with the remaining $59.0 million in proceeds invested in
cash, cash equivalents and marketable securities. Of the approximately
$42.4 million, we paid approximately $212,000 to Stack Pharmaceuticals,
Inc., and approximately $1.7 million to Innovex, Inc. Dave Stack, one
of our Senior Vice Presidents, is also the President and General
Partner of Stack Pharmaceuticals and a Senior Advisor to the Chief
Executive Officer of Innovex.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE MEDICINES COMPANY
Date: May 10, 2001 By: /s/ Peyton J. Marshall
---------------------------------
Peyton J. Marshall
Chief Financial Officer
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