<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 2000
REGISTRATION NO. 333-37404
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE MEDICINES COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 2834 04-3324394
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE) IDENTIFICATION NUMBER)
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ONE CAMBRIDGE CENTER
CAMBRIDGE, MASSACHUSETTS 02142
(617) 225-9099
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CLIVE A. MEANWELL
CHIEF EXECUTIVE OFFICER
THE MEDICINES COMPANY
ONE CAMBRIDGE CENTER
CAMBRIDGE, MASSACHUSETTS 02142
(617) 225-9099
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OR AGENT FOR SERVICE)
------------------------
COPIES TO:
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STEVEN D. SINGER, ESQ. GERALD S. TANENBAUM, ESQ.
STUART M. FALBER, ESQ. MICHAEL E. WEISS, ESQ.
HALE AND DORR LLP CAHILL GORDON & REINDEL
60 STATE STREET 80 PINE STREET
BOSTON, MASSACHUSETTS 02109 NEW YORK, NEW YORK 10005-1702
(617) 526-6000 (212) 701-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRATION HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SUCH SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS Subject to Completion
Dated August 4, 2000
5,000,000 Shares
[THE MEDICINES COMPANY LOGO]
Common Stock
The Medicines Company is selling all of the shares of common stock in this
offering. This is our initial public offering. We estimate that the initial
public offering price will be between $14.00 and $16.00 per share.
Our common stock has been approved for listing on the Nasdaq National Market
under the symbol "MDCO".
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. PLEASE READ "RISK FACTORS"
BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT THE MEDICINES COMPANY
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<S> <C> <C> <C>
Per Share $ $ $
-------------------------------------------------------------------------------------------------------------
Total $ $ $
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We will grant the underwriters the right to purchase up to an additional 750,000
shares of common stock to cover over-allotments.
J.P. MORGAN & CO. ROBERTSON STEPHENS
CIBC WORLD MARKETS
, 2000
<PAGE> 3
[Four vials of Angiomax in the forefront with a group of physicians in an
operating room in the background.]
Angiomax(TM) is approved for sale in New Zealand, but is not yet approved for
sale in the United States. Regulatory approval and commercialization are
subject to several uncertainties and risk factors. See "Risk Factors."
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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Prospectus Summary......................... 3
Risk Factors............................... 7
Special Note Regarding Forward-Looking
Statements............................... 14
Use of Proceeds............................ 15
Dividend Policy............................ 15
Capitalization............................. 16
Dilution................................... 18
Selected Consolidated Financial Data....... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 20
Business................................... 24
</TABLE>
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PAGE
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Management................................. 42
Transactions With Executive Officers,
Directors and Five Percent
Stockholders............................. 51
Principal Stockholders..................... 56
Description of Capital Stock............... 59
Shares Eligible for Future Sale............ 62
Underwriting............................... 63
Legal Matters.............................. 65
Experts.................................... 65
Where You Can Find More Information........ 65
Index to Financial Statements.............. F-1
</TABLE>
------------------------
Until , 2000, all dealers that effect transactions in our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary does not contain all of the information you should consider before
buying shares of our common stock. You should read the entire prospectus
carefully.
THE MEDICINES COMPANY
We acquire, develop and commercialize biopharmaceutical products in late stages
of development. In May 2000, we received a letter, known as an approvable
letter, from the U.S. Food and Drug Administration, or FDA, indicating that the
FDA will approve our first product, Angiomax, for use in the treatment of
patients with unstable angina undergoing coronary balloon angioplasty if we
satisfy specified conditions. Coronary angioplasty is a procedure used to
restore normal blood flow in an obstructed artery in the heart. If approved by
the FDA, we plan to begin selling Angiomax in the United States within the next
12 months for use in angioplasty.
We are also developing Angiomax for additional potential applications for use in
the treatment of ischemic heart disease, a condition which occurs when organs
receive an inadequate supply of oxygen as a result of decreased blood flow. To
date, clinical investigators have administered Angiomax to over 8,500 patients
in clinical trials for the treatment and prevention of blood clots in a wide
range of hospital applications. We believe that Angiomax will become the leading
replacement for heparin in hospital care. In the United States, heparin is the
most widely-used acute care anticoagulant, a type of drug used to prevent or
slow the formation of blood clots, and is used to treat approximately five
million hospitalized patients per year.
Under the terms of the Angiomax approvable letter, before the FDA will approve
our new drug application, or NDA, for Angiomax, the manufacturing facilities for
Angiomax must pass FDA inspection, and we must comply with other conditions.
These conditions include adopting FDA-recommended modifications to the proposed
labeling for Angiomax, making changes in documents describing our manufacturing
and packaging of Angiomax and recruiting and assessing additional subjects in a
study investigating the elimination of Angiomax in individuals with reduced
kidney function. We have recruited and assessed the additional subjects for this
study, and in July 2000 we submitted to the FDA our response to the approvable
letter. The FDA conducted an inspection of the Angiomax manufacturing facility
in June 2000.
ANGIOMAX
Angiomax directly blocks or inhibits the actions of thrombin, a key component in
the formation and growth of blood clots. By blocking thrombin directly, rather
than indirectly like heparin, Angiomax inhibits the actions of thrombin both in
the clot and in the blood. Angiomax's inhibition of thrombin is reversible,
which means that its thrombin blocking effect wears off over time, allowing
thrombin to again work in the clotting process. This reversibility is associated
with a reduced risk of bleeding.
In the clinical trials in angioplasty, Angiomax has:
- reduced the frequency of life-threatening coronary events including heart
attack and the need for emergency coronary procedures;
- reduced the likelihood of major bleeding and the need for blood transfusion;
and
- demonstrated a predictable anticoagulant response to a specific Angiomax dose,
which enables simplified dosing.
Our development programs are designed to expand the applications of Angiomax for
the treatment of ischemic heart disease. We have:
- a 17,000 patient Phase 3 trial program underway studying the use of Angiomax
for the treatment of patients who have suffered a heart attack;
- a Phase 3 trial program in progress to study the use of Angiomax for the
treatment of patients undergoing angioplasty who experience reduced platelet
count and clotting due to an allergic, or immunological, reaction to heparin;
and
- plans to commence a Phase 3 trial program to evaluate the use of Angiomax in
patients with unstable angina, a coronary condition in which patients
experience the new onset of severe chest pain, increasingly frequent chest
pain or chest pain that occurs while they are at rest.
3
<PAGE> 6
STRATEGY
Our strategy is to build a commercial biopharmaceutical operation by acquiring,
developing and commercializing products in late-stage clinical development,
which we refer to as our product candidates. We will actively manage the
development and commercialization of these product candidates. We expect our
first product, Angiomax, if approved by the FDA, to become the cornerstone
product of a hospital product, or critical care, franchise that we plan to
build. We are also focused on specialty anti-infectives and are developing a
second product candidate, CTV-05, a proprietary biotherapeutic agent with a
potentially broad range of applications in the treatment of gynecological and
reproductive infections. We intend to market our products in the United States
by contracting with external organizations, which we would manage, or by
collaborating with other biopharmaceutical companies.
Our principal objectives include:
- launching Angiomax for use in patients with unstable angina undergoing
angioplasty;
- developing and commercializing Angiomax as the leading replacement for heparin
for use in the treatment of ischemic heart disease;
- acquiring products with (1) existing clinical data which provides reasonable
evidence of safety and efficacy, (2) an anticipated time to market of four
years or less and (3) potential cost savings to payors or improved efficiency
of patient care; and
- making the best use of our resources through our relationships with contract
development, manufacturing and sales companies.
CORPORATE INFORMATION
The Medicines Company was incorporated in Delaware in July 1996. Our corporate
website is located at www.themedicinescompany.com. We do not intend for
information found on our website to be part of this prospectus. We own or have
rights to various trademarks and trade names used in our business, including The
Medicines Company name and logo and Angiomax(TM).
Our executive offices are located at One Cambridge Center, Cambridge,
Massachusetts 02142, and our telephone number is (617) 225-9099.
4
<PAGE> 7
THE OFFERING
The following information reflects 986,626 shares of common stock outstanding as
of July 31, 2000 and the conversion of all our outstanding convertible preferred
stock as of July 31, 2000 into 22,338,297 shares of common stock upon the
closing of this offering. The number of outstanding shares of common stock does
not include:
- 2,468,521 shares of common stock issuable upon the exercise of stock options
outstanding as of July 31, 2000 at a weighted average exercise price of $3.67
per share;
- 3,269,564 shares of common stock issuable upon the exercise of common stock
purchase warrants outstanding as of July 31, 2000 at an exercise price of
$5.92 per share; and
- an additional 2,227,767 shares of common stock that we could issue under our
stock plans.
Unless otherwise indicated, information in this prospectus gives effect to the
following:
- no exercise of the underwriters' over-allotment option;
- a 0.73 for 1 reverse split of all of our outstanding shares of common stock
effected on August 4, 2000; and
- an assumed initial public offering price of $15.00 per share.
COMMON STOCK OFFERED.....................5,000,000 shares
COMMON STOCK TO BE OUTSTANDING AFTER THIS
OFFERING.................................28,324,923 shares
USE OF PROCEEDS..........................We expect to use the net proceeds to:
- fund the commercial launch of
Angiomax for use in patients with
unstable angina undergoing
angioplasty and product development
activities, including additional
clinical trials of Angiomax;
- fund working capital, capital
expenditures and other general
corporate purposes; and
- fund the acquisition of additional
products.
Please read "Use of Proceeds".
NASDAQ NATIONAL MARKET SYMBOL............"MDCO"
5
<PAGE> 8
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SUMMARY CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with our summary consolidated financial data.
We have prepared this information using our audited consolidated financial
statements for the period July 31, 1996 (date of inception) to December 31, 1996
and for the years ended December 31, 1997, 1998 and 1999 and our unaudited
consolidated financial statements for the three months ended March 31, 1999 and
2000. The pro forma net loss per share data and the pro forma balance sheet data
reflect the conversion of the outstanding principal amount and accrued interest
on convertible notes outstanding as of March 31, 2000 in the aggregate amount of
$19.7 million into an aggregate of 4,549,433 shares of series IV convertible
preferred stock, which will convert into 3,321,086 shares of common stock, and
the conversion of all our outstanding convertible preferred stock and accrued
dividends as of March 31, 2000 into an aggregate of 17,544,766 shares of common
stock upon the closing of this offering. The pro forma as adjusted balance sheet
data reflects these transactions, the sale of 1,411,000 shares of series IV
convertible preferred stock in May 2000 and the conversion of these shares into
an aggregate of 1,030,030 shares of common stock upon the closing of this
offering and the sale of 5,000,000 shares of common stock in this offering at an
assumed initial public offering price of $15.00 per share after deducting
underwriting discounts and estimated offering expenses. The pro forma net loss
per share data and the pro forma balance sheet data does not include the effect
of any options or warrants outstanding. The following data should be read in
conjunction with our consolidated financial statements, including the
accompanying notes, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
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<CAPTION>
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PERIOD FROM
INCEPTION THREE MONTHS
(JULY 31, 1996) ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------------------------- --------------------
1996 1997 1998 1999 1999 2000
--------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
In thousands, except share and per share data
STATEMENTS OF OPERATIONS DATA
Operating expenses
Research and development........................ $ 827 $ 16,044 $ 24,005 $ 30,345 $ 7,207 $ 10,642
General and administrative...................... 702 2,421 6,248 5,008 1,276 1,198
------- -------- -------- -------- ------- --------
Total operating expenses...................... 1,529 18,465 30,253 35,353 8,483 11,840
------- -------- -------- -------- ------- --------
Loss from operations.............................. (1,529) (18,465) (30,253) (35,353) (8,483) (11,840)
Interest income (expense), net.................... 62 659 1,302 640 346 (7,403)
------- -------- -------- -------- ------- --------
Net loss.......................................... (1,467) (17,806) (28,951) (34,713) (8,137) (19,243)
Dividends and accretion to redemption value of
redeemable convertible preferred stock.......... (118) (2,018) (3,959) (5,893) (1,436) (1,530)
------- -------- -------- -------- ------- --------
Net loss attributable to common stockholders...... $(1,585) $(19,824) $(32,910) $(40,606) $(9,573) $(20,773)
======= ========= ======== ======== ======= ========
Net loss attributable to common stockholders per
common share, basic and diluted................. $ (2.85) $ (4.06) $ (6.03) $ (80.08) $(21.09) $ (32.91)
======= ========= ======== ======== ======= ========
Shares used in computing net loss attributable to
common stockholders per common share, basic and
diluted......................................... 557,178 4,887,230 5,454,653 507,065 453,865 631,276
Unaudited pro forma net loss attributable to
common stockholders per common share, basic and
diluted......................................... $ (1.94) $ (0.55)
Shares used in computing unaudited pro forma net
loss attributable to common stockholders per
common share, basic and diluted................. 17,799,876 21,407,651
</TABLE>
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AS OF MARCH 31, 2000
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- --------- -----------
<S> <C> <C> <C>
In thousands
BALANCE SHEET DATA
Cash, cash equivalents and marketable securities............ $ 12,295 $ 12,295 $ 86,841
Working capital (deficit)................................... (2,495) (2,495) 72,051
Total assets................................................ 13,125 13,125 87,671
Convertible notes........................................... 7,652 -- --
Redeemable convertible preferred stock...................... 86,807 -- --
Deficit accumulated during the development stage............ (115,698) (127,395) (127,395)
Total stockholders' equity (deficit)........................ (96,398) (13,636) 60,910
</TABLE>
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6
<PAGE> 9
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk and you may lose
all or part of your investment. Please read "Special Note Regarding
Forward-Looking Statements."
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 are a development stage company with no revenues to date. We have incurred
net losses since our inception, including net losses of approximately $34.7
million for the year ended December 31, 1999 and approximately $19.2 million for
the three months ended March 31, 2000. As of March 31, 2000, we had an
accumulated deficit of approximately $115.7 million. We expect to make
substantial expenditures to further develop and commercialize our products and
expect that our rate of spending will accelerate as the result of costs and
expenses associated with increased clinical trials, regulatory approval and
commercialization of products. As a result, we are unsure when we will become
profitable, if at all.
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 anticipate that our existing capital resources, together with the net
proceeds from this offering, and interest earned on such proceeds, will enable
us to maintain our current operations for at least the next 12 months. If our
existing resources and the proceeds of this offering are insufficient to satisfy
our liquidity requirements, if this offering is not completed or if we acquire
any additional product candidates, we may be required to seek additional
financing prior to that time. We intend to seek additional funding through
collaborative arrangements and private or public financings, including equity
financings. Such additional funding may not be available on acceptable terms, if
at all. If additional funds are not available to us, we may need to delay or
significantly curtail our acquisition, development or commercialization
activities.
OUR BUSINESS WILL BE VERY DEPENDENT ON THE COMMERCIAL SUCCESS OF ANGIOMAX
Other than Angiomax, our products are in clinical phases of development and are
a number of years away from entering the market. As a result, if we obtain
regulatory approval to market Angiomax, it 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.
IF WE FAIL TO OBTAIN FDA APPROVAL, WE CANNOT MARKET ANGIOMAX IN THE UNITED
STATES
We will not be able to market Angiomax in the United States until we receive the
approval of the FDA. The process of obtaining FDA approval is lengthy and
uncertain. In February 1998, the FDA accepted our filing of a new drug
application, or NDA, seeking marketing approval for Angiomax. In May 2000, we
received an approvable letter for the use of Angiomax in the treatment of
patients with unstable angina undergoing coronary balloon angioplasty. Under the
terms of the approvable letter, before the FDA will approve our NDA for
Angiomax, the manufacturing facilities for Angiomax must pass FDA inspection,
and we must comply with other conditions. These conditions include adopting
FDA-recommended modifications to the proposed labeling for Angiomax, making
changes in documents describing our manufacturing and packaging of Angiomax and
recruiting and assessing additional subjects in a study investigating the
elimination of Angiomax in individuals with reduced kidney function. We have
recruited and assessed the additional subjects for this study, and in July 2000
we submitted to the FDA our response to the approvable letter. The FDA conducted
an inspection of the Angiomax manufacturing facility in June 2000. If our
response to the approvable letter or the inspection results are
7
<PAGE> 10
unsatisfactory or if we are unable to comply with the FDA's other conditions, we
will not be able to obtain approval for Angiomax in a timely fashion, or at all.
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 are developing Angiomax for use in the treatment of ischemic heart disease.
The approvable letter we received in May 2000 covered the use of Angiomax for
the treatment of 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 indications 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, or MAA, to the European Agency
for the Evaluation of Medicinal Products, or EMEA, for use in unstable angina
patients undergoing angioplasty. Following extended interaction with European
regulatory authorities, the Committee of Proprietary Medicinal Products, or
CPMP, 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.
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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
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.
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 WILL IMPAIR OUR
ABILITY TO GROW
As part of our growth strategy, we intend to acquire and develop additional
pharmaceutical product candidates. The success of this strategy depends upon our
ability to identify, select and acquire pharmaceutical products in late-stage
development 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 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
9
<PAGE> 12
and sales resources, may compete with us for the acquisition of product
candidates. We may not be able to acquire the rights to additional product
candidates 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.
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 to 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
10
<PAGE> 13
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.
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
We do not have a product candidate approved for sale in the United States or any
foreign market except New Zealand. 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 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 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 United States
patents and a broadly filed portfolio of corresponding foreign patents and
patent applications. We have not yet filed any independent patent applications.
11
<PAGE> 14
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 that 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 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 commence commercial
sales of our products, we may wish to increase our product liability insurance,
and we will need to extend the coverage of our product liability insurance to
cover our commercial sales of Angiomax in the United States. 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.
RISKS RELATING TO THE OFFERING
OUR STOCK PRICE COULD BE VOLATILE, WHICH COULD CAUSE YOU TO LOSE PART OR ALL OF
YOUR INVESTMENT
Prior to this offering, there has been no public market for shares of our common
stock. An active trading market may not develop following completion of this
offering, and if it develops, may not be maintained. The initial public offering
price for the shares will be determined by negotiations between us and
representatives of the underwriters. This price may not be indicative of prices
that may prevail later in the market.
The market price of our common stock, like that of the common stock of many
other biotechnology companies, may be highly volatile. The stock market has
experienced extreme price and volume fluctuations. This volatility has
significantly affected the market prices of securities of many biotechnology and
pharmaceutical companies for reasons frequently unrelated, or disproportionate,
to the operating performance of the specific companies. These broad market
fluctuations may adversely affect the market price of our common stock. Factors
that may have a significant effect on the market price of our common stock
include announcements of technological innovations or new commercial products by
us or our competitors, disclosure of results of clinical testing or regulatory
proceedings, developments in patent or other proprietary rights, including as a
result of any public policy concerns and public concern as to the safety of
products developed by us.
12
<PAGE> 15
OUR OFFICERS AND DIRECTORS, AND ENTITIES WITH WHICH THEY ARE AFFILIATED, MAY BE
ABLE TO CONTROL THE OUTCOME OF MOST CORPORATE ACTIONS REQUIRING STOCKHOLDER
APPROVAL
After this offering, our directors and officers, and entities with which they
are affiliated, will beneficially own, in the aggregate, approximately 73.7% of
our outstanding common stock. Due to this concentration of ownership, these
stockholders as a group will be able to elect the directors and officers of our
company, control the management and affairs of our company and control most
matters requiring a stockholder vote, including:
- the amendment of our organizational documents; or
- the approval of any merger, consolidation, sale or assets or other major
corporate transaction.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION AND
COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK
Provisions of our certificate of incorporation and bylaws and of Delaware law
could have the effect of delaying, deferring or preventing an acquisition of our
company. For example, we have divided our board of directors into three classes
that serve staggered three-year terms, we may authorize the issuance of up to
5,000,000 shares of "blank check" preferred stock, our stockholders may not take
actions by written consent and may not call special meetings of stockholders,
and our stockholders are limited in their ability to introduce proposals at
stockholder meetings.
THERE IS A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING. THIS MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK
Sales of a substantial number of our common stock in the public market following
this offering could adversely effect the market price of our common stock by
causing the market price of our common stock to decline. This could impair our
ability to raise capital in the future through the issuance of common stock.
Within 180 days after the completion of this offering, assuming that this
offering closed on July 31, 2000, 23,324,923 shares held by existing
stockholders, which will be subject to "lock-up" agreements, will become
available for sale and approximately 427,388 shares subject to options will be
vested and exercisable and warrants to purchase 3,269,564 shares of common stock
will be exercisable. Please see "Shares Eligible for Future Sale" for a complete
description of the number of shares which will be available for future sale.
13
<PAGE> 16
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate to
future events or our future financial performance. We have attempted to identify
these statements by terminology including "anticipate," "believe," "can,"
"continue," "could," "estimate," "expect," "intend," "may," "plan," "potential,"
"predict," "should" or "will" or the negative of these terms or other comparable
terminology. These statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks and uncertainties
outlined under "Risk Factors," that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in these statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.
------------------------
You should rely on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of its delivery or of any sale of our common
stock.
14
<PAGE> 17
USE OF PROCEEDS
Our net proceeds from the sale of the 5,000,000 shares of common stock we are
offering, at an assumed initial public offering price of $15.00 per share, are
estimated to be approximately $68.5 million after deducting underwriting
discounts and estimated offering expenses payable by us. We expect to use the
net proceeds to:
- fund the commercial launch of Angiomax for use in patients with unstable
angina undergoing angioplasty and product development activities, including
additional clinical trials of Angiomax;
- fund working capital, capital expenditures and other general corporate
purposes; and
- fund the acquisition of additional products.
The amounts and timing of our actual expenditures will depend upon numerous
factors, including the status of our product development and commercialization
efforts, the amount of proceeds actually raised in this offering, the amount of
cash generated by our operations, competition and sales and marketing
activities. We may also use a portion of the proceeds for the acquisition of, or
investment in, companies, technologies or assets that complement our business.
However, we have no present understandings, commitments or agreements to enter
into any potential acquisitions or investments. Further, we have not determined
the amounts we plan to spend on any of the areas listed above or the timing of
these expenditures. As a result, our management will have broad discretion to
allocate the net proceeds from this offering. Pending application of the net
proceeds as described above, we intend to invest the net proceeds of the
offering in short-term investment grade and U.S. government securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We anticipate
that we will retain all of our future earnings, if any, for use in the expansion
and operation of our business and do not anticipate paying cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of our board of directors.
15
<PAGE> 18
CAPITALIZATION
The following table summarizes as of March 31, 2000 our cash, cash equivalents
and marketable securities and our capitalization:
- on an actual basis after giving effect to a 0.73 for 1 reverse split of all of
our outstanding shares of common stock effected on August 4, 2000;
- on a pro forma basis to reflect the conversion of the outstanding principal
amount and accrued interest on convertible notes outstanding as of March 31,
2000 in the aggregate amount of $19.7 million into an aggregate of 4,549,433
shares of series IV convertible preferred stock, which will convert into
3,321,086 shares of common stock, and the conversion of all our outstanding
convertible preferred stock and accrued dividends as of March 31, 2000 into an
aggregate of 17,544,766 shares of common stock upon the closing of this
offering; and
- on a pro forma as adjusted basis to reflect the transactions described above,
the sale of 1,411,000 shares of series IV convertible preferred stock in May
2000 and the conversion of these shares into an aggregate of 1,030,030 shares
of common stock upon the closing of this offering and the sale of 5,000,000
shares of common stock in this offering at an assumed initial public offering
price of $15.00 per share, less estimated underwriting discounts and estimated
offering expenses.
This table does not include:
- 391,132 shares of common stock issuable upon conversion of accrued dividends
on our series I convertible preferred stock, series II convertible preferred
stock and series III convertible preferred stock during the period from April
1, 2000 through July 31, 2000 which were issued on July 31, 2000;
- 61,594 shares of common stock issuable upon conversion of accrued dividends on
our series IV convertible preferred stock during the period from May 17, 2000
through July 31, 2000 which were issued on July 31, 2000;
- 1,159,355 shares of common stock issuable upon the exercise of stock options
outstanding as of March 31, 2000 at a weighted average exercise price of $1.29
per share or any stock options issued subsequent to March 31, 2000;
- 3,269,564 shares of common stock issuable upon exercise of common stock
purchase warrants outstanding as of March 31, 2000 at an exercise price of
$5.92 per share; or
- 286,866 additional shares of common stock that we could issue under our stock
plans as of March 31, 2000 or any additional shares available for grants
subsequent to March 31, 2000 under our stock plans.
This table should be read with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and accompanying notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
--------------------------------------
MARCH 31, 2000
--------------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
In thousands, except share data -------- ----------- -----------
<S> <C> <C> <C>
Cash, cash equivalents and marketable securities............ $ 12,295 $ 12,295 $ 86,841
======== ======== =========
Convertible notes........................................... $ 7,652
Preferred stock, $1.00 par value, 5,000,000 shares
authorized pro forma as adjusted; none issued pro forma as
adjusted.................................................. -- -- --
Redeemable convertible preferred stock, $1.00 par value,
31,550,000 shares authorized and 22,962,350 shares issued
and outstanding, actual; no shares issued and outstanding,
pro forma and pro forma as adjusted....................... 86,807 -- --
Stockholders' deficit:
Common Stock, $0.001 par value, 36,000,000 shares
authorized, actual and pro forma; 75,000,000 shares
authorized, pro forma as adjusted; 818,800 shares issued
and outstanding, actual; 21,684,652 shares issued and
outstanding, pro forma; and 27,714,682 shares issued and
outstanding pro forma as adjusted......................... 1 22 27
Additional paid-in capital.................................. 23,032 117,470 192,011
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
--------------------------------------
MARCH 31, 2000
--------------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
In thousands, except share data -------- --------- -----------
<S> <C> <C> <C>
Deferred stock compensation................................. (3,750) (3,750) (3,750)
Deficit accumulated during the development stage............ (115,698) (127,395) (127,395)
Accumulated other comprehensive income, principally foreign
currency translation...................................... 17 17 17
-------- -------- ---------
Total stockholders' equity (deficit).................... (96,398) (13,636) 60,910
-------- -------- ---------
Total capitalization.................................... $ (1,939) $(13,636) $ 60,910
======== ======== =========
</TABLE>
17
<PAGE> 20
DILUTION
The pro forma net tangible book deficit of our common stock on March 31, 2000
was $13.6 million and reflects the conversion of the outstanding principal
amount and accrued interest on convertible notes outstanding as of March 31,
2000 in the aggregate amount of $19.7 million into an aggregate of 4,549,433
shares of series IV convertible preferred stock and the conversion of all our
outstanding convertible preferred stock and accrued dividends as of March 31,
2000 into an aggregate of 17,544,766 shares of common stock upon the closing of
this offering. Pro forma net tangible book deficit per share was $0.63 and
represents the amount of our total tangible assets less total liabilities
divided by the number of pro forma shares of common stock outstanding.
Subsequent to March 31, 2000, we issued 1,411,000 shares of series IV
convertible preferred stock for aggregate cash proceeds of $6.1 million that
will convert into 1,030,030 shares of common stock upon the consummation of this
offering. This subsequent issuance increased our net tangible book value per
share by $0.30 assuming the conversion of the series IV convertible preferred
stock into common stock upon the closing of this offering. Dilution in pro forma
net tangible book value per share represents the difference between the amount
per share paid by purchasers of shares of common stock in this offering and the
net tangible book value per share of our common stock immediately afterwards.
Assuming the sale of 5,000,000 shares of our common stock offered by this
prospectus at an assumed initial public offering price of $15.00 per share, and
after deducting estimated underwriting discounts and estimated offering
expenses, our adjusted pro forma net tangible book value at March 31, 2000,
including the sale of the series IV convertible preferred stock in May 2000,
would have been approximately $60.9 million or approximately $2.20 per share.
This represents an immediate decrease in pro forma net tangible book value of
$12.80 per share to new investors purchasing shares of common stock in this
offering. The following table illustrates this dilution on a per share basis.
<TABLE>
<CAPTION>
----------------
<S> <C> <C>
Assumed initial public offering price per share............. $15.00
Pro forma net tangible book deficit per share as of March
31, 2000............................................... $(0.63)
Increase per share attributable to sale of series IV
convertible preferred stock in May 2000 for cash....... 0.30
Increase per share attributable to new investors.......... 2.53
Adjusted pro forma net tangible book value per share after
the offering.............................................. 2.20
------
Dilution per share to new investors......................... $12.80
======
</TABLE>
The foregoing discussion and table assume no exercise of any outstanding stock
options or warrants. The exercise of all options and warrants outstanding as of
the date of this prospectus having an exercise price less than the initial
public offering price would decrease the dilutive effect to new investors to
$12.33 per share.
The following table summarizes, on a pro forma basis, as of March 31, 2000, the
differences between the number of shares of common stock purchased from us, the
total consideration paid and the average price per share paid by existing
stockholders, the shares of series IV convertible preferred stock sold in May
2000 and by the new investors purchasing shares in this offering. We have
assumed an initial public offering price of $15.00 per share, and we have not
deducted estimated underwriting discounts and estimated offering expenses in our
calculations.
<TABLE>
<CAPTION>
-------------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......................... 21,684,652 78.2% $113,742,000 58.4% $ 5.25
Series IV convertible preferred stock sold in
May 2000.................................... 1,030,030 3.7% 6,096,000 3.1% $ 5.92
---------- ----- ------------ ----- ------
22,714,682 81.9% 119,838,000 61.5%
New investors................................. 5,000,000 18.1% 75,000,000 38.5% $15.00
---------- ----- ------------ -----
Total......................................... 27,714,682 100.0% $194,838,000 100.0%
========== ===== ============ =====
</TABLE>
The pro forma number of shares of common stock outstanding in the table above is
based on the pro forma number of shares outstanding as of March 31, 2000 and
excludes:
- 1,159,355 shares of common stock issuable upon exercise of options
outstanding as of March 31, 2000 at a weighted average exercise price of
$1.29 per share; and
- 3,269,564 shares of common stock issuable upon exercise of warrants at a
weighted average exercise price of $5.92 per share.
18
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, we provide you with our selected consolidated financial
data. We have prepared this information using our audited consolidated financial
statements for the period July 31, 1996 (date of inception) to December 31, 1996
and for the years ended December 31, 1997, 1998 and 1999 and our unaudited
consolidated financial statements for the three months ended March 31, 1999 and
2000. The consolidated financial statements for each of the three years in the
period ended December 31, 1999 which are included in this prospectus have been
audited by Ernst & Young LLP, independent auditors. The consolidated financial
statements for the period July 31, 1996 (date of inception) to December 31, 1996
which are not included in this prospectus have been audited by Ernst & Young
LLP, independent auditors. The consolidated statements of operations data for
the three months ended March 31, 1999 and 2000 and the consolidated balance
sheet data as of March 31, 2000 have been derived from our unaudited
consolidated financial statements that appear elsewhere in this prospectus. The
unaudited consolidated financial statements include all adjustments, consisting
of normal recurring accruals, which we consider necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the three months ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the full year.
The pro forma net loss per share data reflects the conversion of our convertible
notes and accrued interest as of March 31, 2000 and the conversion of our
outstanding convertible preferred stock and accrued dividends as of March 31,
2000. The pro forma net loss per share data does not include the conversion of
1,411,000 shares of series IV convertible preferred stock sold on May 17, 2000
or the effect of any options or warrants outstanding. The following data should
be read in conjunction with our consolidated financial statements, including the
accompanying notes, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
PERIOD FROM
INCEPTION
(JULY 31, 1996) THREE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, ---------------------------------- --------------------
1996 1997 1998 1999 1999 2000
--------------- --------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
In thousands, except share and per share data
STATEMENTS OF OPERATIONS DATA
Operating expenses
Research and development................... $ 827 $ 16,044 $24,005 $ 30,345 $ 7,207 $ 10,642
General and administrative................. 702 2,421 6,248 5,008 1,276 1,198
------- -------- -------- -------- ------- --------
Total operating expenses............ 1,529 18,465 30,253 35,353 8,483 11,840
------- -------- -------- -------- ------- --------
Loss from operations......................... (1,529) (18,465) (30,253) (35,353) (8,483) (11,840)
Interest income (expense), net............... 62 659 1,302 640 346 (7,403)
------- -------- -------- -------- ------- --------
Net loss..................................... (1,467) (17,806) (28,951) (34,713) (8,137) (19,243)
Dividends and accretion to redemption value
of redeemable convertible preferred
stock...................................... (118) (2,018) (3,959) (5,893) (1,436) (1,530)
------- -------- -------- -------- ------- --------
Net loss attributable to common
stockholders............................... $(1,585) $(19,824) $(32,910) $(40,606) $(9,573) $(20,773)
======= ======== ======== ======== ======= ========
Net loss attributable to common stockholders
per common share, basic and diluted........ $ (2.85) $ (4.06) $ (6.03) $ (80.08) $(21.09) $ (32.91)
======= ======== ======== ======== ======= ========
Shares used in computing net loss
attributable to common stockholders per
common share, basic and diluted............ 557,178 4,887,230 5,454,653 507,065 453,865 631,276
Unaudited pro forma net loss attributable to
common stockholders per common share, basic
and diluted................................ $ (1.94) $ (0.55)
Shares used in computing unaudited pro forma
net loss attributable to common
stockholders per common share, basic and
diluted.................................... 17,799,876 21,407,651
</TABLE>
<TABLE>
-------------------------------------------------------
AS OF DECEMBER 31, AS OF
------------------------------------------- MARCH 31,
1996 1997 1998 1999 2000
------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
In thousands
BALANCE SHEET DATA
Cash, cash equivalents and marketable securities.......... $ 3,421 $ 25,376 $ 28,341 $ 7,183 $ 12,295
Working capital (deficit)................................. 3,174 18,779 24,570 (4,103) (2,495)
Total assets.............................................. 3,473 25,595 29,831 7,991 13,125
Convertible notes......................................... -- -- -- 5,776 7,652
Redeemable convertible preferred stock.................... 4,793 40,306 79,384 85,277 86,807
Deficit accumulated during the development stage.......... (1,585) (21,409) (54,319) (94,925) (115,698)
Total stockholders' deficit............................... (1,582) (21,387) (54,266) (94,558) (96,398)
</TABLE>
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read with "Selected Consolidated
Financial Data" and our consolidated financial statements and notes included
elsewhere in this prospectus.
OVERVIEW
We acquire, develop and commercialize biopharmaceutical products in late stages
of development. We plan to begin selling our first product, Angiomax, in the
United States within the next 12 months, if approved by the FDA, for use as an
anticoagulant in the treatment of patients with unstable angina undergoing
coronary angioplasty. We plan to build a commercial biopharmaceutical operation
by acquiring, developing and commercializing late-stage product candidates. We
expect Angiomax, if approved by the FDA, to become the cornerstone product of a
critical care franchise.
Since our inception, we have incurred significant losses and, as of March 31,
2000, had a deficit accumulated during the development stage of $115.7 million.
Substantially all of our expenditures to date have been for research and
development activities and 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 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.
General and administrative expenses consist primarily of salaries and related
expenses, general corporate activities and costs associated with initial product
marketing activities.
We expect to continue to incur operating losses during fiscal 2000 and for the
foreseeable future due to research and development activities attributable to
new and existing products, and costs associated with the commercialization and
launch of our products. We will need to generate significant revenues to achieve
and maintain profitability. To date, we have had no revenues from any product
sales, and we have not achieved profitability on a quarterly or annual basis.
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 Angiomax
sales 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 paid $200,000 and are obligated to pay up to an additional
$300,000 upon reaching certain development and regulatory milestones and to fund
agreed-upon operational costs of GyneLogix 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 of approximately $3.9 million on the grant of stock options
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. In
the period April 1, 2000 to July 31, 2000, the Company granted 1,541,315 stock
options, with exercise prices ranging from $3.08 to $5.92, which were below the
estimated fair market value of the common stock as of the date of the grant
based on the estimated price of the Company's common stock in connection with
the Company's planned initial public offering. The total deferred compensation
associated with these options is approximately $13.4 million. These amounts are
being amortized over the respective vesting periods of the individual stock
options. We recorded amortization expense for deferred compensation of
approximately $150,000 in the three months ended
20
<PAGE> 23
March 31, 2000 and expect to record amortization expense for deferred
compensation of approximately $470,000 for the three months ended June 30, 2000.
We expect to record amortization expense for deferred compensation as follows:
approximately $3.0 million for the second half of 2000, approximately $4.3
million for 2001, approximately $4.0 million for 2002, approximately $3.9
million for 2003 and approximately $1.5 million for 2004.
In May 2000, we sold shares of series IV convertible preferred stock. These
shares contained a beneficial conversion feature based on the estimated fair
market value as of the date of such sale of the common stock into which such
shares are convertible. The total amount of such beneficial conversion is
approximately $25.5 million and will be reflected as a dividend in the period of
issuance, the second quarter of 2000. Additionally, in the second quarter of
2000, we expect to record approximately $14.7 million, the remaining discount
associated with our convertible notes, as interest expense.
We have not generated taxable income to date. At December 31, 1999, net
operating losses available to offset future taxable income for federal income
tax purposes were approximately $77.9 million. Our federal net operating losses
carryforwards expire at various dates beginning in 2011 through 2019 if not
utilized. 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 losses carryforwards may be limited pursuant to Internal Revenue Code
regulations.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
Research and Development Expenses. Research and development expenses increased
48% from $7.2 million in the first three months of fiscal 1999 to $10.6 million
in the first three months of fiscal 2000. The increase in research and
development of $3.4 million was due to the completion of UCB Bioproduct's
manufacture of $6.5 million of Angiomax bulk drug substance and the increased
enrollment rate of our Angiomax HERO-2 Phase 3 clinical trial in acute
myocardial infarction, or AMI, which was offset by a reduction in development
expenses resulting from our termination of the semilog manufacturing development
program with Lonza AG.
General and Administrative Expenses. General and administrative expenses
decreased 6% from $1.3 million in the first three months of fiscal 1999 to $1.2
million in the first three months of fiscal 2000. The decrease was primarily due
to a decrease in marketing expenses.
Interest Income and Interest Expense. Interest income decreased from $346,178 in
the first three months of fiscal 1999 to $103,835 in the first three months of
fiscal 2000 due to a lower level of cash and marketable securities available for
investment during the first three months of fiscal 2000 as compared to the same
period in the prior year. Interest expense was $7.5 million in the first three
months of fiscal 2000 and related to interest expense and amortization of the
discount on our convertible promissory notes issued in October 1999 and March
2000 in the aggregate principal amount of $19.3 million.
Years Ended December 31, 1999 and 1998
Research and Development Expenses. Research and development expenses increased
26% from $24.0 million in 1998 to $30.3 million in 1999. The increase of $6.3
million was due to the expansion in 1999 of our clinical development programs,
primarily those relating to our Angiomax HERO-2 Phase 3 clinical trial in AMI
which commenced in late 1998, our IS-159 development program and our Angiomax
trials in angioplasty.
General and Administrative Expenses. General and administrative expenses
decreased 20% from $6.2 million in 1998 to $5.0 million in 1999. The decrease of
$1.2 million was primarily due to a decrease in Angiomax-related marketing
expenses.
Interest Income and Interest Expense. Interest income decreased 36% from $1.3
million in 1998 to $837,839 in 1999 due to a lower level of cash and marketable
securities available for investment during 1999 as compared to 1998. Interest
expense was $197,455 in 1999 and related to interest expense and amortization of
the discount on our convertible notes issued in the aggregate principal amount
of $6.0 million in October 1999.
21
<PAGE> 24
Years Ended December 31, 1998 and 1997
Research and Development Expenses. Research and development expenses increased
50% from $16.0 million in 1997 to $24.0 million in 1998. The increase of $8.0
million was due to increased activity under our Angiomax manufacturing
development programs, the expansion of our clinical programs, primarily
resulting from the establishment and initiation of our Angiomax HERO-2 Phase 3
clinical trial in AMI which commenced in late 1998, and initiation of our IS-159
development program.
General and Administrative Expenses. General and administrative expenses
increased 158% from $2.4 million in 1997 to $6.2 million in 1998. The increase
of $3.8 million was due to the commencement of Angiomax-related marketing
activities.
Interest Income. Interest income increased 89% from $688,049 in 1997 to $1.3
million in 1998 due to a higher level of cash and marketable securities
available for investment during 1998 as compared to 1997.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception primarily through private
placement of equity, convertible debt securities and warrants. As of March 31,
2000, we have received net proceeds of $73.3 million from the issuance of equity
securities, primarily redeemable convertible preferred stock, and $19.3 million
from the issuance of convertible notes and warrants. In May 2000, we received an
additional $6.1 million from the sale of series IV convertible preferred stock.
In May 2000, stockholders which beneficially owned, in the aggregate,
approximately 89.9% of our outstanding common stock also provided letters to
Ernst & Young LLP stating they are committed to invest up to $15.2 million to
assist us in meeting our cash flow requirements over the next 12 months if
required. The terms of these letters do not address the form of investment to be
made by these stockholders. The commitments under these letters will terminate
upon the closing of this offering, and we do not expect these stockholders to
invest any funds pursuant to these letters if this offering is consummated.
As of March 31, 2000, we had $12.3 million in cash, cash equivalents and
marketable securities, as compared to $28.3 million and $7.2 million as of
December 31, 1998 and 1999, respectively.
For the three months ended March 31, 2000, we used net cash of $8.2 million in
operating activities. This consisted of a net loss for the period of $19.2
million, offset by an increase in accounts payable and accrued expenses of $3.6
million and non-cash amortization of discount on convertible notes of $7.3
million. We received $518,200 from investing activities for the three months
ended March 31, 2000, which consisted principally of net proceeds from the
maturity of marketable securities. We received $13.3 million from financing
activities relating to the issuance of convertible notes and warrants to
purchase common stock during the three months ended March 31, 2000.
During 1999, we placed an order with UCB Bioproducts for the manufacture of
Angiomax bulk drug substance. Under the terms of this purchase order, we are
scheduled to receive material and make payments totaling $13.0 million in fiscal
2000. Manufacture of $6.5 million of this material was completed in March 2000.
All costs associated with the manufacture of Angiomax bulk drug substance and
finished products will be expensed until FDA approval of Angiomax.
We expect to devote substantial resources to continue our research and
development efforts and to expand our sales, marketing and manufacturing
programs associated with the commercialization and launch of our products. Our
funding requirements will depend on numerous factors, including the progress,
level and timing of our research and development activities, the cost, timing
and outcomes of regulatory reviews, the establishment, 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 that our current cash, cash equivalents and marketable securities,
together with the net proceeds of this offering, will be sufficient to fund our
operations for at least 12 months. If our existing resources and the proceeds of
this offering are insufficient to satisfy our liquidity requirements, if this
offering is not completed 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 can not 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.
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<PAGE> 25
DISCLOSURE 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. Due to
the short term nature of our investments, we do not believe that we have any
material exposure to interest rate risk arising from our investments.
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.
23
<PAGE> 26
BUSINESS
OVERVIEW
We acquire, develop and commercialize biopharmaceutical products in late stages
of development. In May 2000, we received an approvable letter from the FDA for
our first product, Angiomax, for use in the treatment of 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. If approved by the FDA, we plan to begin selling Angiomax in the United
States within the next 12 months for use in angioplasty.
We are also developing Angiomax for additional potential applications for use in
the treatment of ischemic heart disease. To date, clinical investigators have
administered Angiomax to over 8,500 patients in clinical trials in the treatment
and prevention of blood clots in a wide range of hospital applications. We
believe that Angiomax will become the leading replacement for heparin in
hospital care. In the United States, heparin is the most widely-used acute
anticoagulant and is used to treat approximately five million hospitalized
patients per year.
Under the terms of the Angiomax approvable letter, before the FDA will approve
our NDA for Angiomax, the manufacturing facilities for Angiomax must pass FDA
inspection, and we must comply with other conditions. These conditions include
adopting FDA-recommended modifications to the proposed labeling for Angiomax,
making changes in documents describing our manufacturing and packaging of
Angiomax and recruiting and assessing additional subjects in a study
investigating the elimination of Angiomax in individuals with reduced kidney
function. We have recruited and assessed the additional subjects for this study,
and in July 2000 we submitted to the FDA our response to the approvable letter.
The FDA conducted an inspection of the Angiomax manufacturing facility in June
2000.
Angiomax directly blocks or inhibits the actions of thrombin, a key component in
the formation and growth of blood clots. By blocking thrombin directly, rather
than indirectly like heparin, Angiomax inhibits the actions of thrombin both in
the clot and in the blood. Angiomax's inhibition of thrombin is reversible,
which means that its thrombin-blocking effect wears off over time, allowing
thrombin to again work in the clotting process. This reversibility is associated
with a reduced risk of bleeding.
In the clinical trials in angioplasty, Angiomax has:
- reduced the frequency of life-threatening coronary events including heart
attack and the need for emergency coronary procedures;
- reduced the likelihood of major bleeding and the need for blood transfusion;
and
- demonstrated a predictable anticoagulant response to a specific Angiomax dose,
which enables simplified dosing.
Our strategy is to build a commercial biopharmaceutical operation by acquiring,
developing and commercializing product candidates. We will actively manage the
development and commercialization of these product candidates. Our principal
objectives include:
- launching Angiomax for use in patients with unstable angina undergoing
angioplasty;
- developing and commercializing Angiomax as the leading replacement for heparin
for use in the treatment of ischemic heart disease;
- acquiring products with (1) existing clinical data which provides reasonable
evidence of safety and efficacy, (2) an anticipated time to market of four
years or less and (3) potential cost savings to payors or improved efficiency
of patient care; and
- making the best use of our resources through our relationships with contract
development, manufacturing and sales companies.
We intend to market our products in the United States by contracting with
external organizations, which we would manage, or by collaborating with other
biopharmaceutical companies.
ANGIOMAX
In May 2000, we received an approvable letter from the FDA for the use of
Angiomax for the treatment of patients with unstable angina undergoing coronary
balloon angioplasty. If we satisfy the conditions of the approvable letter and
receive
24
<PAGE> 27
final approval from the FDA on a timely basis, we expect to begin selling
Angiomax in the United States within the next 12 months. In September 1999,
Angiomax was approved in New Zealand for use in the treatment of patients
undergoing coronary balloon angioplasty.
We believe Angiomax will be a valuable replacement to heparin, an anticoagulant
used in almost all angioplasty procedures performed in the United States and
administered to a majority of patients treated in hospitals in the United States
for acute coronary syndromes, including heart attack. To date, clinical
investigators have administered Angiomax to over 8,500 patients in clinical
trials for the treatment and prevention of blood clots in a wide range of
hospital applications. In clinical trials in angioplasty, use of Angiomax has
resulted in fewer life-threatening coronary events and fewer bleeding events,
including the need for blood transfusion. The therapeutic effect of Angiomax is
more predictable than heparin, which enables simplified dosing. Angiomax's
therapeutic benefit is strongest in high-risk patients who have previously
experienced a heart attack or unstable angina.
We believe that Angiomax has additional potential applications for the treatment
of ischemic heart disease. We currently:
- have a 17,000 patient Phase 3 trial program underway studying the use of
Angiomax for the treatment of patients who have suffered a heart attack,
otherwise known as AMI;
- have a Phase 3 trial program in progress to study the use of Angiomax in the
treatment of patients undergoing angioplasty who experience reduced platelet
count and clotting due to an immunological reaction to heparin, known as
heparin-induced thrombocytopenia and heparin-induced thrombocytopenia and
thrombosis syndrome, or HIT/HITTS; and
- plan to commence a Phase 3 trial program to study the use of Angiomax in
patients with unstable angina, a condition in which patients experience the
new onset of severe chest pain, increasingly frequent chest pain or chest pain
that occurs while they are at rest.
Background
Clotting. Normally, blood loss at the site of an injury is limited by the
formation of blood clots. In general, clotting serves a life-saving function by
reducing bleeding, but sometimes unwanted clots in arteries can lead to heart
attack, stroke or organ failure. A blood clot is a collection of cross-linked
strands of a protein called fibrin that forms a mesh around activated platelets
and red blood cells. Blood clots are formed through precisely regulated
interactions among the blood vessel wall, plasma clotting factors, including
thrombin and fibrinogen, and platelets.
The trigger for the clotting process in an artery is typically a tearing or
spontaneous rupture which exposes cholesterol and fat deposited on a blood
vessel wall to the bloodstream. This may happen without an apparent cause or may
be caused as a direct result of, for example, an angioplasty procedure. In
parallel, the clotting factor, thrombin, is activated, and a thin protective
layer of platelets is deposited at the rupture site. Thrombin and platelets
interact, and thrombin formation, fibrin formation and platelet clumping take
place. A full-blown clot may form rapidly as clot blocks the blood vessel and
may then cut off blood supply to the heart muscle. If this occurs, the muscle
stops working either in part, which is a heart attack, or myocardial infarction,
or completely, which may lead to cardiac arrest as the heart stops beating. This
may result in irreversible damage to the heart or death.
During medical procedures such as coronary angioplasty, the blood clotting
process must be slowed to avoid unwanted clotting in the coronary artery, and
the potential growth or movement of a clot along blood vessels to new sites.
The trigger for clotting in veins is usually slower than that in arteries. In
general, venous clots are caused by slow blood flow, which typically occurs when
patients are immobilized, such as after surgery and during pregnancy, or when
patients experience changes in the blood as a result of diseases such as cancer.
When a clot develops in large, deep veins, which return blood to the heart by
way of the lungs, this condition is referred to as deep vein thrombosis. In some
cases of deep vein thrombosis, part of the clot may break off and move to the
lungs with potentially fatal results.
Anticoagulation Therapy. Anticoagulation therapy attempts to modify actions of
the components in the blood system that cause clot-forming factors leading to
blood clots. The most important approach to the prevention and management of
arterial and venous clots is diet and exercise. When the risks of clot formation
cannot be avoided, or when medical procedures such as angioplasty almost
guarantee some degree of increased risk of clots, anticoagulation therapy is
indicated. Anticoagulation therapy involves the use of drugs to inhibit one or
more components of the clotting process, thereby reducing the risk of clots.
Anticoagulation therapy is usually started immediately after a diagnosis of
blood clots or after risk factors for clotting are identified. Because
anticoagulation therapy reduces clotting, it also may cause excessive bleeding.
25
<PAGE> 28
THE CLOTTING PROCESS AND TARGETS FOR ANTICOAGULATION THERAPY
[CHART SHOWING BLOOD CLOTTING MECHANISM]
To date, three principal components of the clotting process, thrombin, fibrin
and platelets, have been targeted for anticoagulation therapy:
- The actions of thrombin in the clotting process may be inhibited by indirect
thrombin inhibitors, such as heparin, which act to turn off coagulation
factors and turn on natural anti-clotting factors such as antithrombin-III, or
AT-III. The actions of thrombin in the clotting process also may be inhibited
by direct thrombin inhibitors, which act directly on thrombin.
- Fibrin may be dissolved after clotting has occurred by products called
fibrinolytics.
- The aggregation of platelets in the clotting process may be inhibited by
products called platelet inhibitors, which act on different pathways,
including specific enzyme pathways like the cyclo-oxygenase and the adenosine
diphosphate, or ADP, pathways and surface sites like the glycoprotein
IIb/IIIa, or GP IIb/IIIa, receptor.
Drugs are currently used alone or in combination with other anticoagulant drugs
to target one or more components of the clotting process. These drugs have
anticoagulant effects but also increase the patient's risk of bleeding. Excess
bleeding is often a risk associated with these drugs due to the high doses
needed to produce anticoagulant effects. In order to reduce this risk,
physicians increasingly use combinations of drugs targeted at different
components of the clotting process at lower doses, which reduce the risk of
thrombosis while minimizing the risk of bleeding.
Indirect Thrombin Inhibitors. In the hospital environment, most patients
undergoing anticoagulation therapy for the prevention and treatment of arterial
and venous thrombosis receive heparin or low molecular weight heparin. In the
United States, approximately five million patients annually receive heparin.
Heparin is a standard component of acute anticoagulation therapy because of the
central role of thrombin in clotting and heparin's rapid anticoagulant effect.
26
<PAGE> 29
Heparin's properties as an anticoagulant were discovered in 1916. It is prepared
from the intestines of pigs or cows. Heparin is a complex mixture of
animal-derived sugars with variable anticoagulant potencies. The anticoagulant
effects of heparin on any given patient are difficult to predict because heparin
binds non-specifically to human cells and circulating substances in the blood.
For these and other reasons, heparin, as a non-specific, indirect thrombin
inhibitor, presents a variety of clinical challenges including:
- Weak effect in clots. Because it is an indirect thrombin inhibitor, heparin
is ineffective on thrombin when clots have formed.
- Risk of bleeding. Patients who receive heparin have a high incidence of
bleeding. This is particularly the case with patients who are elderly, female
or underweight. Recent clinical trials have shown that bleeding risk may also
be increased when heparin is used in combination with intravenous platelet
inhibitors.
- Unpredictability. The anticoagulant effect of a given dose of heparin is
unpredictable and therefore requires close monitoring.
- Adverse reaction risk. Heparin can cause HIT/HITTS, a dangerous immunological
reaction.
- Diminished effect in sick patients. Heparin's effect may be reduced in the
presence of blood factors found in patients stressed by disease, such as heart
attack patients.
- Requires other factors for effect. Heparin can only bind to thrombin by first
binding to a blood factor called antithrombin-III, which may be absent or
present in insufficient amounts in some patients.
Physicians are increasingly using low molecular weight heparins as an
alternative to heparin, especially as chronic therapy. In contrast to heparin,
low molecular weight heparins tend to be more specific in their effect and may
be administered once or twice daily by subcutaneous injection on an outpatient
basis. Despite these advantages, low molecular weight heparins exhibit similar
clinical challenges to those of heparin, including a weak effect in clot that
has already formed and a comparable risk of bleeding. In addition, clinicians
are currently unable to monitor the anticoagulant effects of low molecular
weight heparins, making their use in angioplasty problematic.
Angiomax Potential Advantages
Angiomax is a peptide of 20 amino acids that is a quick-acting, direct and
specific inhibitor of thrombin and is administered by intravenous injection.
Angiomax is specific in that it only binds to thrombin and does not bind to any
other blood factors or cells.
Angiomax was engineered based on the biochemical structure of hirudin, a natural
65-amino acid protein anticoagulant. However, Angiomax is reversible while
hirudin is not. This reversibility is associated with a reduced risk of
bleeding.
Angiomax has numerous clinical advantages over heparin including:
- Effective in clots. Angiomax, as a direct thrombin inhibitor, is equally
effective on thrombin in the clot as well as thrombin circulating in the
blood;
- Reduced bleeding risk. As a reversible thrombin inhibitor, Angiomax has
consistently shown clinically meaningful reductions in bleeding as compared to
heparin;
- Predictability. A specified dose of Angiomax results in a predictable level
of anticoagulation;
- Diminished adverse reaction risk. To date, Angiomax has not caused dangerous
immunological reactions in clinical trials;
- Effective in sick patients. Angiomax is effective even in the presence of
blood factors found in patients stressed by disease, for example heart attack
patients; and
- Independent of other factors for effect. Unlike heparin, Angiomax's effect
does not require the presence of antithrombin-III or any other factors to act
on thrombin.
Angiomax Potential Applications
We believe that Angiomax will become the leading replacement for heparin in
acute cardiovascular care. We plan to commercialize Angiomax first for use in
patients undergoing coronary angioplasty. In addition, we are developing
Angiomax for use as an alternative to heparin for the treatment of acute
coronary syndromes, with a Phase 3 trial underway in AMI, a
27
<PAGE> 30
Phase 3 trial program underway in HIT/HITTS and a Phase 3 trial planned in
patients with unstable angina. Our development plan is designed to highlight the
clinical benefits of Angiomax initially in broad patient populations treated
with heparin at high risk of clots or bleeding. We are also investigating other
applications of Angiomax as an acute care product.
ANGIOMAX DEVELOPMENT PROGRAMS
[GRAPH DEPICTING CLINICAL
STATUS OF OUR PRODUCTS AND POTENTIAL INDICATIONS]
Use of Angiomax in Angioplasty
Angioplasty. Angioplasty is a procedure involving the inflation of a balloon or
deployment of a stent or other device inside an obstructed artery to restore
normal blood flow. The coronary angioplasty procedure itself increases the risk
of coronary clotting potentially leading to myocardial infarction, or MI, urgent
revascularization through repeat angioplasty or coronary artery bypass graft
surgery, or CABG, or death.
Based on the most recently available hospital discharge data, in the United
States, there were approximately 686,000 inpatient angioplasty procedures
performed in 1997 and approximately 55,000 outpatient angioplasty procedures
performed in 1996. We believe approximately one half of patients undergoing
angioplasty in an inpatient hospital setting were admitted through the emergency
room and may be categorized as high risk. Many of these high-risk patients have
previously experienced a heart attack or have unstable angina.
To prevent clotting, anticoagulation therapy is routinely administered to
patients undergoing angioplasty. Heparin is currently used as an anticoagulant
in virtually all patients undergoing angioplasty. In addition, platelet
inhibitors such as aspirin, an ADP inhibitor or a GP IIb/IIIa inhibitor are
often administered.
A segment of patients undergoing angioplasty and receiving anticoagulation
therapy are at risk of significant bleeding. For example, the risk is greater
for patients who are elderly, female or underweight.
Angiomax Clinical Experience in Angioplasty. To date, we and the licensor of
Angiomax, Biogen, have conducted clinical trials of Angiomax in over 5,000
patients undergoing angioplasty. These trials have shown that Angiomax is a
predictable anticoagulant, which can be used in combination with other therapies
and which results in fewer adverse clinical events when compared to heparin.
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<PAGE> 31
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
ANGIOPLASTY TRIALS OF ANGIOMAX
--------------------------------------------------------------------------------------------------------
LEAD INVESTIGATORS COMPLETED PATIENTS PHASE TRIAL/STUDY DESCRIPTION
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E. Topol 1992 291 2 Angiomax dose-ranging trial
--------------------------------------------------------------------------------------------------------
J. Bittl 1994 4,312 3 Pivotal angioplasty trials comparing
Angiomax with high dose heparin in
unstable angina patients
--------------------------------------------------------------------------------------------------------
M. Abernathy, 1999 30 3 Interaction study of Angiomax with
P. Aylward Ticlid
--------------------------------------------------------------------------------------------------------
L. Wallentin 1999 40 3 Trial comparing Angiomax with heparin
in patients switched from low
molecular weight heparin
--------------------------------------------------------------------------------------------------------
H. White, P. Aylward 2000 26 3 Trial of Angiomax dosing in patients
with normal to moderately impaired
kidney function
--------------------------------------------------------------------------------------------------------
R. Robson 2000 8 3 Trial of Angiomax dosing in patients
with severely impaired kidney function
--------------------------------------------------------------------------------------------------------
N. Kleiman Ongoing 40 3b Interaction study of Angiomax with
Integrilin
--------------------------------------------------------------------------------------------------------
E. Topol, N. Kleiman, 1999 60 3 CACHET-A trial comparing Angiomax with
A.M. Lincoff, heparin in full-dose ReoPro patients
R. Harrington
--------------------------------------------------------------------------------------------------------
E. Topol, N. Kleiman, 2000 210 3 CACHET-B/C trial comparing Angiomax
A. M. Lincoff, with ReoPro plus heparin in broad
R. Harrington patient group
--------------------------------------------------------------------------------------------------------
R. Califf, K. Mahaffey Ongoing 12 3 Study of Angiomax in HIT/HITTS
patients
--------------------------------------------------------------------------------------------------------
J. Ormiston 2000 49 3b Angiomax single intravenous dose trial
--------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 32
Phase 3 Pivotal Trials in Angioplasty. Two similar, randomized double blind
clinical trials compared the use of Angiomax to heparin in a total of 4,312
patients with unstable angina undergoing coronary balloon angioplasty. High
doses of heparin were used in the trials. When measured seven days after
treatment in the hospital, in comparison to heparin-treated patients in the
trials, Angiomax-treated patients experienced:
- 43% fewer clinical events as measured by death, MI, revascularization
procedures or major bleeding;
- 22% fewer ischemic events as measured by death, revascularization or MI; and
- 62% or 65% less bleeding, as measured by a protocol-defined end point of major
bleeding or the transfusion of two or more units of blood, respectively.
The following table summarizes the combined clinical results for all unstable
angina patients in the pivotal Phase 3 angioplasty trials.
<TABLE>
<CAPTION>
--------------------------------------------------
PERCENTAGE
REDUCTION
IN ADVERSE
ANGIOMAX HEPARIN CLINICAL EVENTS P-VALUE*
-------- ------- --------------- --------
<S> <C> <C> <C> <C>
Number of patients......................................... 2,161 2,151
In hospital up to 7 days
Death, MI, revascularization or major bleeding........... 8.3% 14.5% 43% <0.001
Death, MI or revascularization........................... 6.2% 7.9% 22% 0.039
Major bleeding........................................... 3.5% 9.3% 62% <0.001
Transfusion.............................................. 2.0% 5.7% 65% <0.001
At 90 days
Death, MI or revascularization........................... 15.7% 18.5% 15% 0.012
</TABLE>
---------------
* The statistical significance of clinical results is determined by a
widely-used statistical method that establishes the p-value of clinical
results. For example, a p-value of less than 0.01 (p<0.01) means that the
chance of the clinical results occurring by accident is less than 1 in 100.
The trials included a prospectively defined and separately stratified group of
741 patients, who had experienced an MI during the two weeks prior to
angioplasty. The benefits of Angiomax as a direct thrombin inhibitor, compared
to heparin as an indirect thrombin inhibitor, were more pronounced for this
group of 741 patients who had experienced an MI during the two weeks prior to
angioplasty. When measured seven days after treatment in the hospital, the
Angiomax-treated patients experienced the following benefits:
- 64% fewer clinical events as measured by death, MI, revascularization
procedures or major bleeding;
- 51% fewer ischemic events as measured by death, revascularization or MI; and
- 76% or 80% less bleeding, as measured by a protocol-defined major bleeding or
as measured by a transfusion of two or more units of blood.
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<PAGE> 33
The following table summarizes the combined clinical results of the group of
patients who had experienced a heart attack or MI during the two weeks prior to
angioplasty in the pivotal Phase 3 angioplasty trials.
<TABLE>
<CAPTION>
--------------------------------------------------
PERCENTAGE
REDUCTION
IN ADVERSE
ANGIOMAX HEPARIN CLINICAL EVENTS P-VALUE
-------- ------- --------------- --------
<S> <C> <C> <C> <C>
Number of patients......................................... 369 372
In hospital up to 7 days
Death, MI, revascularization or major bleeding........... 6.5% 18.3% 64% <0.001
Death, MI or revascularization........................... 4.9% 9.9% 51% 0.009
Major bleeding........................................... 2.4% 11.8% 80% <0.001
Transfusion.............................................. 1.6% 6.7% 76% <0.001
At 90 days
Death, MI or revascularization........................... 11.7% 20.2% 42% <0.003
</TABLE>
Recent trends in interventional cardiology have resulted in heparin doses lower
than those used in the Angiomax pivotal Phase 3 trials in angioplasty. We
believe that this trend has been encouraged by the increasing combined use of
platelet inhibitors and heparin in angioplasty. In most recent major angioplasty
trials with GP IIb/IIIa inhibitors, lower heparin doses were used than in the
Angiomax pivotal Phase 3 trials.
Heparin Dosing in Pivotal Phase 3 Angioplasty Trial. Analyses of data from a
wide array of recent angioplasty trials show that the bleeding rates for the
heparin patients in our trials were not higher than the bleeding rates for other
trials where lower doses of heparin were used. Ischemic event rates for patients
in the Angiomax pivotal Phase 3 trials were lower than for patients receiving
lower doses of heparin without a GP IIb/IIIa inhibitor in other clinical
studies.
CACHET-B/C Trials in Angioplasty. In February 2000, we completed the CACHET-B/C
study, a 210 patient randomized, multicenter study, in angioplasty. The trial
analyzed the use of Angiomax versus low-dose heparin. All heparin patients also
received ReoPro. Although Angiomax patients could receive ReoPro under certain
circumstances, physicians in the trial opted not to use ReoPro in 76% of the
Angiomax patients.
The CACHET-B/C patient study population was broader than in earlier Angiomax
trials, targeting lower risk patients undergoing angioplasty with expected
stenting. Heparin and Angiomax doses were designed to achieve similar levels of
anticoagulation. Aspirin with Ticlid or Plavix was used in most patients. As in
previous trials, Angiomax provided predictable levels of dose response
anticoagulation.
The combined incidence of death, MI, revascularization or major bleeding
reported within seven days was 3.5% in Angiomax patients and 14.3% in heparin
and ReoPro patients with a p-value of 0.013.
Low platelet count, or thrombocytopenia, was significantly less frequent among
Angiomax patients than among heparin/ Reopro patients with a p-value of 0.012.
Other adverse events occurred with similar frequency in both groups. Angiomax
showed no apparent pharmacological interaction with ReoPro.
The results of the CACHET-B/C study provides more support for the use of
Angiomax as a foundation anticoagulant for angioplasty. In this study, Angiomax
demonstrated predictable reversible anticoagulation and improved net clinical
benefit over heparin. In addition, by decreasing major bleeds and reducing the
need for revascularization and drug costs, we believe substantial cost savings
are possible for hospitals on average for patients treated with Angiomax.
Angiomax Commercialization Plans for Angioplasty. If approved for angioplasty,
we plan to launch Angiomax in the United States using an external sales
organization under contract with Innovex, Inc., which we will manage. In July
2000, we signed a letter of intent with Innovex to enter into a sales agreement
under which Innovex would provide sales and marketing services in connection
with Angiomax, subject to the negotiation and execution of a binding sales
agreement. If we do not enter into a binding sales agreement with Innovex, we
plan to launch Angiomax in the United States by contracting with another
external sales organization, which we would manage, or by collaborating with
another company to sell Angiomax.
We plan to focus our Angiomax marketing efforts on interventional cardiologists
and other key clinical decision-makers for Angiomax. Because most of the
angioplasty procedures in the United States are performed in a relatively small
number of
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<PAGE> 34
cardiac catherization laboratories, we believe that our marketing strategy in
angioplasty can be implemented effectively and efficiently by a relatively small
sales force of approximately 55 to 75 persons.
We expect Angiomax to provide cost savings to medical decision-makers using
Angiomax as part of a safe and effective anticoagulant therapy. Many United
States hospitals receive a fixed reimbursement amount for the angioplasties they
perform. Because this amount is not based on the actual expenses the hospital
incurs, the use of Angiomax has the potential to reduce a hospital's cost of
treating an angioplasty patient by reducing bleeding and ischemic events and
reducing the need for other treatment therapies. From 1995 to 1997, the
incremental costs to a hospital averaged the following: approximately $12,000
for an angioplasty patient receiving a 2-unit transfusion; approximately $4,000
for revascularization in the form of a repeat angioplasty; and approximately
$17,000 for an angioplasty patient revascularized by means of coronary artery
bypass graft surgery. We plan to price Angiomax at a level that provides
hospitals with cost savings based on reductions in clinical events and
reductions in drug costs.
If Angiomax is approved for use in other indications, such as AMI or unstable
angina, we intend to market Angiomax for these indications in the United States
by contracting with external sales organizations, which we would manage, or by
collaborating with other biopharmaceutical companies.
Acute Myocardial Infarction
Acute myocardial infarction is a leading cause of death. AMI occurs when
coronary arteries, which supply blood to the heart, become completely blocked
with clot. AMI patients are routinely treated with heparin, with and without
fibrinolytics. Heart attack patients are increasingly undergoing angioplasty as
a primary treatment to unblock clotted arteries.
Based on the most recently available hospital discharge data, in 1997, there
were approximately 871,000 AMI patients in the United States who were treated in
a hospital.
Angiomax Clinical Experience in AMI. To date, we and Biogen have conducted
clinical trials comparing Angiomax and heparin in over 7,500 AMI patients.
<TABLE>
<CAPTION>
LEAD INVESTIGATORS COMPLETED PATIENTS PHASE TRIAL DESCRIPTION
------------------ --------- -------- ----- ------------------------------------
<S> <C> <C> <C> <C>
P. Theroux.......................... 1992 45 2 Dose-ranging trial comparing
Angiomax with heparin administered
prior to a fibrinolytic
P. Theroux.......................... 1993 68 2 Dose-ranging trial comparing
Angiomax with heparin administered
prior to a fibrinolytic
H. White............................ 1996 412 2 HERO-1: Dose-ranging trial comparing
Angiomax with heparin administered
following a fibrinolytic
H. White, R. Califf,
F. Van de Werf,
P. Aylward.......................... Ongoing 7,800 3 HERO-2: Mortality trial comparing
Angiomax with heparin administered
prior to a fibrinolytic in up to
17,000 patients
</TABLE>
---------------
The first two trials compared the effect of two doses of Angiomax with heparin
as therapy administered in advance of streptokinase, a fibrinolytic, in heart
attack patients. The trials were designed to compare the difference in rates of
blood flow following therapy. The third trial, the Hirulog Early
Reperfusion/Occlusion-1 trial, or the HERO-1 trial, was a multi-center,
randomized, double blind comparison involving 412 patients. In this trial,
patients with AMI were administered heparin or one of two doses of Angiomax as
therapy following the administration of streptokinase and aspirin. Blood flow
rates after therapy were evaluated using a standard measure of coronary artery
blood flow.
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<PAGE> 35
The three Phase 2 trials demonstrated that use of Angiomax:
- resulted in normal blood flow in at least 34% more patients than heparin; and
- resulted in substantially less bleeding and the need for fewer transfusions
than heparin.
The following table summarizes the clinical results for AMI patients in the
Phase 2 clinical trials comparing Angiomax to heparin as combined with a
fibrinolytic:
<TABLE>
<CAPTION>
----------------------------------------------
ANGIOMAX HEPARIN PERCENTAGE
PATIENTS PATIENTS IMPROVEMENT P-VALUE
-------- -------- ----------- -------
<S> <C> <C> <C> <C>
Theroux Montreal Heart Institute Study 1 (45 patients)
Full blood flow at 90 minutes............................. 67% 40% 67% 0.08
Theroux Montreal Heart Institute Study 2 (68 patients)
Full blood flow at 90 minutes............................. 71% 31% 129% 0.006
Transfusion............................................... 5% 31% 84% <0.02
HERO-1 Trial (412 patients)
Full blood flow at 90 minutes............................. 47% 35% 34% 0.024
Major bleeding............................................ 17% 28% 39% <0.01
</TABLE>
---------------
Based on the results of these Phase 2 trials, we have initiated a worldwide
17,000 patient Phase 3 clinical trial in AMI. In this HERO-2 Phase 3 trial, AMI
patients receive Angiomax or heparin prior to treatment with a fibrinolytic. All
patients receive aspirin and Streptase, a fibrinolytic. This trial is designed
to demonstrate statistically significant improvement in 30-day cumulative
mortality among patients receiving Angiomax, thus establishing Angiomax as the
only direct thrombin inhibitor with mortality benefit compared to heparin in the
management of AMI.
We are coordinating the HERO-2 trial with the Virtual Coordinating Center for
Global Collaborative Cardiovascular Research Organization, commonly referred to
as VIGOUR, an academic consortium of leading cardiologists and their affiliated
institutions established to coordinate the efforts of large global clinical
trials in cardiology. The trial has been approved in 43 countries, has over 500
active sites and is enrolling approximately 700 patients per month. To date,
approximately 7,800 patients have been enrolled in the trial. We expect the
trial to complete enrollment by the first half of 2001.
Following enrollment of approximately 2,000 and 5,000 patients, an independent
panel, the Drug Safety Monitoring Board, reviewed safety data from the trial to
determine whether there were safety issues that would warrant modification or
early termination of the trial. The Board completed the second planned review in
March 2000, and the trial is proceeding without modification. In contrast, two
previous trials using high doses of hirudin in patients including heart attack
patients were stopped early because of excessive bleeding in the hirudin
patients.
Acute Coronary Syndromes/Unstable Angina
Unstable angina is a condition in which patients experience the new onset of
severe chest pain, increasingly frequent chest pain or chest pain that occurs
while they are resting. Unstable angina is caused most often by a rupture of
plaque on an arterial wall that ultimately decreases coronary blood flow but
does not cause complete blockage of the artery. There are approximately 948,000
cases of unstable angina in the United States reported each year. Unstable
angina is often treated in hospitals with anticoagulation therapy that may
include aspirin, indirect thrombin inhibitors such as heparin or low molecular
weight heparin and GP IIb/IIIa inhibitors. Many unstable angina patients undergo
angioplasty or CABG.
Angiomax Clinical Experience in Unstable Angina. To date, we and Biogen have
completed five Phase 2 trials of Angiomax in patients with unstable angina or
who had experienced a less serious form of MI known as non Q-wave MI. These
trials enrolled a total of 630 patients, of whom 553 received various doses of
Angiomax. These studies have demonstrated that Angiomax is an anticoagulant
which can be administered safely in patients with unstable angina.
The largest of these Phase 2 trials was a multicenter, double blind,
placebo-controlled and randomized study in 410 patients with unstable angina or
who had experienced non Q-wave MI. The trial compared the effect of three active
dose levels and one placebo dose level of Angiomax with respect to death, MI,
recurrent angina and major bleeding. Angiomax demonstrated a significant
correlation between dose and anticoagulant effect.
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<PAGE> 36
In comparison to 160 patients treated with placebo doses in the trial, 250
patients treated with active doses of Angiomax experienced:
- a 68% reduction in death or MI in hospital with a p-value equal to 0.009; and
- a 59% reduction in death or MI after six weeks with a p-value equal to 0.014.
Other Indications
We and Biogen have conducted a number of additional clinical trials of Angiomax
for other indications.
HIT/HITTS. Approximately one to three percent of patients who have received
heparin for seven to 14 days experience a condition known as HIT/HITTS. The
underlying mechanism for the condition appears to be an immunological response
to a complex formed by heparin and another factor, resulting in the lowering of
platelet counts, commonly referred to as thrombocytopenia, and in some cases in
arterial or venous clotting, which may result in the need for limb amputation,
or death. Because further administration of heparin is not possible, an
alternative anticoagulant is necessary.
Prior to 1997, Angiomax was administered to a total of 39 HIT/HITTS patients
undergoing angioplasty requiring anticoagulation for invasive coronary
procedures or treatment of thrombosis. For those patients undergoing angioplasty
and other procedures, Angiomax provided adequate anticoagulation, was
well-tolerated and rarely resulted in bleeding complications.
Based upon the encouraging data in 39 patients, we are currently enrolling
patients in a trial designed to evaluate the use of Angiomax for treatment of
HIT/HITTS patients undergoing angioplasty. The trial has enrolled 12 patients to
date and plans to enroll 50 patients in total.
Deep Venous Thrombosis. Thirty-one patients with clots in the veins in their
legs and 222 patients undergoing orthopedic surgical procedures were treated
with Angiomax in two open-label, dose-ranging Phase 2 trials in 1990. Both
studies established that Angiomax was an active and well-tolerated anticoagulant
and that the anticoagulant effects correlated with the dose of Angiomax.
We are actively considering further development plans to expand the uses of
Angiomax in venous thrombosis and other indications.
Regulatory Status. In May 2000, we received an approvable letter from the FDA
for the use of Angiomax in the treatment of patients with unstable angina
undergoing coronary balloon angioplasty. Under the terms of the approvable
letter, before the FDA will approve our NDA for Angiomax, the manufacturing
facilities for Angiomax must pass FDA inspection, and we must comply with other
conditions. These conditions include adopting FDA-recommended changes to the
proposed labeling for Angiomax, making changes in documents describing our
manufacturing and packaging of Angiomax and recruiting and assessing additional
subjects in a study investigating the elimination of Angiomax in individuals
with reduced kidney function. We have recruited and assessed the additional
subjects for this study, and in July 2000 we submitted to the FDA our response
to the approvable letter. The FDA conducted an inspection of the Angiomax
manufacturing facility in June 2000. We are seeking to obtain FDA approval in
time to launch Angiomax in the United States within the next 12 months.
In February 1998 we submitted a Marketing Authorization Application, or MAA, to
the European Agency for the Evaluation of Medicinal Products, or EMEA, for use
in unstable angina patients undergoing angioplasty. Following extended
interaction with European regulatory authorities, the Committee of Proprietary
Medicinal Products, or CPMP, 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 alternative courses of
action.
Angiomax was approved in New Zealand in September 1999 for use as an
anticoagulant in patients undergoing coronary balloon angioplasty, and we began
selling Angiomax in New Zealand in June 2000. We have submitted an application
in Canada to market Angiomax for use in unstable angina patients undergoing
angioplasty and are in active dialogue with Canadian regulators.
CTV-05
In 1999, we acquired from GyneLogix, Inc. exclusive worldwide rights to CTV-05,
a strain of bacteria under clinical investigation for a broad range of
applications in the areas of gynecological and reproductive health. We have
entered into a
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<PAGE> 37
clinical trial agreement with the National Institute of Allergy and Infectious
Diseases, a division of the National Institute of Health, commonly referred to
as NIH, to conduct a Phase 2 trial of CTV-05, a proprietary biotherapeutic agent
for the treatment of bacterial vaginosis, or BV. BV, the most common
gynecological infection in women of childbearing age, is an imbalance of
naturally occurring organisms in the vagina.
Bacterial Vaginosis
BV develops when certain bacteria normally present in the vagina in low levels
multiply to infectious levels. BV is associated with serious health risks such
as pelvic inflammatory disease, pre-term birth, post-surgical infection and an
increased susceptibility to sexually transmitted diseases, including AIDS. The
standard treatments currently prescribed for BV are oral or topical antibiotics
including metronidazole and clindamycin. These treatments are not optimal,
having significant recurrence rates. Moreover, antibiotic use depletes a
beneficial bacteria called lactobacilli.
CTV-05: Rationale, Product Profile and Clinical Studies
A healthy vagina is principally populated by lactobacilli. The presence of
lactobacilli in the vagina, particularly those that produce hydrogen peroxide,
has been linked to decreased incidence of BV and other urinary tract and
gynecological infections. However, many women lack sufficient populations of
hydrogen peroxide-producing lactobacilli to maintain vaginal health, making them
more susceptible to infection.
Studies have shown that the CTV-05 strain of lactobacillus is able to restore
the natural balance of the bacteria in the vagina and produce both hydrogen
peroxide and lactic acid, substances which are active against disease-causing
bacteria and serve a protective role. Because of this, CTV-05 has the potential
to improve cure rates when used in conjunction with approved antibiotics, to
prevent BV recurrence and thus to reduce serious health risks.
In the Phase 2 safety and efficacy trial, funded by NIH, CTV-05 is administered
topically to BV patients. The study is primarily designed to show whether CTV-05
improves cure rates of BV at 30 days. The study will be the first large trial to
look at recurrence rates of BV at 90 days. We plan to enroll 350 patients in the
trial at three sites, and expect to conclude the trial by early 2001.
Other Indications
Recently completed studies by GyneLogix under a Center for Disease Control and
Prevention grant, have shown that CTV-05 is active against the organisms which
cause yeast infections and gonorrhea. We plan to conduct pilot clinical studies
in these indications.
IS-159
In 1998, we acquired from Immunotech S.A. exclusive worldwide rights to IS-159,
a selective chemical that reacts with receptors found on cerebral blood vessels
and nerve terminals. 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
arrangement.
PRODUCT ACQUISITION STRATEGY
We plan to continue to acquire, develop and commercialize late-stage product
candidates that make a clinical difference to patients managed by focused groups
of medical decision-makers. Our strategy is to acquire late-stage development
product candidates with an anticipated time to market of four years or less and
existing clinical data which provides reasonable evidence of safety and
efficacy. In making our acquisition decisions we attempt to select products that
meet these criteria and achieve high investment returns by:
- understanding the market opportunity for initially-targeted uses of the drug;
- assessing the investment and development programs that will be necessary to
achieve a marketable product profile in these initial uses; and
- attempting to structure the design of our development programs to obtain
critical information relating to the clinical and economic performance of the
product early in the development process, so that we can make key development
decisions.
To date, we have implemented this strategy with Angiomax, CTV-05 and IS-159.
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<PAGE> 38
We intend to acquire product candidates with possible uses and markets beyond
those on which our initial investment program will be focused. We plan to
acquire other product candidates that will enhance the critical care franchise
we are building around Angiomax. We are also seeking other specialty
anti-infective product candidates that will fit into the franchise we expect to
build around CTV-05.
We have assembled a management team with significant experience in drug
development and in drug product launches and commercialization.
MANUFACTURING
We do not intend to build or operate manufacturing facilities but instead intend
to enter into contracts for manufacturing development and/or commercial supply.
Angiomax
We have successfully transferred the Angiomax pharmaceutical development package
from Biogen to appropriate contract development laboratories. Working with these
laboratories, we have successfully generated data, assays and analyses to make
appropriate regulatory filings and to respond to regulatory agency questions.
All Angiomax bulk drug substance used in non-clinical and clinical work
performed to date has been produced by UCB Bioproducts by means of a chemical
synthesis process. We have ordered, and for the foreseeable future will order,
Angiomax bulk drug substance from UCB Bioproducts under the validated
manufacturing process. Using this process, UCB Bioproducts has successfully
completed the manufacture of bulk drug substance and is in the process of
manufacturing additional bulk drug substance for delivery in the third quarter
of 2000.
Together with UCB Bioproducts, we have developed a second generation chemical
synthesis process to improve the economics of the manufacturing of Angiomax bulk
drug substance. This process, which must be approved by the FDA before it can be
used, is known as the Chemilog process and involves limited changes to the early
manufacturing steps of our current process in order to improve process
economics. We expect the Chemilog process to produce material that is chemically
equivalent to that produced using the current process. UCB Bioproducts has
completed initial development of the process and is currently completing the
manufacture of a pilot batch.
We have entered into a commercial development and supply agreement with UCB
Bioproducts for production of Angiomax bulk drug substance utilizing the
Chemilog process. Under terms of the agreement, UCB Bioproducts will prepare and
file the necessary drug master file for regulatory approval of the Chemilog
process. If the Chemilog process is successfully developed and regulatory
approval is obtained, we expect this process will result in a reduced cost of
manufacturing.
We have developed reproducible analytical methods and processes for the
manufacture of Angiomax drug product by Ben Venue Laboratories. Ben Venue
Laboratories has carried out all of our Angiomax fill-finish activities and has
released product for clinical trials.
CTV-05
To date GyneLogix has manufactured all CTV-05 material used in clinical trials.
Working with GyneLogix, we have initiated process development activities to
enable scale-up and transfer of the manufacturing technology to a commercial
contract manufacturer. We are reviewing several potential commercial suppliers
for bulk substance and final dosage form.
STRATEGIC RELATIONSHIPS
In order to develop and commercialize our products, we leverage our resources by
utilizing contract product development, manufacturing and sales companies.
UCB Bioproducts
In December 1999, we entered into a commercial development and supply agreement
with UCB Bioproducts for the development and supply of Angiomax bulk drug
substance. Under the terms of the agreement, UCB Bioproducts is also responsible
for developing the Chemilog process in coordination with us and obtaining
regulatory approval for use of the process. We have agreed to partially fund UCB
Bioproducts' development activities. This funding is due upon the completion by
UCB Bioproducts of development milestones. If UCB Bioproducts successfully
completes each of these development milestones, we anticipate that total
development funding paid by us will equal approximately $9.1 million. Of this
$9.1 million, $7.7 million will be paid to UCB Bioproducts for validation
batches of Angiomax manufactured using the Chemilog process, which we may use
for commercial sale following regulatory approval of the Chemilog process. In
addition,
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<PAGE> 39
following successful development and regulatory approval of the Chemilog
process, we have agreed to purchase Angiomax bulk drug substance exclusively
from UCB Bioproducts at agreed upon prices for a period of seven years from the
date of the first commercial sale of Angiomax produced under the Chemilog
process. Following the expiration of the agreement, or if we terminate the
agreement prior to its expiration, UCB Bioproducts will transfer the development
technology to us. If we engage a third party to manufacture Angiomax for us
using this technology, we will be obligated to pay UCB Bioproducts a royalty
based on the amount paid by us to the third-party manufacturer.
PharmaBio/Quintiles
In August 1996, we entered into a strategic alliance with PharmaBio Development,
Inc., a wholly owned subsidiary of Quintiles Transnational Corp. Under the terms
of the strategic alliance agreement, PharmaBio and any of its affiliates who
work on our projects will, at no cost to us, review and evaluate, jointly with
us, development programs we design related to potential or actual product
acquisitions. The purpose of this collaboration is to optimize the duration,
cost, specifications and quality aspects of such programs. PharmaBio and its
affiliates have also agreed to perform certain other services with respect to
our products, including clinical and non-clinical development services, project
management, project implementation, pharmacoeconomic services, regulatory
affairs and post-marketing surveillance services and statistical, statistical
programming, data processing and data management services. We have agreed to pay
PharmaBio its standard fee for these other services, with certain exceptions for
exceptional performance by PharmaBio. For more information regarding this
alliance, please see "Transactions with Executive Officers, Directors and Five
Percent Stockholders."
Innovex
In January 1997, we entered into a consulting agreement with Innovex, Inc., a
subsidiary of Quintiles, which was subsequently superseded by a consulting
agreement we executed with Innovex in December 1998. Pursuant to the terms of
these agreements, Innovex has provided us with consulting services with respect
to pharmaceutical marketing and sales.
In July 2000, we signed a letter of intent with Innovex to enter into a sales
agreement under which Innovex would provide sales and marketing services in
connection with Angiomax. Although the letter of intent contemplates the
negotiation and execution of a binding sales agreement and can be terminated at
any time by either party if no binding sales agreement is reached, we have
agreed in the letter of intent that Innovex will begin performing its services
immediately. These services will include recruiting and training up to 50 sales
representatives and engaging in other agreed-upon activities. Under the terms of
the letter of intent, we initially will pay Innovex a total of approximately
$962,000 for its services.
COMPETITION
The development and commercialization of new drugs is competitive and we will
face competition from major pharmaceutical companies, specialty pharmaceutical
companies and biotechnology companies worldwide. Our competitors may develop
products or other novel technologies that are more effective, safer or less
costly than any that have been or are being developed by us, or may obtain FDA
approval for their products more rapidly than we may obtain approval for ours.
Due to the incidence and severity of cardiovascular diseases, the market for
anticoagulant therapies is large and competition is intense and growing. We are
developing Angiomax as an anticoagulant therapy for the treatment of ischemic
heart disease. There are a number of anticoagulant therapies currently on the
market, awaiting regulatory approval or in development.
In general, anticoagulant drugs may be classified in three groups: drugs that
directly or indirectly target and inhibit thrombin or its formation, drugs that
target and inhibit platelets activation and aggregation and drugs that break
down fibrin. Indirect thrombin inhibitors include heparin and low molecular
weight heparins such as Lovenox and Fragmin. Direct thrombin inhibitors include
Angiomax, Acova and hirudins such as Refludan. Platelet inhibitors include
aspirin, Ticlid, Plavix, ReoPro, Integrilin and Aggrastat. Fibrinolytics include
Streptase, Activase, Retevase and TNKase.
Because each group of anticoagulants acts on different clotting factors, we
believe that there will be continued clinical work to determine the best
combination of drugs for clinical use. We plan to position Angiomax as an
alternative to heparin as baseline anticoagulation therapy for use in patients
with ischemic heart disease. We expect Angiomax to be used with aspirin alone or
in conjunction with other fibrinolytic drugs or platelet inhibitors. We will
compete with indirect and direct thrombin inhibitors on the basis of efficacy
and safety, ease of administration and economic value. Heparin's widespread use
and low cost to hospitals will provide a selling challenge.
We do not plan to position Angiomax as a direct competitor to platelet
inhibitors such as ReoPro from Centocor, Inc. and Eli Lilly and Company,
Aggrastat from Merck, Inc. or Integrilin from Cor Therapeutics, Inc. and
Schering-Plough
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Corporation. Similarly, we do not plan to position Angiomax as a competitor to
fibrinolytic drugs such as Streptase from Aventis S.A., Retevase from Centocor,
Inc., and Activase and TNKase from Genentech Inc. Platelet inhibitors and
fibrinolytic drugs may, however, 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 be forced to use either Angiomax or a platelet inhibitor or
fibrinolytic drugs but not both.
The acquisition or licensing of pharmaceutical products is a competitive area,
and a number of more established companies, which have acknowledged strategies
to license or acquire products, may have competitive advantages as may other
emerging companies taking similar or different approaches to product
acquisition. In addition, a number of established research-based pharmaceutical
and biotechnology companies may have acquired products in late stages of
development to augment their internal product lines. These established companies
may have a competitive advantage over us due to their size, cash flows and
institutional experience.
Many of our competitors will have substantially greater financial, technical and
human resources than we have. Additional mergers and acquisitions in the
pharmaceutical industry may result in even more resources being concentrated in
our competitors. Competition may increase further as a result of advances made
in the commercial applicability of technologies and greater availability of
capital for investment in these fields. Our success will be based in part on our
ability to build and actively manage a portfolio of drugs that address unmet
medical needs and create value in patient therapy.
PATENTS, PROPRIETARY RIGHTS AND LICENSES
Our success will depend in part on our ability to protect the products we
acquire or license by obtaining and maintaining patent protection both in the
United States and in other countries. We also rely upon trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain our competitive position. We plan to prosecute and defend any patents
or patent applications we acquire or license, as well as any proprietary
technology.
We have exclusively licensed from Biogen patents and applications for patents
covering Angiomax and Angiomax analogs and other novel anticoagulants as
compositions of matter, and processes for using Angiomax and Angiomax analogs
and other novel anticoagulants. We are responsible for prosecuting and
maintaining such patents and patent applications. In all, we exclusively license
10 issued United States patents and a broadly filed portfolio of corresponding
foreign patents and patent applications. We have not yet filed any independent
patent applications.
The patent positions of pharmaceutical and biotechnology firms like us are
generally uncertain and involve complex legal, scientific and factual questions.
In addition, the coverage claimed in a patent application can be significantly
reduced before the patent is issued. Consequently, we do not know whether any of
the applications we acquire or license will result in the issuance of patents
or, if any patents are issued, whether they will provide significant proprietary
protection or will be challenged, circumvented or invalidated. Because patent
applications in the United States are maintained in secrecy until patents issue,
and since publication of discoveries in the scientific or patent literature
often lags behind actual discoveries, we cannot be certain of the priority of
inventions covered by pending patent applications. Moreover, we may have to
participate in interference proceedings declared by the United States Patent and
Trademark Office to determine priority of invention, or in opposition
proceedings in a foreign patent office, either of which could result in
substantial cost to us, even if the eventual outcome is favorable to us. There
can be no assurance that the patents, if issued, would be held valid by a court
of competent jurisdiction. An adverse outcome could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require us to cease using such technology.
The development of anticoagulants is intensely competitive. A number of
pharmaceutical companies, biotechnology companies, universities and research
institutions have filed patent applications or received patents in this field.
Some of these applications are competitive with applications we have acquired or
licensed, or conflict in certain respects with claims made under such
applications. Such conflict could result in a significant reduction of the
coverage of the patents we have acquired or licensed, if issued, which would
have a material adverse effect on our business, financial condition and results
of operations. In addition, if patents are issued to other companies that
contain competitive or conflicting claims and such claims are ultimately
determined to be valid, no assurance can be given that we would be able to
obtain licenses to these patents at a reasonable cost, or develop or obtain
alternative technology.
We also rely on trade secret protection for our confidential and proprietary
information. No assurance can be given that others will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to our trade secrets or disclose such technology, or that
we can meaningfully protect our trade secrets.
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It is our policy to require our employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with us. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with us 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 conceived by the individual shall be our
exclusive property. There can be no assurance, however, that these agreements
will provide meaningful protection or adequate remedies for the our trade
secrets in the event of unauthorized use or disclosure of such information.
LICENSE AGREEMENTS
Biogen, Inc.
In March 1997, we entered into an agreement with Biogen for the license of the
anticoagulant pharmaceutical bivalirudin, which we have developed as Angiomax.
Under the terms of the agreement, we acquired exclusive worldwide rights to the
technology, patents, trademarks, inventories and know-how related to Angiomax.
In exchange for the license, we paid $2.0 million on the closing date and are
obligated to pay up to an additional $8.0 million upon reaching certain Angiomax
sales milestones, including the first commercial sale of Angiomax for the
treatment of AMI in the United States and Europe. In addition, we are obligated
to pay royalties on future sales of Angiomax and on any sublicense royalties
earned until the later of (1) 12 years after the date of the first commercial
sale of the product in a country or (2) the date in which the product or its
manufacture, use or sale is no longer covered by a valid claim of the licensed
patent rights in such country. The agreement also stipulates that we use
commercially reasonable efforts to meet certain milestones related to the
development and commercialization of Angiomax, including expending at least
$20.0 million for certain development and commercialization activities, which we
met in 1998. The licenses and rights under the agreement remain in force until
our obligation to pay royalties ceases. Either party may terminate the agreement
for material breach, and we may terminate the agreement for any reason upon 90
days prior written notice.
GyneLogix, Inc.
In August 1999, we entered into an agreement with GyneLogix for the license of
the biotherapeutic agent CTV-05, a strain of human lactobacillus currently under
clinical investigation for applications in the areas of urogenital and
reproductive health. Under the terms of the agreement, we acquired exclusive
worldwide rights to the patents and know-how related to CTV-05. In exchange for
the license, we have paid GyneLogix $200,000 and are obligated to pay up to an
additional $300,000 upon reaching certain development and regulatory milestones
and to fund agreed-upon operational costs of GyneLogix related to the
development of CTV-05 on a monthly basis subject to a limitation of $50,000 per
month. In addition, we are obligated to pay royalties on future sales of CTV-05
and on any sublicense royalties earned until the date on which the product is no
longer covered by a valid claim of the licensed patent rights in a country. The
agreement also stipulates that we must use commercially reasonable efforts in
pursuing the development, commercialization and marketing of CTV-05 to maintain
the license. The licenses and rights under the agreement remain in force until
our obligation to pay royalties ceases. Either party may terminate the agreement
for material breach, and we may terminate the agreement for any reason upon 60
days prior written notice.
Immunotech S.A.
In July 1998, we entered into an agreement with Immunotech for the license of
the pharmaceutical IS-159 for the treatment of acute migraine headache. Under
the terms of the agreement, we acquired exclusive worldwide rights to the
patents and know-how related to IS-159. In exchange for the license, we paid
$1.0 million on the closing date and are obligated to pay up to an additional
$4.5 million upon reaching certain development and regulatory milestones. In
addition, we are obligated to pay royalties on future sales of IS-159 and on any
sublicense royalties earned until the date on which the product is no longer
covered by a valid claim of the licensed patent rights in a country. The
agreement also stipulates that we must use commercially reasonable efforts in
pursuing the development, commercialization and marketing of IS-159 and meet
certain development and regulatory milestones to maintain the license. The
licenses and rights under the agreement remain in force until our obligation to
pay royalties ceases. Either party may terminate the agreement for material
breach, and we may terminate the agreement for any reason upon 60 days prior
written notice.
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GOVERNMENT REGULATION
Government authorities in the United States and other countries extensively
regulate, among other things, the research, development, testing, manufacture,
labeling, promotion, advertising, distribution, and marketing of our products.
In the United States, the FDA regulates drugs under the Federal Food, Drug, and
Cosmetic Act, and, in the case of biologics, also under the Public Health
Service Act, and implementing regulations. Failure to comply with the applicable
U.S. requirements may subject us to administrative or judicial sanctions, such
as the FDA refusal to approve pending applications, warning letters, product
recalls, product seizures, total or partial suspension of production or
distribution, injunctions, and/or criminal prosecution.
The steps required before a drug may be marketed in the United States include:
- pre-clinical laboratory tests, animal studies and formulation studies;
- submission to the FDA of an investigational new drug exemption, or IND, for
human clinical testing, which must become effective before human clinical
trials may begin;
- adequate and well-controlled clinical trials to establish the safety and
efficacy of the drug for each indication;
- submission to the FDA of an NDA or biologics license application, or BLA;
- satisfactory completion of an FDA inspection of the manufacturing facility or
facilities at which the drug is produced to assess compliance with cGMP; and
- FDA review and approval of the NDA or BLA.
Pre-clinical tests include laboratory evaluations of product chemistry,
toxicity, and formulation, as well as animal studies. The results of the
pre-clinical tests, together with manufacturing information and analytical data,
are submitted to the FDA as part of an IND, which must become effective before
human clinical trials may begin. An IND will automatically become effective 30
days after receipt by the FDA, unless before that time the FDA raises concerns
or questions about issues such as the conduct of the trials as outlined in the
IND. In such a case, the IND sponsor and the FDA must resolve any outstanding
FDA concerns or questions before clinical trials can proceed. Submission of an
IND may not result in the FDA allowing clinical trials to commence.
Clinical trials involve the administration of the investigational drug to human
subjects under the supervision of qualified investigators. Clinical trials are
conducted under protocols detailing the objectives of the study, the parameters
to be used in monitoring safety, and the effectiveness criteria to be evaluated.
Each protocol must be submitted to the FDA as part of the investigational new
drug exemption.
Clinical trials typically are conducted in three sequential Phases, but the
phases may overlap or be combined. Each trial must be reviewed and approved by
an independent Institutional Review Board before it can begin. Phase 1 usually
involves the initial introduction of the investigational drug into people to
evaluate its safety, dosage tolerance, phamacodynamics, and, if possible, to
gain an early indication of its effectiveness. Phase 2 usually involves trials
in a limited patient population to:
- evaluate dosage tolerance and appropriate dosage;
- identify possible adverse effects and safety risks; and
- evaluate preliminarily the efficacy of the drug for specific indications.
Phase 3 trials usually further evaluate clinical efficacy and test further for
safety by using the drug in its final form in an expanded patient population. We
cannot guarantee that Phase 1, Phase 2 or Phase 3 testing will be completed
successfully within any specified period of time, if at all. Furthermore, we or
the FDA may suspend clinical trials at any time on various grounds, including a
finding that the subjects or patients are being exposed to an unacceptable
health risk.
Assuming successful completion of the required clinical testing, the results of
the preclinical studies and of the clinical studies, together with other
detailed information, including information on the manufacture and composition
of the drug, are submitted to the FDA in the form of an NDA or BLA requesting
approval to market the product for one or more indications. Before approving an
application, the FDA usually will inspect the facility or the facilities at
which the drug is manufactured, and will not approve the product unless cGMP
compliance is satisfactory. If the FDA determines the application and the
manufacturing facilities are acceptable, the FDA will issue an approval letter.
If the FDA determines the application or manufacturing facilities are not
acceptable, the FDA will outline the deficiencies in the submission and often
will request
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additional testing or information. Notwithstanding the submission of any
requested additional information, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for approval. The testing
and approval process requires substantial time, effort, and financial resources,
and we cannot be sure that any approval will be granted on a timely basis, if at
all. After approval, certain changes to the approved product, such as adding new
indications, manufacturing changes, or additional labeling claims are subject to
further FDA review and approval.
In February 1998, we submitted an NDA with the FDA seeking marketing approval
for Angiomax. In May 2000, we received an approvable letter from the FDA for the
use of Angiomax in the treatment of patients with unstable angina undergoing
coronary balloon angioplasty. Under the terms of the approvable letter, before
the FDA will approve our NDA for Angiomax, the manufacturing facilities for
Angiomax must pass FDA inspection, and we must comply with other conditions.
These conditions include adopting FDA-recommended changes to the proposed
labeling for Angiomax, making changes in documents describing our manufacturing
and packaging of Angiomax and recruiting and assessing additional subjects in a
study investigating the elimination of Angiomax in individuals with reduced
kidney function. We have recruited and assessed the additional subjects for this
study, and in July 2000 we submitted to the FDA our response to the approvable
letter. The FDA conducted an inspection of the Angiomax manufacturing facility
in June 2000.
If regulatory approval is obtained, we will be required to comply with a number
of post-approval requirements. For example, as a condition of approval of an
application, the FDA may require postmarketing testing and surveillance to
monitor the drug's safety or efficacy. In addition, holders of an approved NDA
or BLA are required to report certain adverse reactions and production problems,
if any, to the FDA, and to comply with certain requirements concerning
advertising and promotional labeling for their products. Also, quality control
and manufacturing procedures must continue to conform to cGMP after approval,
and the FDA periodically inspects manufacturing facilities to assess compliance
with cGMP. Accordingly, manufacturers must continue to expend time, money, and
effort in the area of production and quality control to maintain compliance with
current good manufacturing practices and other aspects of regulatory compliance.
We use and will continue to use third-party manufacturers to produce our
products in clinical and commercial quantities, and we cannot be sure that
future FDA inspections will not identify compliance issues at our facilities or
at the facilities of our contract manufacturers that may disrupt production or
distribution, or require substantial resources to correct. In addition,
discovery of problems with a product may result in restrictions on a product,
manufacturer, or holder of an approved NDA or BLA, including withdrawal of the
product from the market. Also, new government requirements may be established
that could delay or prevent regulatory approval of our products under
development.
FACILITIES
We currently lease approximately 9,000 square feet of office space in Cambridge,
Massachusetts. We believe our current facilities will be sufficient to meet our
needs through 2000 and that additional space will be available on commercially
reasonable terms to meet our space requirements thereafter. We also have offices
in Parsippany, New Jersey, Princeton, New Jersey, Oxford, United Kingdom, Basel,
Switzerland and Parnell, Auckland, New Zealand.
LEGAL PROCEEDINGS
From time to time we have been and expect to continue to be subject to legal
proceedings and claims in the ordinary course of business. We currently are not
a party to any material legal proceeding.
EMPLOYEES
We believe that our success will depend greatly on our ability to identify,
attract and retain capable employees. We have assembled a management team with
significant experience in drug development and commercialization.
As of June 30, 2000, we employed 44 persons, of whom seven hold M.D. and/or
Ph.D. degrees, and nine of whom hold other advanced degrees. Our employees are
not represented by any collective bargaining unit, and we believe our relations
with our employees are good.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
NAME AGE POSITION
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Clive A. Meanwell, M.D., Ph.D.*................ 43 Chief Executive Officer, President and Director
Peyton J. Marshall, Ph.D.*..................... 45 Senior Vice President and Chief Financial
Officer
Glenn P. Sblendorio, M.B.A.*................... 44 Senior Vice President
David M. Stack*................................ 49 Senior Vice President
John M. Nystrom, Ph.D.*........................ 55 Vice President and Chief Technical Officer
Dermot Liddy, M.B.A.*.......................... 40 Vice President
Frederick Paster, M.Sc., M.B.A. ............... 35 Vice President
Thomas P. Quinn................................ 42 Vice President
John D. Richards, D.Phil.*..................... 44 Vice President
Fred M. Ryan, M.B.A. .......................... 48 Vice President
John W. Villiger, Ph.D.*....................... 45 Vice President
Leonard Bell, M.D.............................. 42 Director
Dennis B. Gillings, Ph.D. ..................... 56 Director
Anders D. Hove, M.D., M.Sc., M.B.A.(1)......... 35 Director
M. Fazle Husain(1)............................. 36 Director
T. Scott Johnson, M.D.(1)...................... 53 Director
Armin M. Kessler, Dh.c.(2)..................... 62 Director
James E. Thomas, M.Sc.(2)...................... 40 Director
Robert A. Yedid, M.B.A.(2)..................... 42 Director
</TABLE>
---------------
* Executive Officer
(1) Member of Audit Committee
(2) Member of the Compensation Committee
Set forth below is certain information regarding the business experience during
the past five years for each of the above-named persons.
Clive A. Meanwell, M.D., Ph.D. has been our Chief Executive Officer and
President and a director since the inception of our company in July 1996. From
1995 to 1996, Dr. Meanwell was a Partner and Managing Director at MPM Capital
L.P., a venture capital firm. From 1986 to 1995, Dr. Meanwell held various
positions at Hoffmann-La Roche, Inc., a pharmaceutical company, including Senior
Vice President, from 1992 to 1995, Vice President from 1991 to 1992 and Director
of Product Development from 1986 to 1991. Dr. Meanwell was also a member of
Hoffmann-La Roche's pharmaceutical division operating board, its research and
development board and its portfolio management committee. During his tenure as
Director of Product Development, Dr. Meanwell had responsibility at Hoffmann-La
Roche for the development and launch of Neupogen. During his tenure as Vice
President, Worldwide Drug Regulatory Affairs, he had management responsibility
for the regulatory approval of eight new products and nine significant line
extensions of products. Dr. Meanwell also led an initiative at Hoffmann-La Roche
to reengineer the drug development process with the goal of cutting the time and
cost of drug development. Dr. Meanwell received his M.D. and Ph.D. from the
University of Birmingham, United Kingdom.
Peyton J. Marshall, Ph.D. has been a Senior Vice President since January 2000
and our Chief Financial Officer since joining us in October 1997. From 1995 to
October 1997, Dr. Marshall was based in London as a Managing Director and head
of European Corporate Financing and Risk Management Origination at Union Bank of
Switzerland, an investment banking firm. From 1986 to 1995, Dr. Marshall held
various investment banking positions at Goldman Sachs and Company, an investment
banking firm, including head of European product development from 1987 to 1993
and Executive Director, Derivatives Origination from 1993 to 1995. From 1981 to
1986, Dr. Marshall held several product development positions at
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<PAGE> 45
The First Boston Corporation, an investment banking firm, and was an Assistant
Professor of Economics at Vanderbilt University. Dr. Marshall received his Ph.D.
in economics from the Massachusetts Institute of Technology.
Glenn P. Sblendorio has been a Senior Vice President since July 2000, with
primary responsibility for business development. From 1998 to July 2000, Mr.
Sblendorio was the Chief Executive Officer and Managing Director of MPM Capital
Advisors, LLC, an investment bank specializing in healthcare related
transactions. From 1997 to 1998, Mr. Sblendorio served as Managing Director at
Millennium Venture Management, LLC, a strategic consulting firm. From 1996 to
1997, Mr. Sblendorio was the Executive Vice President, Chief Financial Officer
and Treasurer at PlayNet Technologies, a publicly traded Internet company that
develops entertainment systems. From 1993 to 1996, Mr. Sblendorio was the Senior
Vice President and Chief Financial Officer for Sony Interactive Entertainment
Inc. From 1981 to 1993, Mr. Sblendorio held several positions at Hoffmann-La
Roche, Inc., including Vice President of Finance, Head of Finance and most
recently Chief Financial Officer. Mr. Sblendorio received his B.A. in accounting
from Pace University and his M.B.A. from Fairleigh Dickinson University. Mr.
Sblendorio is also a CPA.
David M. Stack has been a Senior Vice President since April 2000. Under Mr.
Stack's employment agreement with us, Mr. Stack has agreed to devote at least 24
hours per week to our business. Since January 2000, Mr. Stack has also served as
President and General Partner of Stack Pharmaceuticals, Inc., a
commercialization, marketing and strategy consulting firm serving pharmaceutical
companies, and as a Senior Advisor to the Chief Executive Officer of Innovex
Inc., a contract pharmaceutical organization. Mr. Stack served as President and
General Manager of Innovex Inc. from May 1995 to December 1999. From April 1993
to May 1995, Mr. Stack served as Vice President, Business Development and
Marketing at Immunomedics, Inc., a biotechnology company specializing in
monoclonal antibodies in diagnostics and therapeutics. From September 1981 to
March 1993, Mr. Stack was employed by Roche Laboratories, a division of
Hoffmann-La Roche, where he was the Rocephin Product Director from June 1989 to
December 1992 and Director, Business Development and Planning, Infectious
Disease, Oncology and Virology from May 1992 to March 1993. Mr. Stack currently
serves as director of Bio Imaging Laboratories, Inc. Mr. Stack received his B.S.
in biology from Siena College and his B.S. in pharmacy from Albany College of
Pharmacy.
John M. Nystrom, Ph.D. has been Vice President since October 1998 and our Chief
Technical Officer since December 1999. From July 1979 to October 1998, Dr.
Nystrom was employed by the Arthur D. Little, an international technology and
management consulting firm. During his 19 years with the firm he held numerous
positions consulting to the fine chemical, biotechnology and pharmaceutical
industries. In 1994 he was elected a Vice President of the firm, and his last
position was that of Vice President and Director. Dr. Nystrom currently serves
as a director of Cangene Corp. Dr. Nystrom received his B.S. and Ph.D. in
chemical engineering from the University of Rhode Island.
Dermot Liddy, M.B.A. joined us October 1997 and has been a Vice President since
September 1998, with a focus on new therapeutic areas and businesses. Since
August 1999, Mr. Liddy has served as project leader of the development program
for CTV-05. From September 1996 to October 1997, Mr. Liddy was an associate at
MPM Capital L.P., a venture capital firm. In August 1994, Mr. Liddy cofounded
the Limerick Company, an agro-biotech start-up in Israel. From 1990 to 1993, Mr.
Liddy was employed by a Liechtenstein-based investment syndicate. Mr. Liddy
received his B.A. in psychology and M.B.A. from Trinity College in Dublin,
Ireland.
Frederick Paster, M.Sc., M.B.A. has been a Vice President since September 1999,
with a focus on worldwide product partnering, product development strategy and
market/pricing analysis. Mr. Paster is also involved in new product acquisitions
and corporate partnerships. From 1994 until he joined us in September 1998, Mr.
Paster was a Manager with The Boston Consulting Group, a management consulting
firm. From 1990 to 1992, Mr. Paster was located in Germany and Belgium as
European Programs Manager for ESI, a computer software and services firm. Mr.
Paster received his B.S. and M.Sc. degrees in engineering from the Massachusetts
Institute of Technology and received his M.B.A. from the Harvard Business
School.
Thomas P. Quinn has been a Vice President since April 2000, with a focus on the
launch of Angiomax, business development and product in-licensing. Mr. Quinn has
served as a Partner of Stack Pharmaceuticals, Inc. since January 2000 and served
as the Vice President of Marketing of Stack Pharmaceuticals, Inc. from January
2000 through May 2000. From November 1997 to January 2000, Mr. Quinn was Vice
President, Business Development at Innovex. From January 1996 to July 1997, Mr.
Quinn was employed by the Strategic Planning/New Business Development Department
of Bristol-Myers Squibb Inc., a pharmaceutical company, where his
responsibilities included domestic and global portfolio management and franchise
development. From April 1992 to December 1995, Mr. Quinn was involved in the
commercial start-up of the U.S. Therapeutics Division of Boehringer Mannheim
Corporation, a pharmaceutical company.
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John D. Richards, D.Phil. joined us in October 1997 and has been a Vice
President since 1999, with a focus on product manufacturing and quality. From
1993 until he joined us in October 1997, Dr. Richards was Director of Process
Development and Manufacturing at Immulogic Pharmaceutical Corporation, a
pharmaceutical company. From 1989 to 1993, Dr. Richards was a Technical Manager
at Zeneca PLC, a pharmaceutical company, where he developed and implemented
processes for the manufacture of peptides as pharmaceutical active
intermediates. In 1986, Dr. Richards helped establish Cambridge Research
Biochemicals, a manufacturer of peptide-based products for pharmaceutical and
academic customers. Dr. Richards received his M.A. and D.Phil. in organic
chemistry from the University of Oxford, United Kingdom, and has carried out
post-doctoral research work at the Medical Research Councils Laboratory of
Molecular Biology in Cambridge, United Kingdom.
Fred M. Ryan, M.B.A. has been a Vice President since April 2000, with a focus on
corporate strategic development, Angiomax launch planning and new product
acquisitions. Under Mr. Ryan's employment agreement with us, Mr. Ryan has agreed
to devote at least 24 hours per week to our business. Since April 2000 Mr. Ryan
has also served as a Partner and the Vice President of Business Development of
Stack Pharmaceuticals, Inc. From 1985 to 2000, he held senior management
positions with Novartis Pharmaceuticals Inc. in Finance and Business
Development, serving from July 1991 to April 2000 as Executive Director/Business
Unit Head responsible for sales and marketing of a portfolio products in excess
of $500 million in sales annually. He received his B.S. and B.A. degrees from
Bryant College and his M.B.A. from Fairleigh Dickinson University.
John W. Villiger, Ph.D. has been a Vice President since March 1997, with a focus
on cardiovascular product development. From December 1986 until he joined us in
March 1997, Dr. Villiger held various positions in product development at
Hoffmann-La Roche, including Head of Global Project Management from 1995 to 1996
and International Project Director from 1991 to 1995. As Head of Global Project
Management, Dr. Villiger was responsible for overseeing the development of
Hoffmann-LaRoche's pharmaceutical portfolio, with management responsibility for
over 50 development programs. As International Project Director, Dr. Villiger
was responsible for the global development of Tolcapone also known as tasmar.
Dr. Villiger received his Ph.D. in neuropharmacology from the University of
Otago.
Leonard Bell, M.D. has been a director since May 2000. Dr. Bell currently serves
as the President and Chief Executive Officer, Secretary and Treasurer of Alexion
Pharmaceuticals, Inc., a pharmaceutical company, which positions he has held
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 is a director of the Connecticut Technology Council and
Connecticut United For Research Excellence, Inc. He also served as a director of
the Biotechnology Research and Development Corporation from 1993 to 1997. Dr.
Bell received his A.B. from Brown University and M.D. from the Yale University
School of Medicine. Dr. Bell is currently an Adjunct Assistant Professor of
Medicine and Pathology at the Yale University School of Medicine. Dr. Bell also
serves as a director of Alexion Pharmaceuticals, Inc.
Dennis B. Gillings, Ph.D. has been a director since September 1996. Dr. Gillings
has served as Chairman and Chief Executive Officer of Quintiles Transnational
Corp., since its founding by him in 1982. Quintiles provides integrated product
development, commercial development and other services to the pharmaceutical,
biotechnology, medical device and healthcare industries. From 1972 to 1988, Dr.
Gillings was a Professor of Biostatistics at the University of North Carolina at
Chapel Hill. Dr. Gillings serves as a director of ICAgen, Inc. and Triangle
Pharmaceuticals, Inc. Dr. Gillings received his diploma in mathematical
statistics from Cambridge University and his Ph.D. in mathematics from the
University of Exeter, United Kingdom.
Anders Hove, M.D., M.Sc., M.B.A. has been a director since December 1998. Dr.
Hove has been a member of the Bellevue Group since 1996, which focuses on
investing in public and private biotechnology companies in the United States and
in Europe. From 1991 to 1996, Dr. Hove held various positions at Ciba-Geigy
Pharmaceuticals Division in clinical development, international marketing and
business development. Dr. Hove currently serves as a director of Virologic,
Inc., a biotechnology company. Dr. Hove received his M.B.A. from INSEAD and his
M.D. from the University of Copenhagen.
M. Fazle Husain has been a director since September 1998. Since 1991, Mr. Husain
has been a General Partner of Morgan Stanley Venture Partners, L.P., a private
partnership affiliated with Morgan Stanley Dean Witter. Mr. Husain focuses
primarily on investments in the health care industry, including health care
services, medical technology and health care
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<PAGE> 47
information technology. He currently serves on the board of directors of
IntegraMed America, Inc., Allscripts, Inc., Healthstream, Inc. and Cardiac
Pathways Corporation. Mr. Husain received his Sc.B. degree in chemical
engineering from Brown University and his M.B.A. from the Harvard Graduate
School of Business Administration.
T. Scott Johnson, M.D. has been a director since September 1996. In July 1999,
Dr. Johnson founded JSB Partners, L.P., an investment bank focusing on mergers
and acquisitions, private financings and corporate alliances within the health
care sector. From July 1991 to June 1999, Dr. Johnson served as a founder and
managing director of MPM Capital, L.P. Dr. Johnson held academic positions at
the Harvard Medical School from 1978 to 1996 and was actively involved in both
basic science and clinical research at the Beth Israel Hospital and the Brigham
and Women's Hospital. Dr. Johnson received both his B.A. and M.D. from the
University of Alabama.
Armin M. Kessler, Dh.c. has been a director since October 1998. Dr. Kessler
joined us after a 35-year career in the pharmaceutical industry, which included
senior management positions at Sandoz Pharma Ltd., Basel, United States and
Japan (now Novartis Pharma A.G.) and, most recently, at Hoffmann-La Roche, Basel
where he was Chief Operating Officer and Head of the Pharmaceutical Division
until 1995. Dr. Kessler has served as a director of Hoffmann-La Roche, Syntex
Corporation and Genentech, Inc., and Dr. Kessler currently serves as a director
of Neutherapeutics, Inc., a biopharmaceutical company. Dr. Kessler received his
degrees in physics and chemistry from the University of Pretoria, his degree in
chemical engineering from the University of Cape Town, his law degree from Seton
Hall and his honorary doctorate in business administration from the University
of Pretoria.
James E. Thomas, M.Sc. has been a director since September 1996. From 1989 to
May 2000, Mr. Thomas served as Managing Director of E.M. Warburg, Pincus & Co.,
LLC. From 1984 to 1989, Mr. Thomas was a Vice President at Goldman Sachs
International in London. Mr. Thomas currently serves as a director of Celtrix
Pharmaceuticals, Inc., Scientific Learning Corporation, Inc. and Transkaryotic
Therapies, Inc. Mr. Thomas received his B.Sc. in finance and economics from the
Wharton School at the University of Pennsylvania and his M.Sc. in economics from
the London School of Economics.
Robert A. Yedid, M.B.A. has been a director since September 1999. Mr. Yedid has
been a Vice President of E.M. Warburg, Pincus & Co., LLC since January 1999. He
is responsible for the firm's investment efforts in specialty pharmaceuticals
and outsourced services to the pharmaceutical industry. From 1992 to 1999, Mr.
Yedid was a Managing Director in the Health Care Group at Bear Stearns
responsible for numerous merger and acquisition transactions and public equity
offerings. From 1983 to 1992, Mr. Yedid was a director at Salomon Brothers Inc.,
an investment banking firm. Mr. Yedid currently serves as a director of Eurand
Pharmaceuticals. Mr. Yedid received his B.A. from Yale University and his M.B.A.
from Stanford University Graduate School of Business.
BOARD COMPOSITION
We currently have nine directors. Pursuant to the terms of a stockholders'
voting agreement that we entered with certain of our stockholders in connection
with the sale of our shares of preferred stock, Messrs. Bell, Gillings, Hove,
Husain, Johnson, Thomas and Yedid were elected to our board of directors. This
agreement will terminate by its terms upon the completion of this offering.
However, so long as any of the investors who were party to that agreement,
excluding Biotech Growth, S.A., own 20% percent of our outstanding common stock,
they will be entitled to nominate two individuals to serve as directors, and so
long as they own 10% of the outstanding common stock, they will be able to
nominate one individual to serve as a director. Accordingly, following this
offering, Warburg, Pincus will be entitled to nominate two individuals to serve
as directors. Mr. Yedid will continue to serve on our board of directors as a
representative of Warburg, Pincus, and Warburg, Pincus shall have the right to
nominate a second director. By our request all directors elected to the board of
directors pursuant to the stockholders' voting agreement have agreed to remain
on the board following this offering.
Upon the closing of this offering the terms of office of the board of directors
will be divided into three classes. As a result, a portion of our board of
directors will be elected each year. The division of the three classes, the
initial directors and their respective election dates are as follows:
- the class 1 directors will be Drs. Gillings, Hove and Johnson, and their term
will expire at the annual meeting of stockholders to be held in 2001;
- the class 2 directors will be Dr. Meanwell and Messrs. Yedid and Husain, and
their term will expire at the annual meeting of stockholders to be held in
2002; and
- the class 3 directors will be Drs. Kessler and Bell and Mr. Thomas and their
term will expire at the annual meeting of stockholders to be held in 2003.
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<PAGE> 48
At each annual meeting of stockholders after the initial classification, the
successors to directors whose terms are to expire will be elected to serve from
the time of election and qualification until the third annual meeting following
their election. The authorized number of directors may be changed only by
resolution of the board of directors. Any additional directorships resulting
from an increase in the number of directors will be distributed among the three
classes so that, as nearly as possible, each class will consist of one-third of
the directors. This classification of the board of directors may have the effect
of delaying or preventing changes in control or management of our company.
BOARD COMMITTEES
Audit Committee. Our audit committee reviews our internal accounting procedures
and consults with, and reviews the services provided by, our independent public
accountants. Current members of our audit committee are Drs. Hove and Johnson
and Mr. Husain.
Compensation Committee. Our compensation committee reviews and recommends to
the board the compensation and benefits of all of our officers and reviews
general policies relating to the compensation and benefits of our employees. The
compensation committee also administers the issuance of stock options and other
awards under our stock plans. Current members of the compensation committee are
Dr. Kessler and Messrs. Thomas and Yedid.
DIRECTOR COMPENSATION
Generally, our non-employee directors receive $2,500 from us for each meeting of
the board of directors which they attend in person and $500 for each meeting in
which they participate by telephone. The chairmen of our audit and compensation
committees receive $1,000 from us for each committee meeting he or she attends
in person and $500 for each committee meeting in which he or she participates by
telephone. Directors are reimbursed for expenses in connection with their
attendance at board meetings.
In addition, we may, in our discretion, grant stock options and other equity
awards to our non-employee directors under our 1998 stock incentive plan. In
1998, Dr. Kessler was granted an option to purchase 14,600 shares of common
stock at an exercise price of $1.23 per share. In May 2000, Dr. Bell and Mr.
Thomas were each granted an option to purchase 14,600 shares of common stock at
an exercise price of $4.79 per share. These options vest in 48 equal monthly
installments commencing one month after the date of grant.
2000 OUTSIDE DIRECTOR STOCK OPTION PLAN
Our 2000 Outside Director Stock Option Plan was adopted by our board of
directors on May 15, 2000. Under the plan, our non-employee directors will be
eligible to receive non-statutory options to purchase shares of our common
stock. A total of 250,000 shares of our common stock may be issued upon the
exercise of options granted under the director stock option plan.
Under the terms of the director stock option plan, each non-employee director
will be granted an option to purchase 20,000 shares of our common stock on the
date of his or her initial election to the board of directors. In addition, each
non-employee director will receive an option to purchase 7,500 shares of our
common stock on the date of each annual meeting of our stockholders commencing
with the 2001 annual meeting of stockholders, other than a director who was
initially elected to the board of directors at any such annual meeting. All
options granted under the plan vest in 48 equal monthly installments commencing
one month after the date of grant. The exercise price per share of all options
will equal the fair market value per share of our common stock on the option
grant date. Each grant under the director stock option plan will have a maximum
term of ten years, subject to earlier termination following the optionee's
cessation of service.
CARDIOLOGY ADVISORY BOARD
We have established a cardiology advisory board to guide and counsel us on all
aspects of interventional cardiology practice. The entire cardiology advisory
board meets twice a year, and we contact individual members as needed. Members
of this board provide input on product research and development strategy,
education and publication plans. We do not employ any of the members of the
cardiology advisory board, and members may have other consulting or advisory
contracts. Accordingly, members devote only a small portion of their time to us.
In addition to the cardiology advisory board, we have consulting
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<PAGE> 49
relationships with a number of scientific and medical experts who advise us on a
project-specific basis. The members of the cardiology advisory board are:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
NAME AFFILIATION TITLE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eric J. Topol, M.D., Chair...... The Cleveland Clinic Foundation Chairman and Professor,
Department of Cardiology
Eric R. Bates, M.D.............. University of Michigan Medical Professor, Internal Medicine
Center
John A. Bittl, M.D.............. Ocala Heart Institute Interventional Cardiologist
Robert M. Califf, M.D........... Duke University Clinical Associate Vice Chancellor,
Research Institute Clinical Research, Professor of
Medicine, CEO
Frederick Feit, M.D............. New York University Medical Director, Cardiac
Center/ Tisch Hospital Catheterization Laboratory
Bernard J. Gersh, M.B., Ch.B.,
D.Phil........................ Mayo Clinic Professor of Medicine
Neal S. Kleiman, M.D............ The Methodist Hospital Assistant Director, Cardiac
Catheterization Laboratories
A. Michael Lincoff, M.D......... The Cleveland Clinic Foundation Director, Experimental
Interventional Laboratory
Jeffrey J. Popma, M.D........... Cardiology Research Foundation Executive Director
Jeffrey I. Weitz, M.D........... McMaster University, Canada Professor of Medicine and
Director, Experimental
Thrombosis and Atherosclerosis
Group
Harvey White, D.Sc.............. Green Lane Hospital, New Zealand Director of Cardiovascular
Research and Coronary Care
</TABLE>
EXECUTIVE COMPENSATION
The following table presents summary information for the year ended December 31,
1999, regarding the compensation of each of our most highly compensated
executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
----------------------------------------
ANNUAL
COMPENSATION
------------ ALL OTHER
NAME AND POSITION YEAR SALARY COMPENSATION
----------------- ---- ------------ ------------
<S> <C> <C> <C>
Clive A. Meanwell, M.D., Ph.D............................... 1999 $200,000 --
President, Chief Executive Officer and Director
John W. Villiger, Ph.D...................................... 1999 $195,000 --
Vice President
Richard Malcolm (1)......................................... 1999 $157,250 $53,675(2)
Former Senior Vice President and Chief Operating Officer
John M. Nystrom, Ph.D....................................... 1999 $165,000 --
Vice President and Chief Technical Officer
Dermot Liddy, M.B.A......................................... 1999 $155,000 --
Vice President
Peyton J. Marshall, Ph.D.................................... 1999 $150,000 --
Senior Vice President and Chief Financial Officer
</TABLE>
---------------
(1) Mr. Malcolm resigned from The Medicines Company effective December 31, 1999.
(2) This figure represents moving and travel expenses.
Option Grants in 1999
No options were granted to our named executive officers during 1999. To date in
2000, we have granted options to purchase 364,781, 143,591, 61,101, 26,937, and
226,446 shares of common stock to Clive Meanwell, John Villiger, John Nystrom,
Dermot Liddy and Peyton Marshall, respectively, at a weighted average exercise
price of $3.83 per share.
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<PAGE> 50
Option Values at December 31, 1999
The following table presents the number and value of securities underlying
unexercised options that are held by each of the individuals listed in the
summary compensation table as of December 31, 1999. No shares were acquired upon
the exercise of stock options by these individuals during the year ended
December 31, 1999.
Amounts shown under the column "Value of Unexercised In-the-Money Options at
December 31, 1999" are based on the assumed initial public offering price of
$15.00 per share, without taking into account any taxes that may be payable in
connection with the transaction, multiplied by the number of shares underlying
the option, less the exercise price payable for these shares.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
------------------------------ ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
---- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
Clive Meanwell, M.D., Ph.D. ................ 14,783 26,097 $209,013 $365,788
John W. Villiger, Ph.D. .................... 9,170 18,387 $129,001 $256,379
Richard Malcolm............................. 36,195 -- $498,313 $ --
John Nystrom, Ph.D. ........................ 22,356 54,293 $307,781 $747,469
Dermot Liddy, M.B.A. ....................... 17,823 19,406 $245,388 $267,163
Peyton Marshall, Ph.D. ..................... 4,745 14,235 $ 65,325 $195,975
</TABLE>
---------------
(1) Our 1998 stock incentive plan provides that stock options which are
otherwise unvested may be exercised for restricted stock which is subject to
vesting and a repurchase option.
EMPLOYMENT AGREEMENTS
Dr. Meanwell serves as our president and chief executive officer pursuant to the
terms of an employment agreement dated September 5, 1996. This agreement renews
automatically on a yearly basis unless either party provides written notice of
non-renewal. Pursuant to the terms of the agreement, Dr. Meanwell's annual
compensation is determined by the board of directors. If Dr. Meanwell terminates
his employment for good reason, as defined in the agreement, or if we elect to
voluntarily terminate his employment, Dr. Meanwell will be entitled to three
months salary and the same health, disability and other benefits as were
provided during his employment for a period of three months after the date of
his termination. Dr. Meanwell has agreed not to compete with us during the term
of his employment and for a period of one year after his termination.
Dr. Villiger serves as one of our vice presidents pursuant to the terms of an
employment agreement dated March 10, 1997. This agreement renews automatically
on a yearly basis unless either party provides written notice of non-renewal.
Pursuant to the terms of the agreement, Dr. Villiger's annual compensation is
determined by the board of directors. If Dr. Villiger terminates his employment
for good reason, as defined in the agreement, or if we elect to voluntarily
terminate his employment, Dr. Villiger will be entitled to three months salary
and the same health, disability and other benefits as were provided during his
employment for a period of three months after the date of his termination. Dr.
Villiger has agreed not to compete with us during the term of his employment and
for a period of one year after his termination.
Dr. Nystrom serves as our Chief Technical Officer pursuant to the terms of an
employment agreement dated September 29, 1998. This agreement renews
automatically on a yearly basis unless either party provides written notice of
non-renewal. Pursuant to the terms of the agreement, Dr. Nystrom's annual
compensation is determined by the board of directors. If Dr. Nystrom terminates
his employment for good reason, as defined in the agreement, Dr. Nystrom will be
entitled to up to six months salary and the same health, disability and other
benefits as were provided during his employment for a period of six months after
the date of his termination. If we elect to voluntarily terminate his
employment, Dr. Nystrom will be entitled to up to three months salary and the
same health, disability and other benefits as were provided during his
employment for a period of three months after the date of his termination. Dr.
Nystrom has agreed not to compete with us during the term of his employment and
for a period of one year after his termination.
Mr. Liddy serves as one of our vice presidents pursuant to the terms of an
employment agreement dated October 27, 1997. This agreement renews automatically
on a yearly basis unless either party provides written notice of non-renewal.
Pursuant to the terms of the agreement, Mr. Liddy's annual compensation is
determined by the board of directors. If Mr. Liddy
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<PAGE> 51
terminates his employment for good reason, as defined in the agreement, or if we
elect to voluntarily terminate his employment, Mr. Liddy will be entitled to
three months salary and the same health, disability and other benefits as were
provided during his employment for a period of three months after the date of
his termination. Mr. Liddy has agreed not to compete with us during the term of
his employment and for a period of one year after his termination.
Dr. Marshall serves as our Chief Financial Officer pursuant to the terms of an
employment agreement dated October 20, 1997. This agreement renews automatically
on a yearly basis unless either party provides written notice of non-renewal.
Pursuant to the terms of the agreement, Dr. Marshall's annual compensation is
determined by the board of directors. If Dr. Marshall terminates his employment
for good reason, as defined in the agreement, or if we elect to voluntarily
terminate his employment, Dr. Marshall will be entitled to three months salary
and the same health, disability and other benefits as were provided during his
employment for a period of three months after the date of his termination. Dr.
Marshall has agreed not to compete with us during the term of his employment and
for a period of one year after his termination.
EMPLOYEE BENEFIT PLANS
1998 Stock Incentive Plan
We adopted our 1998 stock incentive plan in April 1998 and have reserved
4,368,259 shares of our common stock for issuance under the 1998 plan. As of
July 31, 2000 options to purchase 2,468,521 shares of our common stock were
outstanding and 177,471 shares of common stock have been issued upon the
exercise of stock options.
Our 1998 plan provides for the grant of incentive stock options, nonstatutory
stock options, restricted stock and other stock-based awards. Our officers,
employees, directors, consultants and advisors, and those of our subsidiaries,
are eligible to receive awards under the 1998 plan, however, incentive stock
options may only be granted to our employees.
Our board of directors administers the 1998 plan, although it may delegate its
authority to one or more of its committees and, in limited circumstances, to one
or more of our executive officers. Our board of directors has authorized the
compensation committee to administer the plan, including the granting of options
to our executive officers. In accordance with the provisions of the 1998 plan,
our compensation committee selects the recipients of awards and determines the:
- number of shares of common stock covered by options and the dates upon which
such options become exercisable;
- exercise price of options;
- duration of options; and
- number of shares of common stock subject to any restricted stock or other
stock-based awards and the terms and conditions of such awards, including the
conditions for repurchase, issue price and repurchase price.
In the event of a merger or other acquisition event, our board of directors must
provide for all outstanding awards under the 1998 plan to be assumed or
substituted for by the acquiror. If the acquiror does not assume or substitute
for outstanding awards, our board of directors may provide that all unexercised
options will become exercisable in full prior to the completion of the event and
that these options will terminate upon completion of the event if not previously
exercised. If our stockholders will receive cash in the acquisition event, any
options that would become exercisable will be converted into cash. If any of
these events constitutes a change in control, the assumed or substituted options
will be immediately exercisable in full if the holder of the options is
terminated by the acquiror within one year of the change in control.
No award may be granted under the 1998 plan after April 13, 2008 but the vesting
and effectiveness of awards granted before April 13, 2008 may extend beyond
those dates. Our board of directors may at any time amend, suspend or terminate
the 1998 plan except that no award granted after an amendment of the plan and
designated as subject to Section 162(m) of the Internal Revenue Code by our
board of directors shall become exercisable, realizable or vested, to the extent
such amendment was required to grant such award, unless and until such amendment
is approved by our stockholders.
2000 Employee Stock Purchase Plan
Our 2000 Employee Stock Purchase Plan was adopted by our board of directors on
May 15, 2000. The purchase plan will become effective upon the completion of
this offering and authorizes the issuance of up to a total of 255,500 shares of
our common stock to participating employees.
All of our employees, including our directors who are employees and all
employees of any participating subsidiaries, whose customary employment is for
more than five months in any calendar year, are eligible to participate in the
purchase plan.
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<PAGE> 52
Employees who would, immediately after an option grant, own 5% or more of the
total combined voting power or value of our stock or the stock of any of our
subsidiaries are not eligible to participate in the purchase plan.
We will make one or more offerings to our employees to purchase stock under the
purchase plan. Offerings will begin on dates established by our board of
directors, provided that our first offering commencement date will follow
shortly after the date on which trading of our common stock commences on the
Nasdaq National Market in connection with this offering. Each offering
commencement date will begin a six-month period during which payroll deductions
will be made and held for the purchase of our common stock at the end of the
purchase plan period.
On the first day of a designated payroll deduction period, or offering period,
we will grant to each eligible employee who has elected to participate in the
purchase plan an option to purchase shares of our common stock as follows: the
employee may authorize between 1% and 10% of his or her base pay to be deducted
by us during the offering period. On the last day of the offering period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the purchase
plan, the option exercise price is an amount equal to 85% of the closing price,
as defined in the purchase plan, per share of our common stock on either the
first day or the last day of the offering period, whichever is lower. In no
event may an employee purchase in any one offering period a number of shares
which exceeds the number of shares determined by dividing (a) the product of
$2,083 and the number or fraction of months in the offering period by (b) the
closing price of a share of our common stock on the commencement date of the
offering period. Our board of directors may, in its discretion, choose an
offering period of 12 months or less for each offering and may choose a
different offering period for each offering.
An employee who is not a participant on the last day of the offering period is
not entitled to exercise any option, and the employee's accumulated payroll
deductions will be refunded. An employee's rights under the purchase plan
terminate upon voluntary withdrawal from the purchase plan at any time, or when
the employee ceases employment for any reason, except that upon termination of
employment because of death, the employee's beneficiary has certain rights to
elect to exercise the option to purchase the shares that the accumulated payroll
deductions in the employee's account would purchase at the date of death.
Because participation in the purchase plan is voluntary, we cannot now determine
the number of shares of our common stock to be purchased by any particular
current executive officer, by all current executive officers as a group or by
non-executive employees as a group.
401(k) Plan
Our employee savings and retirement plan is qualified under Section 401 of the
Internal Revenue Code. Our employees may elect to reduce their current
compensation by up to the statutorily prescribed annual limit and have the
amount of such reduction contributed to the 401(k) plan. We may make matching or
additional contributions to the 401(k) plan in amounts to be determined annually
by our board of directors.
CHANGE IN CONTROL ARRANGEMENTS
The terms of restricted stock agreements between us and certain of our
employees, as well as the option agreements evidencing the grant of options
under the 1998 plan, provide that in the event that we consummate an
acquisition, as defined in the agreements, and the employee or optionholder,
within a period of one year after the acquisition:
(1) is terminated without cause;
(2) is terminated as the result of death, severe physical or mental disability;
or
(3) terminates his or her employment for good reason in accordance with the
terms of the agreements,
the shares covered by such agreements shall vest in full.
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<PAGE> 53
TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND
FIVE PERCENT STOCKHOLDERS
Since our incorporation in July 1996, we have engaged in the following
transactions with our directors, officers and holders of more than five percent
of our voting securities and affiliates of our directors, officers and five
percent stockholders:
ISSUANCE OF SERIES A PREFERRED STOCK
In September 1996, we issued 4,675 units, each unit consisting of one share of
our series A preferred stock and 365 shares of our common stock, at price per
unit of $1,000 for a total purchase price of $4.7 million. Of the 4,675 units
sold, 4,509 units were sold to the following directors, officers and five
percent stockholders and their affiliates:
<TABLE>
<CAPTION>
-------------------------------------------------
SERIES A
NAME PREFERRED STOCK COMMON STOCK PURCHASE PRICE
---- --------------- ------------ --------------
<S> <C> <C> <C>
Warburg, Pincus Venture Partners, L.P.............. 2,000 730,000 $2,000,000
PharmaBio Development, Inc......................... 1,425 520,125 1,425,000
Hanseatic Americas LDC............................. 500 182,500 500,000
MPM Capital L.P.................................... 250 91,250 250,000
Clive A. Meanwell.................................. 167 60,955 167,000
T. Scott Johnson................................... 167 60,955 167,000
</TABLE>
In June and December 1997, we issued an aggregate of 34,456 units, each unit
consisted of one share of our series A preferred stock and 208.571 shares of
common stock, at price per unit of $1,000 for a total purchase price of $34.6
million. Of the 34,456 units sold, 34,170 units were sold to the following
directors, officers and five percent stockholders and their affiliates:
<TABLE>
<CAPTION>
-------------------------------------------------
SERIES A
NAME PREFERRED STOCK COMMON STOCK PURCHASE PRICE
---- --------------- ------------ --------------
<S> <C> <C> <C>
Biotech Growth S.A................................. 15,000 3,128,571 $15,000,000
Warburg, Pincus Venture Partners, L.P.............. 14,000 2,920,000 14,000,000
PharmaBio Development, Inc......................... 2,670 556,880 2,670,000
Hanseatic Americas LDC............................. 1,500 312,856 1,500,000
Clive A. Meanwell.................................. 550 114,714 550,000
Peyton J. Marshall................................. 350 73,000 350,000
John W. Villiger................................... 100 20,856 100,000
</TABLE>
In April, 1997, we issued three promissory notes in the principal amounts of
$1.2 million, $214,000 and $610,000 to Warburg, Pincus, Hanseatic and Biotech
Target, an affiliate of Biotech Growth, respectively. The outstanding principal
amount of these notes was converted into units in the June 1997 financing.
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<PAGE> 54
EXCHANGE
In August 1998, the holders of the units issued in 1996 and 1997 exchanged these
units, as well as shares of our series A preferred stock issued as stock
dividends in December 1997 and August 1998, into shares of our series I and II
convertible preferred stock. Stockholders who purchased units in 1996 received
shares of our series I convertible preferred stock and those who purchased units
in 1997 received shares of series II convertible preferred stock. The following
directors, officers and five percent stockholders and their affiliates received
shares in the exchange:
<TABLE>
<CAPTION>
------------------------------------
SERIES I SERIES II
NAME PREFERRED STOCK PREFERRED STOCK
---- ----------------- ---------------
<S> <C> <C>
Biotech Growth S.A.......................................... -- 4,621,143
Warburg, Pincus Venture Partners, L.P....................... 1,071,000 4,283,143
PharmaBio Development, Inc.................................. 764,500 818,286
Hanseatic Americas LDC...................................... 268,500 459,714
Clive A. Meanwell........................................... 87,500 165,143
MPM Capital L.P............................................. 135,000 --
Peyton J. Marshall.......................................... -- 104,000
T. Scott Johnson............................................ 90,000 --
John W. Villiger............................................ -- 29,714
</TABLE>
All shares of series I and series II convertible preferred stock, excluding
accrued dividends on such stock from August 1, 2000 through the closing of this
offering, will be automatically converted into an aggregate of 10,911,115 shares
of common stock upon the closing of this offering.
ISSUANCE OF SERIES III CONVERTIBLE PREFERRED STOCK
In August 1998, we issued an aggregate of 8,399,593 shares of series III
preferred stock at a price per share of $4.32 for a total purchase price of
$36.3 million. Of the 8,399,593 shares, 7,037,038 shares were sold to the
following directors, officers and five percent stockholders and their
affiliates:
<TABLE>
<CAPTION>
------------------------------
SERIES III
CONVERTIBLE PURCHASE
NAME PREFERRED STOCK PRICE
---- --------------- -----------
<S> <C> <C>
Warburg, Pincus Venture Partners, L.P....................... 2,546,296 $10,999,999
Morgan Stanley Venture Partners III, L.L.C.................. 1,851,852 8,000,001
Alta Partners............................................... 1,736,112 7,500,004
Biotech Growth S.A.......................................... 462,963 2,000,000
Hanseatic Americas LDC...................................... 393,519 1,700,002
Clive A. Meanwell........................................... 23,148 99,999
Peyton J. Marshall.......................................... 23,148 99,999
</TABLE>
All shares of our series III convertible preferred stock, excluding accrued
dividends on such stock from August 1, 2000 through the closing of this
offering, will be automatically converted into an aggregate of 7,024,739 shares
of our common stock upon the closing of this offering.
1999 DIVIDEND
In July 1999, we issued a stock dividend on all outstanding shares of series I
convertible preferred stock, series II convertible preferred stock and series
III convertible preferred stock. In connection with the dividend, we issued
172,005 shares of series I convertible preferred stock, 725,214 shares of series
II convertible preferred stock and 571,510 shares of series III convertible
preferred stock. The dividend covered the period from August 8, 1998 to July 31,
1999 with respect to series I and II convertible preferred stock and August 12,
1998 to July 31, 1999 with respect to the series III convertible preferred
stock.
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<PAGE> 55
NOTE FINANCINGS
In October 1999, we issued convertible promissory notes in the aggregate
principal amount of $6.0 million. The notes bore interest at a rate of 8% per
year and were redeemable on January 15, 2001. In connection with the issuance of
the notes, we issued common stock purchase warrants to purchase an aggregate of
1,013,877 shares of common stock with an exercise price of $5.92 per share. The
warrants must be exercised by October 19, 2004. The following directors,
officers and five percent stockholders and their affiliates purchased notes and
warrants:
<TABLE>
<CAPTION>
------------------------
WARRANTS TO
PURCHASE
NAME NOTES COMMON STOCK
---- ---------- ------------
<S> <C> <C>
Warburg, Pincus Venture Partners, L.P....................... $2,750,000 464,699
Morgan Stanley Venture Partners III, L.L.C.................. 643,959 108,877
Alta Partners............................................... 604,048 102,072
PharmaBio Development, Inc.................................. 551,103 93,126
Biotech Growth S.A.......................................... 500,000 84,490
Hanseatic Americas LDC...................................... 390,471 65,982
Clive A. Meanwell........................................... 150,000 25,347
Peyton J. Marshall.......................................... 60,175 10,168
T. Scott Johnson............................................ 31,357 5,295
John M. Nystrom............................................. 20,000 3,379
John W. Villiger............................................ 10,000 1,689
</TABLE>
In March 2000, we issued convertible promissory notes in the aggregate principal
amount of $13.3 million. The notes bore interest at a rate of 8% per year and
were redeemable on January 15, 2001. In connection with the issuance of the
notes, we issued common stock purchase warrants to purchase an aggregate of
2,255,687 shares of common stock with an exercise price of $5.92 per share. The
warrants must be exercised by March 2, 2005. The following directors, officers
and five percent stockholders and their affiliates purchased notes and warrants:
<TABLE>
<CAPTION>
------------------------
WARRANTS TO
PURCHASE
NAME NOTES COMMON STOCK
---- ---------- ------------
<S> <C> <C>
Warburg, Pincus Venture Partners, L.P....................... $4,800,000 811,111
Biotech Growth S.A.......................................... 3,500,000 591,435
PharmaBio Development, Inc.................................. 1,120,000 189,259
Morgan Stanley Venture Partners III, L.L.C.................. 1,132,279 191,333
Alta Partners............................................... 1,100,000 185,879
Hanseatic Americas LDC...................................... 680,000 114,907
Armin M. Kessler............................................ 200,000 33,796
Clive A. Meanwell........................................... 200,000 33,796
T. Scott Johnson............................................ 50,000 8,449
Peyton J. Marshall.......................................... 50,000 8,449
John M. Nystrom............................................. 10,000 1,689
John W. Villiger............................................ 10,000 1,689
</TABLE>
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<PAGE> 56
On May 17, 2000, the outstanding aggregate principal amount of the notes issued
in October 1999 and March 2000, and accrued interest thereon, were converted
into an aggregate of 4,535,366 shares of our series IV convertible preferred
stock. The following directors, executive officers and five percent stockholders
and their affiliates received 4,351,491 shares of our series IV preferred stock
in the conversion:
<TABLE>
<CAPTION>
------------------------------
SERIES IV
NAME NOTES PREFERRED STOCK
---- ---------- ----------------
<S> <C> <C>
Warburg, Pincus Venture Partners, L.P....................... $7,639,901 1,768,495
Biotech Growth S.A.......................................... 4,060,110 939,840
Morgan Stanley Venture Partners III, L.L.C.................. 1,797,789 416,153
Alta Partners............................................... 1,724,556 399,201
PharmaBio Development, Inc.................................. 1,691,752 391,609
Hanseatic Americas LDC...................................... 1,083,210 250,743
Clive A. Meanwell........................................... 353,874 81,915
Armin M. Kessler............................................ 203,332 47,067
Peyton J. Marshall.......................................... 111,225 25,746
T. Scott Johnson............................................ 82,283 19,047
John M. Nystrom............................................. 30,239 6,999
John W. Villiger............................................ 20,203 4,676
</TABLE>
ISSUANCE OF SERIES IV CONVERTIBLE PREFERRED STOCK
In May 2000, we issued an aggregate of 1,411,000 shares of our series IV
convertible preferred stock at a price per share of $4.32 for a total purchase
price of $6.1 million. Of the 1,411,000 shares, 1,355,000 shares were sold to
the following directors, officers and five percent stockholders and their
affiliates:
<TABLE>
<CAPTION>
---------------------------------
SERIES IV
PREFERRED
NAME STOCK PURCHASE PRICE
---- --------------- --------------
<S> <C> <C>
Warburg, Pincus Venture Partners, L.P....................... 555,000 $2,397,600
Biotech Growth S.A.......................................... 345,000 1,490,400
Morgan Stanley Venture Investors III, L.L.C................. 130,000 561,600
Alta Partners............................................... 130,000 561,600
PharmaBio Development, Inc.................................. 115,000 496,800
Hanseatic Americas LDC...................................... 80,000 345,600
</TABLE>
All shares of our series IV convertible preferred stock, including the shares
issued upon the conversion of the notes, excluding accrued dividends on such
stock from August 1, 2000 through the closing of this offering, will be
automatically converted into an aggregate of 4,402,443 shares of common stock
upon the consummation of this offering.
2000 DIVIDEND
In July 2000, we issued a stock dividend on all outstanding shares of series I
convertible preferred stock, series II convertible preferred stock, series III
convertible preferred stock and series IV convertible preferred stock. In
connection with the dividend we issued 136,844 shares of series I convertible
preferred stock, 576,961 shares of series II convertible preferred stock,
459,556 shares series III convertible preferred stock and 61,609 shares of
series IV convertible preferred stock. The dividend covered the period from
August 1, 1999 to July 31, 2000 with respect to the series I, II and III
convertible preferred stock and May 17, 2000 to July 31, 2000 with respect to
the series IV convertible preferred stock.
CERTAIN RELATIONSHIPS
PharmaBio/Quintiles
In August 1996, we entered into a strategic alliance with PharmaBio Development,
Inc., a wholly owned subsidiary of Quintiles Transnational Corp. Under the terms
of the strategic alliance agreement, PharmaBio and any of its affiliates who
work on our projects will, at no cost to us, review and evaluate, jointly with
us, development programs we design related to
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<PAGE> 57
potential or actual product acquisitions. The purpose of this collaboration is
to optimize the duration, cost, specifications and quality aspects of such
programs. PharmaBio and its affiliates have also agreed to perform other
services with respect to our products, including clinical and non-clinical
development services, project management, project implementation,
pharmacoeconomic services, regulatory affairs and post-marketing surveillance
services and statistical, statistical programming, data processing and data
management services pursuant to work orders agreed to by us and PharmaBio from
time to time. As of June 30, 2000, we have entered into 36 work orders with
PharmaBio and have paid PharmaBio a total of $9.62 million. We have outstanding
obligations to PharmaBio of an additional $785,660 under outstanding work
orders.
In addition, under the strategic alliance agreement, if PharmaBio and its
affiliates exceed performance milestones agreed upon prior to the initiation of
services under any work order, we will pay certain bonuses (not to exceed 10% of
the net revenues PharmaBio and its affiliates received for such services) which,
at the option of PharmaBio, may be paid in shares of our common stock. To date,
performance milestones have been requested and agreed upon for one work order
out of the work orders completed or outstanding, and no such agreed upon
milestones remain outstanding.
Innovex
In January 1997, we entered into a consulting agreement with Innovex, Inc., a
subsidiary of Quintiles, which was subsequently superseded by a consulting
agreement we executed with Innovex in December 1998. Pursuant to the terms of
these agreements, Innovex has provided us with consulting services with respect
to pharmaceutical marketing and sales. Since December 1997, we have also entered
into various clinical services agreements with Innovex pursuant to which Innovex
has provided project management, clinical monitoring, site management, medical
monitoring, regulatory affairs, data management and quality assurance services
with respect to clinical trials of Angiomax. None of the clinical services
agreements is currently outstanding. As of June 30, 2000, we have paid Innovex
$1.6 million under all of these agreements.
In July 2000, we signed a letter of intent with Innovex to enter into a sales
agreement under which Innovex would provide sales and marketing services in
connection with Angiomax. Although the letter of intent contemplates the
negotiation and execution of a binding sales agreement and can be terminated at
any time by either party if no binding sales agreement is reached, we have
agreed in the letter of intent that Innovex will begin performing its services
immediately. These services will include recruiting and training up to 50 sales
representatives and engaging in other agreed-upon activities. Under the terms of
the letter of intent, we initially will pay Innovex a total of approximately
$962,000 for its services.
Stack Pharmaceuticals
In April 2000, we entered into an agreement with Stack Pharmaceuticals, Inc.,
which is an entity controlled by David Stack, one of our Senior Vice Presidents.
Pursuant to the terms of this agreement, Stack Pharmaceuticals will perform
infrastructure services for us, which includes providing office facilities,
equipment and supplies for our employees based in New Jersey, and such
consulting, advisory and related services for us as we may agree from time to
time. For the infrastructure services, we have agreed to pay Stack
Pharmaceuticals a services fee of $23,600 per month. The fees for any additional
services to be provided to us will be agreed upon with Stack Pharmaceuticals
prior to the delivery of such services. The term of this agreement continues
until April 1, 2001, but either party may terminate it earlier upon 90 days
prior written notice. From January 2000 through March 2000, Stack
Pharmaceuticals provided us with consulting services under a consulting
agreement which expired on March 31, 2000. As of June 30, 2000, we have paid
Stack Pharmaceuticals a total of $215,250 under these agreements.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The following table presents information regarding the beneficial ownership of
our common stock as of July 31, 2000, and as adjusted to reflect the sale of our
common stock offered by this prospectus, by:
- each of the individuals listed in the "Summary Compensation Table" above;
- each of our directors;
- each person, or group of affiliated persons, who is known by us to
beneficially own five percent or more of our common stock; and
- all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and
generally includes shares of capital stock held by that person as of July 31,
2000 as set forth under the heading "Number of Shares Beneficially Owned" below
and shares of common stock under options held by that person that are currently
exercisable or exercisable within 60 days of July 31, 2000 as set forth under
the heading "Shares Issuable Pursuant to Options and Warrants Exercisable within
60 days of July 31, 2000" below. These shares, however, are not considered
outstanding when computing the percentage ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to state
community property laws, each stockholder named in the table has sole voting and
investment power for the shares shown as beneficially owned by them. Percentage
of ownership is based on 23,324,923 shares of common stock on an as-converted
basis outstanding on July 31, 2000 and 28,324,923 shares of common stock on an
as-converted basis outstanding after completion of this offering. Unless
otherwise indicated in the footnotes, the address of each of the individuals
named below is: c/o The Medicines Company, One Cambridge Center, Cambridge,
Massachusetts 02142.
<TABLE>
<CAPTION>
--------------------------------------------------------
BENEFICIAL OWNERSHIP
PRIOR TO OFFERING
----------------------------------
SHARES ISSUABLE PERCENTAGE
PURSUANT TO OPTIONS BENEFICIALLY
NUMBER OF AND WARRANTS OWNED
SHARES EXERCISABLE -------------------
BENEFICIALLY WITHIN 60 DAYS BEFORE AFTER
OWNED OF JULY 31, 2000 OFFERING OFFERING
------------ ------------------- -------- --------
<S> <C> <C> <C> <C>
5% STOCKHOLDERS:
Warburg, Pincus Ventures, L.P.(1)........................... 8,313,281 1,275,810 39.0% 32.4%
Biotech Growth S.A.(2)...................................... 5,194,736 675,925 24.5% 20.2%
PharmaBio Development, Inc.(3).............................. 1,696,245 282,385 8.4% 6.9%
Morgan Stanley Venture Partners(4).......................... 1,948,985 300,210 9.5% 7.9%
Alta Partners(5)............................................ 1,839,897 287,951 9.0% 7.4%
Hanseatic Americas LDC(6)................................... 1,180,952 180,889 5.8% 4.8%
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Clive A. Meanwell........................................... 509,835 115,314 2.7% 2.1%
Peyton J. Marshall(7)....................................... 271,117 47,310 1.4% 1.1%
John M. Nystrom(8).......................................... 36,311 20,278 * *
Dermot Liddy................................................ 63,510 21,354 * *
John W. Villiger(9)......................................... 199,410 10,221 * *
Richard Malcolm............................................. 16,681 -- * *
Leonard Bell................................................ -- 1,216 * *
Dennis B. Gillings(10)...................................... -- -- -- --
Anders D. Hove(11).......................................... -- -- -- --
M. Fazle Husain(12)......................................... 1,948,985 300,210 9.5% 7.9%
T. Scott Johnson(13)........................................ 89,223 13,744 * *
Armin M. Kessler............................................ 34,745 40,791 * *
James E. Thomas............................................. -- 1,216 * *
Robert A. Yedid(14)......................................... -- -- -- --
All directors and executive officers as a group (16
persons).................................................. 4,851,140 854,039 23.6% 19.6%
</TABLE>
---------------
* Represents beneficial ownership of less than 1 percent.
56
<PAGE> 59
(1) Warburg, Pincus Ventures, L.P. is the stockholder. Warburg, Pincus & Co. is
the sole general partner of Warburg, Pincus Ventures. Warburg, Pincus
Ventures is managed by E.M. Warburg, Pincus & Co. Lionel I. Pincus is the
managing partner of Warburg, Pincus and the managing member of E.M.
Warburg, Pincus and may be deemed to control both entities and have
ultimate voting and dispositive power over the shares held of record by
Warburg, Pincus Ventures. The address of Warburg, Pincus Ventures, L.P. is
466 Lexington Avenue, New York, New York 10017-3147.
(2) Pablo Javier Espino, Aida May Biggs and Adelina M. De Estribi, members of
the board of directors of Biotech Growth S.A., share ultimate voting and
dispositive power over the shares held of record by Biotech Growth S.A. The
address of each person and Biotech Growth S.A. is c/o Morgan & Morgan, 53
Street Urbainazcion Obarrio, Torre Swiss Bank, 16th Floor, Republic of
Panama.
(3) Pharma Bio Development, Inc. is a wholly owned subsidiary of Quintiles
Transnational Corp., a publicly held company. The address for PharmaBio
Development, Inc. is c/o Quintiles Transnational Corp., 4709 Creekstone
Drive, Riverbirch Building, Durham, North Carolina 27703-8411.
(4) Includes 1,709,996 shares of common stock and warrants to purchase 263,399
shares of common stock held by Morgan Stanley Venture Partners III, L.P.,
164,181 shares of common stock and warrants to purchase 25,288 shares of
common stock held by Morgan Stanley Venture Investors III, L.P. and 74,808
shares of common stock and warrants to purchase 11,523 shares of common
stock held by The Morgan Stanley Venture Partners Entrepreneur Fund, L.P.
Morgan Stanley Dean Witter & Co. is the sole stockholder of Morgan Stanley
Venture Partners III, Inc., which is the managing member of Morgan Stanley
Venture Capital III, L.L.C., which is the general partner of each of Morgan
Stanley Venture Capital III, L.P., Morgan Stanley Venture Investors III,
L.P. and The Morgan Stanley Venture Partners Entrepreneur Fund, L.P. The
address for Morgan Stanley Venture Partners is 1221 Avenue of the Americas,
33rd Floor, New York, New York 10020.
(5) Includes 1,143,656 shares of common stock and warrants to purchase 178,987
shares of common stock held by Alta BioPharma Partners, L.P., 43,104 shares
of common stock and warrants to purchase 6,746 shares of common stock held
by Alta Embarcadero BioPharma Partners, LLC and 653,137 shares of common
stock and warrants to purchase 102,218 shares of common stock held by The
Medicines Company Chase Partners (Alta Bio), LLC. Jean Deleage, Garrett
Gruener, Daniel Janney, Alix Marduel, Guy Nohra and Marino Polestra, the
managing directors of both Alta BioPharma Partners and The Medicines
Company Chase Partners (Alta Bio), share ultimate voting and dispositive
power over the shares held of record by Alta BioPharma Partners and The
Medicines Company Chase Partners (Alta Bio). Jean Deleage, Garrett Gruener
and Eileen McCarthy, the managing directors of Alta Embarcadero BioPharma
Partners, share ultimate voting and dispositive power over the shares held
of record by Alta Embarcadero BioPharma Partners. The principals of Alta
Partners, as managing directors of the foregoing entities, disclaim
beneficial ownership of all shares held by the funds, except to the extent
of their proportionate pecuniary interests therein. The address for Alta
Partners is One Embarcadero Center, Suite 4050, San Francisco, California
94111.
(6) Hanseatic Americas LDC is a Bahamian limited duration company. Hansabel
Partners LLC, a Delaware limited liability company, is the sole managing
member of Hanseatic Americas LDC. The sole managing member of Hansabel
Partners LLC is Hanseatic Corporation, a New York corporation. Wolfgang
Traber owns more than 50% of the shares of capital stock of Hanseatic
Corporation. The address for each such entity or person is 450 Park Avenue,
Suite 2302, New York, New York 10022.
(7) Includes 58,400 shares of common stock held in custody for the benefit of
his minor children.
(8) Includes 10,220 shares of common stock held by Dr. Nystrom's children. Dr.
Nystrom disclaims beneficial ownership of these shares.
(9) Includes 199,400 shares of common stock and warrants to purchase 3,378
shares of common stock held in trust for the benefit of the Villiger
Family.
(10) Does not include 1,691,245 shares of common stock or warrants to purchase
282,385 shares of common stock held by PharmaBio Development, Inc., a
wholly owned subsidiary of Quintiles Transnational Corp. Mr. Gillings is
the Chairman and Chief Executive Officer of Quintiles Transnational Corp.
Mr. Gillings disclaims beneficial ownership of these shares.
(11) Does not include 5,166,131 shares of common stock or warrants to purchase
675,925 shares of common stock held by Biotech Growth S.A. Dr. Hove is
affiliated with Bellevue Group which serves as the non-discretionary
investment manager of Biotech Growth S.A. Dr. Hove disclaims beneficial
ownership of these shares.
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<PAGE> 60
(12) Consists solely of shares of common stock and warrants to purchase common
stock held by Morgan Stanley Venture Partners III, L.P., Morgan Stanley
Venture Investors III, L.P. and The Morgan Stanley Venture Partners
Enterpreneur Fund, L.P. Mr. Husain is a vice president of Morgan Stanley
Venture Partners III, Inc. which is the sole member of Morgan Stanley
Venture Partners III, L.L.C., which is a general partner of each of Morgan
Stanley Venture Partners III, L.P., Morgan Stanley Venture Investors III,
L.P. and The Morgan Stanley Venture Partners Entrepreneur Fund, L.P. Mr.
Husain disclaims beneficial ownership of these shares.
(13) Includes 16,693 shares of common stock held in trust for the benefit of his
minor children.
(14) Mr. Yedid is a Vice President of E.M. Warburg, Pincus.
58
<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
After this offering, our authorized capital stock will consist of 75,000,000
shares of common stock, $0.001 par value per share, and 5,000,000 shares of
undesignated preferred stock, $1.00 par value per share.
The following summary of our capital stock, and some of the provisions of our
certificate of incorporation and other agreements to which we and our
stockholders are parties, is not intended to be complete and is qualified by
reference to our certificate of incorporation and any other agreements included
as exhibits to the registration statement of which this prospectus is a part.
See "Where You Can Find More Information."
COMMON STOCK
As of July 31, 2000 there were 986,626 shares of our common stock outstanding
held by 63 stockholders of record.
The holders of our common stock are entitled to one vote for each share held on
all matters submitted to a vote of the stockholders and do not have any
cumulative voting rights. Accordingly, holders of a majority of the shares of
common stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of our common stock are entitled to
receive proportionally any dividends declared by our board of directors, subject
to any preferential dividend rights of outstanding preferred stock.
In the event of our liquidation, dissolution or winding up, holders of our
common stock are entitled to share ratably in all assets remaining after payment
of all debts and other liabilities, subject to the prior rights of any
outstanding preferred stock. Holders of our common stock have no preemptive,
subscription, redemption or conversion rights. All outstanding shares of our
common stock are validly issued, fully paid and nonassessable. The shares to be
issued by us in this offering will be, when issued and paid for, validly issued,
fully paid and nonassessable. The rights, preferences and privileges of holders
of our common stock are subject to, and may be adversely affected by, the rights
of holders of shares of any series of preferred stock that we may designate and
issue in the future.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of our convertible
preferred stock, assuming this offering closed on July 31, 2000, will
automatically convert into 22,338,297 shares of common stock. Accrued dividends
on such stock from August 1, 2000 until the closing of this offering will also
convert into common stock upon the closing of the offering. Thereafter, under
the terms of our certificate of incorporation, our board of directors will be
authorized to issue shares of preferred stock in one or more series without
further stockholder approval. The board has discretion to determine the rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences of
each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock and
determine its rights and preferences is to eliminate delays associated with a
stockholder vote on specific issuances. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
acquire, or could discourage a third-party from acquiring, a majority of our
outstanding voting stock.
WARRANTS
As of July 31, 2000, we had outstanding common stock purchase warrants entitling
their holders to purchase an aggregate of 3,269,564 shares of common stock at an
exercise price of $5.92 per share. In October 1999, we issued warrants
exercisable at any time prior to October 19, 2004 for 1,013,877 shares of our
common stock in connection with the sale of 8% convertible promissory notes in
the aggregate principal amount of $6.0 million. In March 2000, we issued
warrants exercisable at any time prior to March 2, 2005 for 2,255,687 shares of
our common stock in connection with the sale of 8% convertible promissory notes
in the aggregate principal amount of $13.3 million.
REGISTRATION RIGHTS
After this offering, the holders of the 22,338,297 shares of common stock issued
upon conversion of our convertible preferred stock and warrants exercisable for
3,269,564 shares of common stock will be entitled to require us to register
their shares under the Securities Act as provided in a registration rights
agreement between us and such holders. Under this agreement, if we propose to
register any of our securities under the Securities Act, either for our account
or for the account of other security holders exercising registration rights, the
holders are entitled to notice of the registration and to include
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<PAGE> 62
their shares of common stock in the registration. Additionally, such holders
may, on up to two occasions, require us to register their shares of common stock
under the Securities Act. In addition, we are required to use our best efforts
to effect any such registration. We are responsible for paying the expense of
any such registration. Further, such holders may require us to file nine
additional registration statements on form S-3 at our expense. These
registration rights are subject to conditions and limitations, including the
right of the underwriters of an offering to limit the number of shares included
in such registration and our right not to effect a requested registration within
180 days following an offering of our securities pursuant to a Form S-1,
including this offering.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER AND BY-LAW PROVISIONS
Delaware Law
We are subject to the provisions of Section 203 of the Delaware General
Corporate Law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that the stockholder
became an interested stockholder unless:
- prior to the date, the board of directors of the corporation approved either
the business combination or the transaction that resulted in the stockholder
becoming an interested stockholder;
- upon consummation of the transaction that resulted in the stockholder becoming
an interested stockholder, the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced, excluding those shares owned by persons who are directors and also
officers, and employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held under the plan will
be tendered in a tender or exchange offer; or
- on or subsequent to the date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
two-thirds of the outstanding voting stock that is not owned by the interested
stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- in general, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as an entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Charter and By-law Provisions
Our charter and our amended and restated by-laws that will be effective upon the
closing of this offering provide for the division of our board of directors into
three classes as nearly equal in size as possible with staggered three-year
terms. See "Management -- Board Composition." Under our charter and by-laws, any
vacancy on the board of directors, including a vacancy resulting from an
enlargement of the board of directors, may only be filled by vote of a majority
of the directors then in office. The classification of the board of directors
and the limitation on and filling of vacancies could make it more difficult for
a third party to acquire, or discourage a third party from acquiring, control of
our company.
Our charter and by-laws also provide that after this offering, any action
required or permitted to be taken by our stockholders at an annual or special
meeting of stockholders may only be taken if it is properly brought before such
meeting and may not be taken by written action in lieu of a meeting. Our by-laws
will further provide that special meetings of the stockholders may only be
called by the chairman of our board of directors, our president or a majority of
our board. In order for any matter to be considered "properly brought" before a
meeting, a stockholder must comply with certain requirements regarding advance
notice and provide us with certain information. These provisions could have the
effect of delaying until
60
<PAGE> 63
the next stockholders meeting stockholder actions which are favored by the
holders of a majority of our outstanding voting securities.
The General Corporation Law of Delaware provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or by-laws, unless a
corporation's certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. Our charter and our by-laws will require the
affirmative vote of holders of at least 50% of the votes which all the
stockholders would be entitled to cast in any annual election of directors or
class of directors to amend or repeal any of the provisions described in the
prior two paragraphs.
Our certificate of incorporation will contain certain provisions permitted under
the General Corporation Law of Delaware relating to the liability of directors.
These provisions eliminate a director's liability for monetary damages for a
breach of fiduciary duty, except in certain circumstances involving wrongful
acts, such as the breach of a director's duty of loyalty or acts or omissions
which involve intentional misconduct or a knowing violation of law. Further, our
certificate of incorporation will contain provisions to indemnify our directors
and officers to the fullest extent permitted by the General Corporation Law of
Delaware. We believe that these provisions will assist us in attracting and
retaining qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
ChaseMellon Shareholder Services, LLC has been appointed as the transfer agent
and registrar for our common stock.
NASDAQ NATIONAL MARKET LISTING
Our shares of common stock have been approved for listing on the Nasdaq National
Market under the symbol "MDCO".
61
<PAGE> 64
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock.
Future sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices. Upon the closing of this
offering, assuming this offering closed on July 31, 2000, we will have
outstanding an aggregate of 28,324,923 shares of common stock. Of these shares,
all of the shares sold in this offering will be freely tradable without
restriction or further registration under the Securities Act, unless these
shares are purchased by affiliates. The remaining 23,324,923 shares of common
stock, assuming this offering closed on July 31, 2000, held by existing
stockholders are restricted securities. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under the Securities Act.
Our executive officers, directors and stockholders have agreed pursuant to
"lock-up" agreements that, with limited exceptions, for a period of 180 days
from the date of this prospectus, they will not sell any shares of common stock
without the prior written consent of J.P. Morgan Securities Inc.
As a result of these "lock-up" agreements and the rules under the Securities
Act, the restricted shares will be available for sale in the public market,
subject, to certain volume and other restrictions, as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
DAYS AFTER THE NUMBER OF SHARES
EFFECTIVE DATE ELIGIBLE FOR SALE COMMENT
---------------- ----------------- ------------------------------------------------------------
<S> <C> <C>
On Effectiveness 124,649 Shares not locked-up and eligible for sale under Rule 144
90 days 128,590 Shares not locked-up and eligible for sale under Rules 144
and 701
180 days 23,324,923 Lock-up released; shares eligible for sale under Rules 144
and 701
</TABLE>
Additionally, of the 2,468,521 shares that may be issued upon the exercise of
options outstanding as of July 31, 2000, approximately 412,690 shares are
subject to options which will be vested and exercisable 180 days after the date
of this prospectus.
Registration Rights
On the date 180 days after the completion of this offering, assuming this
offering closed on July 31, 2000, the holders of 22,338,297 shares of our common
stock and warrants exercisable for 3,269,564 additional shares of common stock,
will have rights to require us to register their shares under the Securities
Act. Upon the effectiveness of a registration statement covering these shares,
the shares would become freely tradable.
Stock Options
Immediately after this offering, we intend to file a registration statement
under the Securities Act covering approximately 4,696,288 shares of common stock
reserved for issuance under our stock plans. We expect the registration
statement to be filed and become effective as soon as practicable after the
closing of this offering. Accordingly, shares registered under such registration
statement will be available for sale in the open market after the effectiveness
of the registration statement, unless they are held by persons that have signed
a "lock-up" agreement.
62
<PAGE> 65
UNDERWRITING
J.P. Morgan Securities Inc. is acting as sole book running manager for this
offering. We and the underwriters named below have entered into an underwriting
agreement covering the common stock to be offered in this offering. J.P. Morgan
Securities Inc., FleetBoston Robertson Stephens Inc. and CIBC World Markets
Corp. are acting as representatives of the underwriters. Each underwriter has
agreed to purchase the number of shares of common stock set forth opposite its
name in the following table.
<TABLE>
<CAPTION>
----------------
NUMBER OF SHARES
----------------
<S> <C>
UNDERWRITERS
J.P. Morgan Securities Inc................................
FleetBoston Robertson Stephens Inc........................
CIBC World Markets Corp...................................
----------
Total.................................................. 5,000,000
==========
</TABLE>
The underwriting agreement provides that if the underwriters take any of the
shares presented in the table above, then they must take all of these shares. No
underwriter is obligated to take any shares allocated to a defaulting
underwriter except under limited circumstances.
The underwriters are offering the shares of common stock, subject to the prior
sale of shares, and when, as and if such shares are delivered to and accepted by
them. The underwriters will initially offer to sell shares to the public at the
initial public offering price shown on the cover page of this prospectus. The
underwriters may sell shares to securities dealers at a discount of up to
$ per share from the initial public offering price. Any such securities
dealers may resell shares to certain other brokers or dealers at a discount of
up to $ per share from the initial public offering price. After the
initial public offering, the underwriters may vary the public offering price and
other selling terms.
If the underwriters sell more shares than the total number shown in the table
above, the underwriters have the option to buy up to an additional 750,000
shares of common stock from us to cover such sales. They may exercise this
option during the 30-day period from the date of this prospectus. If any shares
are purchased with this option, the underwriters will purchase shares in
approximately the same proportion as shown in the table above.
The following table shows the per share and total underwriting discounts and
commissions that we will pay to the underwriters. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
Total..................................................... $ $
</TABLE>
The underwriters may purchase and sell shares of common stock in the open market
in connection with this offering. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
slowing a decline in the market price of the common stock while this offering is
in progress. The underwriters may also impose a penalty bid, which means that an
underwriter must repay to the other underwriters a portion of the underwriting
discount received by it. An underwriter may be subject to a penalty bid if the
representatives of the underwriters, while engaging in stabilizing or short
covering transactions, repurchase shares sold by or for the account of that
underwriter. These activities may stabilize, maintain or otherwise affect the
market price of the common stock. As a result, the price of the common stock may
be higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise.
One or more of the underwriters may facilitate the marketing of this offering
online directly or through one of its affiliates. In those cases, prospective
investors may view offering terms and a prospectus online and, depending upon
the particular underwriter, place orders online or through their financial
advisor.
We estimate that the total expenses of this offering, excluding underwriting
discounts, will be $1,300,000.
63
<PAGE> 66
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
We, our executive officers, directors and stockholders have agreed that during
the period beginning from the date of this prospectus and continuing to and
including the date 180 days after the date of this prospectus, none of us will,
directly or indirectly, offer, sell, offer to sell, contract to sell or
otherwise dispose of any shares of common stock or any of our securities which
are substantially similar to the common stock, including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, common stock or any substantially similar securities or enter
into any swap, option, future, forward or other agreement that transfers, in
whole or in part, the economic consequence of ownership of common stock or any
securities substantially similar to the common stock, other than pursuant to
employee stock option plans existing on the date of this prospectus, without the
prior written consent of J.P. Morgan Securities, Inc.
At our request, the underwriters have reserved shares of common stock for sale
to our directors, officers, employees, consultants, third-party contractors and
family members of the foregoing who express an interest in participating in this
offering. We expect these persons to purchase no more than five percent, or
250,000 shares, of the common stock offered in this offering. The number of
shares available for sale to the general public will be reduced to the extent
such persons purchase such reserved shares.
Our shares of common stock have been approved for listing on the Nasdaq National
Market under the symbol "MDCO".
It is expected that delivery of the shares will be made to investors on or about
August 10, 2000.
There has been no public market for the common stock prior to this offering. We
and the underwriters will negotiate the initial offering price. In determining
the price, we and the underwriters expect to consider a number of factors in
addition to prevailing market conditions, including:
- the history of and prospects for our industry and for biotechnology companies
generally;
- an assessment of our management;
- our present operations;
- our historical results of operations;
- the trend of our revenues and earnings; and
- our earnings prospects.
We and the underwriters will consider these and other relevant factors in
relation to the price of similar securities of generally comparable companies.
Neither we nor the underwriters can assure investors that an active trading
market will develop for the common stock, or that the common stock will trade in
the public market at or above the initial offering price.
From time to time in the ordinary course of their respective businesses, certain
of the underwriters and their affiliates have engaged in and may in the future
engage in commercial banking and/or investment banking transactions with us and
our affiliates. In addition, FleetBoston Robertson Stephens Inc. and its
affiliates own shares of our convertible preferred stock that will convert into
84,196 shares of common stock upon the closing of this offering, assuming this
offering closed on July 31, 2000, which will represent less than 1% of our
outstanding common stock assuming completion of this offering.
64
<PAGE> 67
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of common stock
offered hereby will be passed upon us by Hale and Dorr LLP, Boston,
Massachusetts. Legal matters in connection with the offering will be passed upon
for the underwriters by Cahill Gordon & Reindel, New York, New York. Upon
consummation of this offering, partners of Hale and Dorr LLP beneficially own an
aggregate of 23,634 shares of our common stock, assuming this offering closed on
July 31, 2000, and warrants exercisable for 1,554 additional shares of common
stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated financial
statements as of December 31, 1998 and 1999 and for each of the three years in
the period ended December 31, 1999, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act of 1933 regarding the shares of common stock offered by us. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information contained in the registration statement, some
items of which are contained in exhibits to the registration statement as
permitted by the rules and regulations of the SEC. For further information on us
and the common stock we are offering, please see the registration statement,
including the exhibits, and the financial statements and notes filed as a part
of the registration statement. A copy of the registration statement, including
the exhibits and the financial statements and notes filed as a part of it, may
be inspected without charge at the public reference facilities maintained by the
SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
all or any part of the registration statement may be obtained from the SEC upon
the payment of fees prescribed by it. The SEC also maintains a website at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding companies that file electronically with it.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934 and will file
periodic reports, proxy statements and other information with the SEC. You may
inspect any of these document as described in the preceding paragraph.
65
<PAGE> 68
INDEX TO THE
CONSOLIDATED FINANCIAL STATEMENTS OF
THE MEDICINES COMPANY
(a company in the development stage)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Redeemable Preferred Stock and
Stockholders' Deficit..................................... F-5
Consolidated Statements of Cash Flows....................... F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 69
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
The Medicines Company
We have audited the accompanying consolidated balance sheets of The Medicines
Company (a company in the development stage) as of December 31, 1998 and 1999,
and the related consolidated statements of operations, redeemable preferred
stock and stockholders' deficit, and cash flows, for each of the three years in
the period ended December 31, 1999, and the statement of redeemable preferred
stock and stockholders' deficit for the period July 31, 1996 (date of inception)
to December 31, 1999. 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 auditing standards generally accepted
in the United States. 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Medicines Company at December 31, 1998 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
April 17, 2000, except for the first and
second paragraphs of Note 14,
as to which the date is May 17, 2000 and
the third paragraph of Note 14 as to
which the date is August 4, 2000
F-2
<PAGE> 70
THE MEDICINES COMPANY
(a company in the development stage)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
---------------------------------------------
AS OF DECEMBER 31,
---------------------------- MARCH 31,
1998 1999 2000
------------ ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 8,997,522 $ 6,643,266 $ 12,295,203
Marketable securities.................................... 19,343,183 539,274 --
Accrued interest receivable.............................. 745,515 55,225 26,679
Prepaid expenses and other current assets................ 195,475 154,967 246,593
------------ ------------ -------------
Total current assets............................. 29,281,695 7,392,732 12,568,475
Fixed assets, net.......................................... 382,692 430,061 386,963
Other assets............................................... 166,479 168,605 169,660
------------ ------------ -------------
Total assets..................................... $ 29,830,866 $ 7,991,398 $ 13,125,098
============ ============ =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable......................................... $ 2,287,048 $ 7,815,028 $ 9,972,997
Accrued expenses......................................... 2,425,107 3,680,293 5,090,413
------------ ------------ -------------
Total current liabilities........................ 4,712,155 11,495,321 15,063,410
Convertible notes.......................................... -- 5,776,319 7,652,324
Commitments and contingencies
Redeemable Convertible Preferred Stock, $1 par value;
31,550,000 shares authorized; shares issued and
outstanding: 21,493,621 at December 31, 1998 and
22,962,350 at December 31, 1999 and March 31, 2000, at
redemption value (Liquidation value of $86,167,821 at
December 31, 1999 and $87,633,023 at March 31, 2000)..... 79,384,470 85,277,413 86,807,169
Stockholders' deficit:
Common stock, $.001 par value, 36,000,000 shares
authorized; shares issued and outstanding: 889,778 and
833,400 at December 31, 1998 and 1999, respectively,
and 818,800 at March 31, 2000......................... 890 834 819
Additional paid-in capital............................... 13,810 339,144 23,032,180
Deferred stock compensation.............................. -- -- (3,750,000)
Deficit accumulated during the development stage......... (54,319,117) (94,925,028) (115,697,811)
Accumulated other comprehensive income, principally
foreign currency translation.......................... 38,658 27,395 17,007
------------ ------------ -------------
Total stockholders' deficit...................... (54,265,759) (94,557,655) (96,397,805)
------------ ------------ -------------
Total liabilities and stockholders' deficit................ $ 29,830,866 $ 7,991,398 $ 13,125,098
============ ============ =============
</TABLE>
See accompanying notes.
F-3
<PAGE> 71
THE MEDICINES COMPANY
(a company in the development stage)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31, PERIOD JULY 31, 1996
------------------------------------------ -------------------------- (DATE OF INCEPTION)
1997 1998 1999 1999 2000 TO MARCH 31, 2000
------------ ------------ ------------ ----------- ------------ --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating expenses:
Research and
development....... $ 16,044,367 $ 24,004,606 $ 30,344,892 $ 7,207,200 $ 10,641,866 $ 81,862,966
General and
administrative.... 2,420,373 6,248,265 5,008,387 1,276,042 1,197,971 15,576,303
------------ ------------ ------------ ----------- ------------ -------------
Total
operating
expenses... 18,464,740 30,252,871 35,353,279 8,483,242 11,839,837 97,439,269
------------ ------------ ------------ ----------- ------------ -------------
Loss from operations... (18,464,740) (30,252,871) (35,353,279) (8,483,242) (11,839,837) (97,439,269)
Other income (expense):
Interest income...... 688,049 1,302,073 837,839 346,178 103,835 2,993,461
Interest expense..... (29,235) -- (197,455) -- (7,507,025) (7,733,715)
------------ ------------ ------------ ----------- ------------ -------------
Net loss............... (17,805,926) (28,950,798) (34,712,895) (8,137,064) (19,243,027) (102,179,523)
Dividends and accretion
to redemption value
of redeemable
preferred stock...... (2,018,265) (3,958,903) (5,893,016) (1,436,114) (1,529,756) (13,518,288)
------------ ------------ ------------ ----------- ------------ -------------
Net loss attributable
to common
stockholders......... $(19,824,191) $(32,909,701) $(40,605,911) $(9,573,178) $(20,772,783) $(115,697,811)
============ ============ ============ =========== ============ =============
Basic and diluted net
loss attributable to
common stockholders
per common share..... $ (4.06) $ (6.03) $ (80.08) $ (21.09) $ (32.91)
Unaudited pro forma
basic and diluted net
loss attributable to
common stockholders
per common share..... $ -- $ -- $ (1.94) $ (0.48) $ (0.55)
Shares used in
computing net loss
attributable to
common stockholders
per common share:
Basic and diluted.... 4,887,230 5,454,653 507,065 453,865 631,276
Unaudited pro forma
basic and
diluted........... 17,799,876 16,858,990 21,407,651
</TABLE>
See accompanying notes.
F-4
<PAGE> 72
THE MEDICINES COMPANY
(a company in the development stage)
CONSOLIDATED STATEMENTS OF REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
FOR THE PERIOD JULY 31, 1996 (DATE OF INCEPTION) TO MARCH 31, 2000
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
REDEEMABLE REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ------------------------ ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------- ------------ ---------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock....... $ 2,042,175 $ 2,042 $ 755
Issuance of redeemable
preferred stock.............. 4,675 $ 4,675,000
Accretion of preferred stock to
redemption value............. 118,348
Net loss.......................
------- ------------ ---------- ----------- ----------- -------- -----------
Balance at December 31,
1996....................... 4,675 4,793,348 -- -- 2,042,175 2,042 755
Employee stock purchases....... 627,070 627 232
Issuance of common stock....... 7,186,537 7,187 2,658
Issuance of redeemable
preferred stock.............. 34,456 33,498,408
Dividends on preferred stock... 1,175 1,056,652
Accretion of preferred stock to
redemption value............. 957,592
Net loss.......................
Currency translation
adjustment...................
Unrealized gain on marketable
securities...................
Comprehensive loss.............
------- ------------ ---------- ----------- ----------- -------- -----------
Balance at December 31,
1997....................... 40,306 40,306,000 -- -- 9,855,782 9,856 3,645
Employee stock purchases....... 34,887 35 1,312
Repurchase of common stock..... (107,979) (108) (40)
Exchange of redeemable
preferred stock for
redeemable convertible
preferred stock.............. (41,992) (41,992,000) 13,071,714 41,992,000 (8,892,912) (8,893) 8,893
Issuance of redeemable
convertible preferred
stock........................ 8,421,907 35,126,419
Dividends on preferred stock... 1,686 1,686,000
Accretion of preferred stock to
redemption value............. 2,266,051
Net loss.......................
Currency translation
adjustment...................
Unrealized loss on marketable
securities...................
Comprehensive loss.............
------- ------------ ---------- ----------- ----------- -------- -----------
Balance at December 31,
1998....................... -- -- 21,493,621 79,384,470 889,778 890 13,810
<CAPTION>
----------------------------------------------
DEFICIT
ACCUMULATED
DURING THE COMPREHENSIVE TOTAL
DEFERRED STOCK DEVELOPMENT INCOME STOCKHOLDERS'
COMPENSATION STAGE (LOSS) DEFICIT
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Issuance of common stock....... $ $ $ $ 2,797
Issuance of redeemable
preferred stock..............
Accretion of preferred stock to
redemption value............. (118,348) (118,348)
Net loss....................... (1,466,877) (1,466,877)
-------------- ------------- ------------- -------------
Balance at December 31,
1996....................... -- (1,585,225) -- (1,582,428)
Employee stock purchases....... 859
Issuance of common stock....... 9,845
Issuance of redeemable
preferred stock..............
Dividends on preferred stock... (1,060,673) (1,060,673)
Accretion of preferred stock to
redemption value............. (957,592) (957,592)
Net loss....................... (17,805,926) (17,805,926)
Currency translation
adjustment................... 1,806 1,806
Unrealized gain on marketable
securities................... 7,274 7,274
-------------
Comprehensive loss............. (17,796,846)
-------------- ------------- ------------- -------------
Balance at December 31,
1997....................... -- (21,409,416) 9,080 (21,386,835)
Employee stock purchases....... 1,347
Repurchase of common stock..... (148)
Exchange of redeemable
preferred stock for
redeemable convertible
preferred stock.............. --
Issuance of redeemable
convertible preferred
stock........................
Dividends on preferred stock... (1,692,852) (1,692,852)
Accretion of preferred stock to
redemption value............. (2,266,051) (2,266,051)
Net loss....................... (28,950,798) (28,950,798)
Currency translation
adjustment................... 31,562 31,562
Unrealized loss on marketable
securities................... (1,984) (1,984)
-------------
Comprehensive loss............. (28,921,220)
-------------- ------------- ------------- -------------
Balance at December 31,
1998....................... -- (54,319,117) 38,658 (54,265,759)
</TABLE>
See accompanying notes.
F-5
<PAGE> 73
THE MEDICINES COMPANY
(a company in the development stage)
CONSOLIDATED STATEMENTS OF REDEEMABLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT--(CONTINUED)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
REDEEMABLE REDEEMABLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ------------------------ ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
------- ------------ ---------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Repurchase of common stock..... (56,378) (56) (21)
Dividends on preferred stock... 1,468,729 5,351,178
Accretion of preferred stock to
redemption value............. 541,765
Issuance of warrants associated
with convertible notes....... 325,355
Net loss.......................
Currency translation
adjustment...................
Unrealized loss on marketable
securities...................
Comprehensive loss.............
------- ------------ ---------- ----------- ----------- -------- -----------
Balance at December 31,
1999....................... -- -- 22,962,350 85,277,413 833,400 834 339,144
Repurchase of common stock
(unaudited).................. (14,600) (15) (5)
Accretion of preferred stock to
redemption value
(unaudited).................. 1,529,756
Issuance of warrants associated
with convertible notes
(unaudited).................. 18,793,041
Deferred compensation expense
associated with stock options
(unaudited).................. 3,900,000
Amortization of deferred stock
compensation (unaudited).....
Net loss (unaudited)...........
Currency translation adjustment
(unaudited)..................
Unrealized gain on marketable
securities (unaudited).......
Comprehensive loss
(unaudited)..................
------- ------------ ---------- ----------- ----------- -------- -----------
Balance at March 31, 2000
(unaudited).............. -- $ -- 22,962,350 $86,807,169 818,800 $ 819 $23,032,180
======= ============ ========== =========== =========== ======== ===========
<CAPTION>
----------------------------------------------
DEFICIT
ACCUMULATED
DURING THE COMPREHENSIVE TOTAL
DEFERRED STOCK DEVELOPMENT INCOME STOCKHOLDERS'
COMPENSATION STAGE (LOSS) DEFICIT
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Repurchase of common stock..... (77)
Dividends on preferred stock... (5,351,251) (5,351,251)
Accretion of preferred stock to
redemption value............. (541,765) (541,765)
Issuance of warrants associated
with convertible notes....... 325,355
Net loss....................... (34,712,895) (34,712,895)
Currency translation
adjustment................... (3,847) (3,847)
Unrealized loss on marketable
securities................... (7,416) (7,416)
-------------
Comprehensive loss............. (34,724,158)
----------- ------------- -------- -------------
Balance at December 31,
1999....................... -- (94,925,028) 27,395 (94,557,655)
Repurchase of common stock
(unaudited).................. (20)
Accretion of preferred stock to
redemption value
(unaudited).................. (1,529,756) (1,529,756)
Issuance of warrants associated
with convertible notes
(unaudited).................. 18,793,041
Deferred compensation expense
associated with stock options
(unaudited).................. (3,900,000) --
Amortization of deferred stock
compensation (unaudited)..... 150,000 150,000
Net loss (unaudited)........... (19,243,027) (19,243,027)
Currency translation adjustment
(unaudited).................. (12,514) (12,514)
Unrealized gain on marketable
securities (unaudited)....... 2,126 2,126
-------------
Comprehensive loss
(unaudited).................. (19,253,415)
----------- ------------- -------- -------------
Balance at March 31, 2000
(unaudited).............. $(3,750,000) $(115,697,811) $ 17,007 $ (96,397,805)
=========== ============= ======== =============
</TABLE>
See accompanying notes.
F-6
<PAGE> 74
THE MEDICINES COMPANY
(a company in the development stage)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31, PERIOD JULY 31, 1996
------------------------------------------ -------------------------- (DATE OF INCEPTION)
1997 1998 1999 1999 2000 TO MARCH 31, 2000
------------ ------------ ------------ ----------- ------------ --------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss....................... $(17,805,926) $(28,950,798) $(34,712,895) $(8,137,064) $(19,243,027) $(102,179,523)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization............... 26,411 98,413 207,663 41,618 62,994 404,516
Amortization of discount on
convertible notes.......... -- -- 101,674 -- 7,320,267 7,421,941
Amortization of deferred
stock compensation......... -- -- -- -- 150,000 150,000
Changes in operating assets and
liabilities:
Accrued interest receivable.... (40,000) (705,515) 690,290 15,273 28,547 (26,679)
Prepaid expenses and other
current assets............... (24,958) (156,812) 39,141 16,852 (92,073) (246,593)
Other assets................... (14,356) (152,165) (3,349) -- (1,422) (169,660)
Accounts payable............... 2,226,904 (31,864) 5,528,544 560,379 2,159,075 9,972,997
Accrued expenses............... 4,187,395 (1,928,001) 1,258,366 1,425,109 1,412,312 5,090,413
------------ ------------ ------------ ----------- ------------ -------------
Net cash used in operating
activities..................... (11,444,530) (31,826,742) (26,890,566) (6,077,833) (8,203,327) (79,582,588)
------------ ------------ ------------ ----------- ------------ -------------
Cash flows from investing
activities:
Purchases of marketable
securities................... (30,184,125) (29,861,162) -- -- -- (60,045,287)
Maturities and sales of
marketable securities........ 11,984,911 28,722,483 18,796,493 3,899,932 541,400 60,045,287
Purchase of fixed assets....... (114,534) (357,103) (258,788) (51,291) (23,200) (793,266)
------------ ------------ ------------ ----------- ------------ -------------
Net cash provided by (used in)
investing activities........... (18,313,748) (1,495,782) 18,537,705 3,848,641 518,200 (793,266)
------------ ------------ ------------ ----------- ------------ -------------
Cash flows from financing
activities:
Proceeds from issuance of
convertible notes and
warrants..................... -- -- 6,000,000 -- 13,348,779 19,348,779
Proceeds from issuances of
preferred stock, net......... 33,498,408 35,126,419 -- -- -- 73,299,827
Proceeds from issuances of
common stock................. 10,704 1,347 -- -- -- 14,848
Repurchases of common stock.... -- (148) (77) -- (20) (245)
Dividends paid in cash......... (4,021) (6,852) (73) -- -- (10,946)
------------ ------------ ------------ ----------- ------------ -------------
Net cash provided by financing
activities..................... 33,505,091 35,120,766 5,999,850 -- 13,348,759 92,652,263
Effect of exchange rate changes
on cash........................ 1,806 29,928 (1,245) 5,432 (11,695) 18,794
------------ ------------ ------------ ----------- ------------ -------------
Increase (decrease) in cash and
cash equivalents............... 3,748,619 1,828,170 (2,354,256) (2,223,760) 5,651,937 12,295,203
Cash and cash equivalents at
beginning of period............ 3,420,733 7,169,352 8,997,522 8,997,522 6,643,266 --
------------ ------------ ------------ ----------- ------------ -------------
Cash and cash equivalents at end
of period...................... $ 7,169,352 $ 8,997,522 $ 6,643,266 $ 6,773,762 $ 12,295,203 $ 12,295,203
============ ============ ============ =========== ============ =============
Non-cash transactions:
Dividends on preferred stock... $ 1,175,000 $ 1,686,000 $ 5,351,178 $ -- $ -- $ 8,212,178
============ ============ ============ =========== ============ =============
Supplemental disclosure of cash
flow information:
Interest paid.................. $ 29,235 $ -- $ -- $ -- $ -- $ 29,235
============ ============ ============ =========== ============ =============
</TABLE>
See accompanying notes.
F-7
<PAGE> 75
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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. The Company
is a development-stage enterprise, as defined in Statement of Financial
Accounting Standards No. 7, and has, since inception, been developing business
plans, acquiring product rights, conducting initial commercialization
activities, obtaining financing, performing research and development, conducting
regulatory activities and recruiting and training personnel.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the reported amounts
of expenses during the reporting period. Actual results could differ from those
estimates.
Risks and Uncertainties
The Company is subject to risks common to companies in the pharmaceutical
industry including, but not limited to, uncertainties related to regulatory
approvals, dependence on key products, and protection of proprietary rights.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk include cash, cash equivalents and marketable securities. The
Company believes it minimizes its exposure to potential concentrations of credit
risk by placing investments in high-quality financial instruments.
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, but less than one year. The Company considers 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.
At December 31, 1998 and 1999, marketable securities consisted of investments in
corporate bonds with maturities of less than one year and are summarized as
follows:
<TABLE>
<CAPTION>
--------------------------------------------
UNREALIZED
AMORTIZED COST GAIN (LOSS) FAIR VALUE
-------------- ----------- -----------
<S> <C> <C> <C>
December 31, 1998...................................... $19,337,893 $ 5,290 $19,343,183
December 31, 1999...................................... $ 541,400 $(2,126) $ 539,274
</TABLE>
There were no sales of available-for-sale securities during the years ended
December 31, 1998 and 1999, although there were maturities of such securities as
disclosed in the accompanying consolidated statements of cash flows. Proceeds
from
F-8
<PAGE> 76
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
sales of available-for-sale securities during the year ended December 31, 1997
were approximately $4,000,000. Gross gains or losses on these sales were
immaterial.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs were
approximately $583,000, $1,491,000 and $484,000 for the years ended December 31,
1997, 1998 and 1999, respectively.
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided using the
straight-line method based on estimated useful lives or, in the case of
leasehold improvements, over the lesser of the useful lives or the lease terms.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has elected to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25").
Translation of Foreign Currencies
The functional currencies of the Company's foreign subsidiaries are the local
currencies, British pound sterling, Swiss franc and New Zealand dollar. The
Company translates its foreign operations using a current exchange rate. In
accordance with Statement of Financial Accounting Standards No. 52, assets and
liabilities are exchanged using the current exchange rate as of the balance
sheet date. Expenses and items of income are exchanged using a weighted average
exchange rate over the period ended on the balance sheet date. Adjustments
resulting from the translation of the financial statements of the Company's
foreign subsidiaries into U.S. dollars using current exchange rates are excluded
from the determination of net loss and are accumulated in a separate component
of stockholders' deficit. Foreign exchange transaction gains and losses are
included in the results of operations and are not material to the Company's
consolidated financial statements.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between
financial reporting and income tax bases of assets and liabilities, as well as
net operating loss carryforwards, and are measured using the enacted tax rates
and laws that will be in effect when the differences reverse. Deferred tax
assets are reduced by a valuation allowance to reflect the uncertainty
associated with ultimate realization.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB
101), which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101, as amended, is
effective beginning the second quarter of calendar years beginning after
December 15, 1999 and requires companies to report any changes in revenue
recognition as a cumulative change in accounting principle at the time of
implementation. Adoption of SAB 101 is not expected to have a material impact on
the Company's financial position or results of operations, since the Company has
no revenues to date.
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 adoption of
this new standard is not expected to have a material impact on the Company's
financial condition or results of operations.
F-9
<PAGE> 77
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net Loss Per Share
Basic net loss per share is computed using the weighted average number of shares
of common stock outstanding during the period reduced, where applicable, for
outstanding, yet unvested, shares. Diluted net loss per share includes the
effect of stock options, warrants and redeemable convertible preferred stock and
convertible notes outstanding during the period, if dilutive. Since the Company
has a net loss for all periods presented, the effect of all potentially dilutive
securities is antidilutive. Accordingly, basic and diluted net loss per share is
the same.
Unaudited Pro Forma Net Loss Per Share
Unaudited pro forma net loss per share is computed using the weighted average
number of common shares outstanding, including the pro forma effects of
automatic conversion of all outstanding redeemable convertible preferred stock
and accrued dividends and the convertible notes and accrued interest through
each balance sheet date into shares of the Company's common stock effective upon
the assumed closing of the Company's proposed initial public offering, as if
such conversion had occurred at the date of original issuance.
Segments
The Company is a development stage company focused on the acquisition,
development and commercialization of late-stage development drugs. The Company
has license rights to three potential products, Angiomax, CTV-05 and IS-159. The
Company manages its business and operations as one segment. There are no
revenues to date for any potential products and the Company's assets are not
identifiable to its three potential products.
Unaudited Interim Financial Statements
The consolidated financial statements as of March 31, 2000 and for the three
months ended March 31, 1999 and 2000 and the period July 31, 1996 (date of
inception) to March 31, 2000 have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring accruals, considered necessary
for a fair presentation of the results of these interim periods have been
included. The results of operations for the three months ended March 31, 2000
are not necessarily indicative of the results that may be expected for the full
year.
3. MANAGEMENT'S PLANS AND FINANCING
The Company is a development stage company and has incurred substantial losses
since inception. To date, the Company has funded its operations through the
issuance of debt and equity. The Company expects to continue to expend
substantial amounts for continued product research, development and initial
commercialization activities for the foreseeable future and management's plans
with respect to funding this development are to secure additional equity, if
possible, and to secure collaborative partnering arrangements that will provide
available cash funding for operations.
Should additional equity financing or collaborative partnering arrangements be
unavailable to the Company, management will restrict certain of the Company's
planned activities and operations, as necessary, to sustain operations and
conserve cash resources.
F-10
<PAGE> 78
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
--------------------------------------
DECEMBER 31,
ESTIMATED ----------------------
LIFE (YEARS) 1998 1999
------------ --------- ---------
<S> <C> <C> <C>
Furniture, fixtures and equipment.......................... 3 $ 278,550 $ 323,685
Computer hardware and software............................. 3 177,433 213,376
Leasehold improvements..................................... 5 49,945 216,064
--------- ---------
505,928 753,125
Less: Accumulated depreciation............................. (123,236) (323,064)
--------- ---------
$ 382,692 $ 430,061
========= =========
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following at:
<TABLE>
<CAPTION>
---------------------------------------
DECEMBER 31,
------------------------ MARCH 31,
1998 1999 2000
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Development services..................................... $2,002,625 $3,283,767 $4,450,751
Other.................................................... 422,482 396,526 639,662
---------- ---------- ----------
$2,425,107 $3,680,293 $5,090,413
========== ========== ==========
</TABLE>
6. CONVERTIBLE NOTES
In October 1999, the Company issued $6,000,000 of 8% Convertible Notes ("the
Notes") and 1,013,877 Common Stock Purchase Warrants ("the Warrants") to
existing investors, raising proceeds of $6,000,000. The Notes are redeemable on
January 15, 2001 and accrue interest semi-annually at a rate of 8% per annum.
The Notes are convertible into shares of stock of the Company upon a subsequent
sale of stock of the Company provided that such sale results in aggregate gross
proceeds of at least $6,000,000. The Notes are convertible into a number of
shares of stock determined by dividing the outstanding principal and interest on
the date of the subsequent sale by the price per share of such sale. Each
Warrant provides the holder with the right to purchase one share of common stock
of the Company at a price of $5.92 per share at any time prior to October 19,
2004. The exercise price and the number of shares underlying the Warrants could
be adjusted in certain circumstances related to future issuances of capital
stock. The Company has recorded $325,355 as the fair value of the Warrants using
the Black-Scholes method and $5,674,645 as the value of the Notes on the
issuance date. The discount on the Notes is being amortized to interest expense
over the expected term of the Notes, which the Company anticipates to be to June
2000. Since the Notes were issued in October 1999, the carrying amount
approximates fair value at December 31, 1999.
In March 2000, the Company issued $13,348,779 of 8% Convertible Notes ("the
Notes") and 2,255,687 Common Stock Purchase Warrants ("the Warrants") to current
stockholders, raising proceeds of $13,348,779. The Notes are redeemable on
January 15, 2001 and accrue interest semi-annually at a rate of 8% per annum.
The Notes are convertible into shares of stock of the Company upon a subsequent
private sale of stock of the Company provided that such sale results in
aggregate gross proceeds of at least $6,000,000. The Notes are convertible into
a number of shares of stock determined by dividing the outstanding principal and
interest on the date of the subsequent sale by the price per share of such sale.
Each Warrant provides the holder with the right to purchase one share of Common
Stock of the Company at a price of $5.92 per share at any time prior to March
2005. The exercise price and the number of shares underlying the Warrants could
be adjusted in certain circumstances related to future issuances of common
stock. The Company has recorded approximately $18,800,000
F-11
<PAGE> 79
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
as the value of the Warrants using the Black-Scholes method and the estimated
fair market value of the Company's common stock on the date of the issuance of
the warrants. The discount on the Notes is being amortized over the expected
term of the Notes, which the Company anticipates to be to June 2000. In the
period ended March 31, 2000, amortization of the discount was approximately
$7,500,000 and is included with interest expense in the accompanying financial
statements.
7. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
Series I, Series II and Series III Redeemable Convertible Preferred Stock
The Company has designated three series of redeemable convertible preferred
stock as of December 31, 1998 and 1999 and March 31, 2000. A summary of the
Series I, Series II and Series III Redeemable Convertible Preferred Stock is as
follows.
<TABLE>
<CAPTION>
-----------------------------------------
DECEMBER 31,
-------------------------- MARCH 31,
1998 1999 2000
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Series I, $1 par value, 3,550,000 shares authorized,
2,506,000 and 2,678,005 shares issued and
outstanding at December 31, 1998 and 1999,
respectively (Liquidation value of $5,512,225 at
December 31, 1999 and $5,605,955 at March 31,
2000)............................................... $ 5,153,297 $ 5,512,225 $ 5,605,955
Series II, $1 par value, 15,850,000 shares authorized,
10,565,714 and 11,290,928 shares issued and
outstanding at December 31, 1998 and 1999,
respectively (Liquidation value of $40,670,864 at
December 31, 1999 and $41,362,433 at March 31,
2000)............................................... 38,022,532 40,670,864 41,362,433
Series III, $1 par value, 12,150,000 shares
authorized, 8,421,907 and 8,993,417 shares issued
and outstanding at December 31, 1998 and 1999,
respectively (Liquidation value of $39,984,732 at
December 31, 1999 and $40,664,634 at March 31,
2000)............................................... 36,208,641 39,094,324 39,838,781
----------- ----------- -----------
Total....................................... $79,384,470 $85,277,413 $86,807,169
=========== =========== ===========
</TABLE>
In August 1998, the Company executed an agreement (the "Exchange Agreement")
under which 8,892,912 shares of common stock and 41,992 shares of Series A
Redeemable Preferred Stock were exchanged for 2,506,000 shares of Series I
Redeemable Convertible Preferred Stock and 10,565,714 shares of Series II
Redeemable Convertible Preferred Stock. Holders of Series A Redeemable Preferred
Stock were entitled to receive preferential cumulative annual dividends payable
in additional shares of Series A Redeemable Preferred Stock at the rate of 7%
per annum of the stated value. Prior to the Exchange Agreement, dividends earned
from January 1, 1998 through the date of the Exchange Agreement were paid to the
holders of Series A Redeemable Preferred Stock. During 1997, certain preferred
shareholders waived their right to a portion of earned dividends and the Company
paid agreed-upon amounts through December 31, 1997. To the extent that all or
any part of the Stock would have resulted in the issuance of a fractional share
of the Series A Preferred stock, the amount of such fraction, multiplied by the
stated value, was paid in cash.
A summary of the rights, preferences and privileges of the Series I, Series II
and Series III Redeemable Convertible Preferred Stock ("Series Preferred Stock")
is as follows:
Dividends. The holders of each series of Series Preferred Stock are entitled to
receive, prior to any distribution to the holders of Common Stock, preferential
cumulative dividends payable in additional shares of such series of Series
Preferred Stock at a rate of 7% per share per annum of the liquidation value of
such series of Series Preferred Stock. Such dividends are paid annually
commencing on July 31, 1999 in additional preferred stock.
Liquidation. In the event of any liquidation, dissolution or winding up of the
Company (either voluntary or involuntary), the holders of Series Preferred Stock
are entitled to receive, out of the assets of the Company available for
distribution to its stockholders, a per share amount equal to $2.00 per share in
the case of the Series I Preferred Stock, $3.50 per share in the
F-12
<PAGE> 80
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
case of the Series II Preferred Stock and $4.32 in the case of the Series III
Preferred Stock, plus any accrued but unpaid dividends (the liquidation value).
These distributions will be made prior to any distributions to other
stockholders. Any amounts remaining after making such distributions will be
distributed to the holders of Common Stock and Series Preferred Stock on parity
with each other. If the remaining assets of the Company available for
distribution to its stockholders are insufficient to pay all of the holders of
Series Preferred Stock, distributions will be made first to the Series III
Preferred Stockholders and then to the Series I and II Preferred Stockholders on
a pro-rata basis.
Conversion. Holders of shares of Series Preferred Stock have the right to
convert their shares at any time into shares of Common Stock. The conversion
rate for each series of Series Preferred Stock is 0.73 for 1. The conversion
rate for each series of Series Preferred Stock is subject (i) to proportional
adjustments for splits, reverse splits, recapitalizations, etc., and (ii) to
formula-weighted average adjustments in the event that the Company issues
additional shares of Common Stock or securities convertible into or exercisable
for Common Stock at a purchase price less than the applicable conversion price
then in effect, other than the issuance of shares to directors, officers,
employees and consultants pursuant to stock plans approved by the Board of
Directors and certain other exceptions. Each share of Series Preferred Stock
will be automatically converted into shares of Common Stock upon the closing of
the sale of shares of Common Stock at a price of at least $8.90 per share
(subject to appropriate adjustment for stock dividends, stock splits,
combinations and other similar recapitalizations affecting such shares) in an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, resulting in at least $15,000,000 of gross
proceeds to the Company. In addition, all shares of Series Preferred Stock will
be automatically converted into shares of Common Stock upon conversion of at
least two-thirds of the aggregate shares of Series I and II Preferred Stock or
conversion of at least 80% of the shares of Series III Preferred Stock then
outstanding.
Redemption. The Company will redeem the outstanding shares of Series Preferred
Stock in three equal annual installments commencing July 31, 2002 at a price
equal to the liquidation value of such shares. The redemption of Series
Preferred Stock outstanding at December 31, 1999 will require payments of
$28,722,607 in 2002, 2003 and 2004, respectively, based on the redemption value
at December 31, 1999.
Voting. Generally, holders of shares of Series Preferred Stock vote on all
matters, including the election of directors, with the holders of shares of
Common Stock on an as-converted basis, except where a class vote is required by
law.
Accretion. Series Preferred Stock is accreted to its redemption value to
recognize issuance costs over the period from issuance to redemption using the
interest method and to reflect accrued but unpaid dividends.
Common Stock
Common Stockholders are entitled to one vote per share and dividends when
declared by the Board of Directors, subject to the preferential rights of
preferred stockholders.
During 1996, 1997 and 1998, certain employees of the Company purchased 335,800,
627,070 and 32,850 shares of common stock, respectively, for $0.001 per share.
These shares are subject to restriction and vesting agreements that limit
transferability and allow the Company to repurchase unvested shares at the
original purchase price. The shares vest ratably over a four-year period that
generally begins on each employee's hire date. During 1998 and 1999, the Company
repurchased 107,979 and 56,378 shares, respectively, of unvested common stock
for $0.001 per share. There were 228,869 shares of common stock unvested at
December 31, 1999.
1998 Stock Incentive Plan
In April 1998, the Company adopted the 1998 Stock Incentive Plan (the "Plan")
which provides for the grant of stock options, restricted stock and other
stock-based awards to employees, directors and consultants. The plan allows for
the issuance of up to 1,083,259 shares of common stock through April 2008. The
Board of Directors determines the term of each option, the option price, the
number of shares for which each option is granted and the rate at which each
option is exercisable. During 1999, the Board of Directors amended all
outstanding grants to allow holders the opportunity to exercise
F-13
<PAGE> 81
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
options prior to vesting. Exercised options that are unvested are subject to
repurchase by the Company at the original exercise price. Options granted under
the plan generally vest in increments over four years.
In January 2000, the Board of Directors approved an amendment to the Plan to
increase the number of shares available under the Plan to 1,448,259.
The Board of Directors of the Company has determined the fair value of the
Company's common stock in its good faith judgment at each option grant date for
grants under the Plan considering a number of factors including the financial
and operating performance of the Company, recent transactions in the Company's
common and preferred stock, if any, the values of similarly situated companies
and the lack of marketability of the Company's common stock.
The Company has elected to follow APB 25 in accounting for its stock options
granted to employees because the alternative fair value accounting provided for
under SFAS 123, requires the use of option valuation models that were not
developed for use in valuing employee stock options. Because the exercise price
of the Company's stock options generally equals the market price of the
underlying stock on the date of grant, no compensation is recognized under APB
25. Had compensation costs for the Plan been determined based on the fair value
at the grant dates as calculated in accordance with SFAS 123, the Company's net
loss for the years ended December 31, 1998 and 1999 would have been increased to
the pro forma amounts indicated below. The Company had no options outstanding
during the year ended December 31, 1997 and, accordingly, no pro forma net loss
per share has been calculated.
<TABLE>
<CAPTION>
--------------------------
YEAR ENDED DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net loss attributable to common stockholders--As reported... $32,909,701 $40,605,911
Net loss attributable to common stockholders--Pro forma..... $32,965,764 $40,771,828
Net loss per share attributable to common stockholders--As
reported.................................................. $ (6.03) $ (80.08)
Net loss per share attributable to common stockholders--Pro
forma..................................................... $ (6.04) $ (80.41)
</TABLE>
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
------------------------
YEAR ENDED DECEMBER 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Expected dividend yield..................................... 0% 0%
Expected stock price volatility............................. 70% 70%
Risk-free interest rate..................................... 4.70% 5.45%
Expected option term........................................ 3.38 years 3.30 years
</TABLE>
F-14
<PAGE> 82
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of stock option activity under the Plan is as follows:
<TABLE>
<CAPTION>
-----------------------------
NUMBER OF WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding, December 31, 1997.............................. -- $ --
Granted..................................................... 734,745 1.11
Exercised................................................... (2,037) 0.64
Canceled.................................................... (27,437) 0.88
--------- ----------------
Outstanding, December 31, 1998.............................. 705,271 1.12
Granted..................................................... 239,075 1.23
Canceled.................................................... (175,380) 1.05
--------- ----------------
Outstanding, December 31, 1999.............................. 768,966 1.16
Granted (Unaudited)......................................... 587,942 1.38
Canceled (Unaudited)........................................ (197,553) 1.11
--------- ----------------
Outstanding, March 31, 2000 (Unaudited)..................... 1,159,355 1.29
========= ================
Available for future grant at March 31, 2000 (Unaudited).... 286,866
=========
</TABLE>
The weighted average fair value of options granted during 1998 and 1999 was
$0.55 and $0.62, respectively.
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
OPTIONS VESTED
OPTIONS OUTSTANDING -------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING REMAINING EXERCISE OUTSTANDING EXERCISE
PRICES AT 12/31/99 CONTRACTUAL LIFE PRICE AT 12/31/99 PRICE
-------- -------------- ---------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$ 0.68 91,462 8.18 years $ 0.68 63,319 $ 0.68
$ 1.23 677,504 9.01 years $ 1.23 206,636 $ 1.23
-------------- ---------------- -------- -------------- --------
768,966 8.91 years $ 1.16 269,955 $ 1.11
============== ================ ======== ============== ========
</TABLE>
Common Stock Reserved for Future Issuance
At December 31, 1999, there were 20,376,606 shares of common stock reserved for
future issuance for conversion of the Series Preferred Stock, Convertible Notes,
Common Stock Warrants and for grants made under the 1998 Stock Incentive Plan.
F-15
<PAGE> 83
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. 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 respective
periods. The unaudited pro forma basic and diluted net loss per share gives
effect to the conversion of the redeemable convertible preferred stock and the
convertible notes and accrued interest as if converted at the date of original
issuance.
<TABLE>
<CAPTION>
--------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Basic and Diluted
Net loss.................................................... $(17,805,926) $(28,950,798) $(34,712,895)
Dividends and accretion on redeemable convertible preferred
stock..................................................... (2,018,265) (3,958,903) (5,893,016)
------------ ------------ ------------
Net loss attributable to common stockholders................ $(19,824,191) $(32,909,701) $(40,605,911)
============ ============ ============
Weighted average common shares outstanding.................. 5,355,804 6,075,948 850,238
Less: unvested restricted common shares outstanding......... (468,574) (621,295) (343,173)
------------ ------------ ------------
Weighted average common shares used to compute net loss per
share..................................................... 4,887,230 5,454,653 507,065
============ ============ ============
Basic and diluted net loss per share........................ $ (4.06) $ (6.03) $ (80.08)
============ ============ ============
Unaudited pro forma basic and diluted
Net loss.................................................... $(34,712,895)
Interest expense on convertible notes....................... 197,455
------------
Net loss used to compute pro forma net loss per share....... $(34,515,440)
============
Weighted average common shares used to compute net loss per
share..................................................... 507,065
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......................................... 17,292,811
------------
Weighted average common shares used to compute pro forma net
loss per share............................................ 17,799,876
============
Unaudited pro forma basic and diluted net loss per share.... $ (1.94)
============
</TABLE>
<TABLE>
<CAPTION>
----------------------------
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 2000
------------ ------------
(UNAUDITED)
<S> <C> <C>
Basic and Diluted
Net loss.................................................... $(8,137,064) $(19,243,027)
Dividends and accretion on redeemable convertible preferred
stock..................................................... (1,436,114) (1,529,756)
----------- ------------
Net loss attributable to common stockholders................ $(9,573,178) $(20,772,783)
=========== ============
Weighted average common shares outstanding.................. 889,778 832,277
Less: unvested restricted common shares outstanding......... (435,913) (201,001)
----------- ------------
Weighted average common shares used to compute net loss per
share..................................................... 453,865 631,276
=========== ============
Basic and diluted net loss per share........................ $ (21.09) $ (32.91)
=========== ============
</TABLE>
F-16
<PAGE> 84
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
-----------------------------
THREE MONTHS ENDED MARCH 31,
-----------------------------
1999 2000
------------ -------------
<S> <C> <C>
Unaudited pro forma basic and diluted
Net loss.................................................... $(8,137,064) $(19,243,027)
Interest expense on convertible notes -- 7,507,025
----------- ------------
Net loss used to compute pro forma net loss per share....... $(8,137,064) $(11,736,002)
=========== ============
Weighted average common shares used to compute net loss per
share..................................................... 453,865 631,276
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......................................... 16,405,125 20,776,375
----------- ------------
Weighted average common shares used to compute pro forma net
loss per share............................................ 16,858,990 21,407,651
=========== ============
Unaudited pro forma basic and diluted net loss per share.... $ (0.48) $ (0.55)
=========== ============
</TABLE>
Options to purchase 705,271 and 768,966 shares of common stock for the years
ended December 31, 1998 and 1999, respectively, and 705,271 and 1,159,355 shares
of common stock for the three months ended March 31, 1999 and 2000,
respectively, have not been included in the computation of diluted net loss per
share as their effects would have been antidilutive. Warrants to purchase
1,013,877 and 3,269,564 shares of common stock for the year ended December 31,
1999 and for the three months ended March 31, 2000, respectively, were excluded
from the computation of diluted net loss per share as their effect would have
been antidilutive.
During the period January 1, 2000 to March 31, 2000, the Company issued 587,942
options 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 of the Company's common stock in connection with the Company's planned
initial public offering. The total deferred compensation associated with these
options is approximately $3,900,000. Included in the results of operations for
the three months ended March 31, 2000 is compensation expense of approximately
$150,000 associated with such options.
9. INCOME TAXES
The significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
----------------------------
DECEMBER 31,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 17,626,000 $ 30,864,000
Research and development credit........................... 983,000 2,074,000
Intangible assets......................................... 1,188,000 1,139,000
Accrued expenses.......................................... 22,000 36,000
------------ ------------
19,819,000 34,113,000
Valuation allowance......................................... (19,819,000) (34,113,000)
------------ ------------
Net deferred tax assets..................................... $ -- $ --
============ ============
</TABLE>
The Company has increased its valuation allowance by $14,294,000 in 1999 to
provide a full valuation allowance for deferred tax assets since the realization
of these future benefits is not considered more likely than not. The amount of
the deferred tax asset considered realizable is subject to change based on
estimates of future taxable income during the carryforward period. If the
Company achieves profitability, these deferred tax assets would be available to
offset future income taxes. The future utilization of net operating losses and
credits may be subject to limitation based upon changes in company ownership,
under the rules of the Internal Revenue Code. The Company will assess the need
for the valuation allowance at each balance sheet date based on all available
evidence.
F-17
<PAGE> 85
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1999, the Company had federal net operating loss carryforwards
available to reduce taxable income, and federal research and development tax
credit carryforwards available to reduce future tax liabilities, which expire as
follows:
<TABLE>
<CAPTION>
----------------------------------
FEDERAL RESEARCH
FEDERAL NET AND DEVELOPMENT
YEAR OF OPERATING LOSS TAX CREDIT
EXPIRATION CARRYFORWARDS CARRYFORWARDS
---------- -------------- ----------------
<S> <C> <C>
2011........................................................ $ 930,000 $ 22,000
2012........................................................ 15,260,000 526,000
2018........................................................ 27,876,000 425,000
2019........................................................ 33,813,000 1,002,000
----------- ----------
$77,879,000 $1,975,000
=========== ==========
</TABLE>
For state purposes, net operating loss carryforwards of approximately
$73,086,000 expire in the years 2001 through 2004. State research and
development tax credit carryforwards of approximately $99,000 expire in the year
2004.
10. LICENSE AGREEMENTS
Angiomax
In March 1997, the Company entered into an agreement with Biogen, Inc. for the
license of the anticoagulant pharmaceutical, bivalirudin (now known as
Angiomax). Under the terms of the agreement, the Company acquired exclusive
worldwide rights to the technology, patents, trademarks, inventories and
know-how related to Angiomax. In exchange for the license, the Company paid $2
million on the closing date and is obligated to pay up to an additional $8
million upon reaching certain Angiomax sales milestones. In addition, the
Company shall pay royalties on future sales of Angiomax and on any sublicense
royalties earned. The agreement also stipulates that the Company must use
commercially reasonable efforts to meet certain milestones related to the
development and commercialization of Angiomax, including expending at least $20
million for certain development and commercialization activities. During 1998,
the Company met the $20 million obligation.
CTV-05
In August 1999, the Company entered into an agreement with GyneLogix, Inc. for
the license of the biotherapeutic agent CTV-05, a strain of human Lactobacillus
currently under clinical investigation for applications in the areas of
urogenital and reproductive health. Under the terms of the agreement, the
Company acquired exclusive worldwide rights to the patents and know-how related
to CTV-05. In exchange for the license, the Company has paid $100,000 and is
obligated to pay up to an additional $400,000 upon reaching certain milestones
and to fund certain operational costs of GyneLogix, Inc. subject to a monthly
limit of approximately $50,000 related to the development of CTV-05. In
addition, the Company shall pay royalties on future sales of CTV-05 and on any
sublicense royalties earned. The agreement also stipulates that the Company must
use commercially reasonable efforts in pursuing the development,
commercialization and marketing of CTV-05 to maintain the license. All amounts
related to CTV-05 have been expensed as incurred in the accompanying financial
statements.
IS-159
In July 1998, the Company entered into an agreement with Immunotech, SA, a
wholly-owned subsidiary of Beckman Coulter, Inc. for the license of the
pharmaceutical IS-159, a 5-hydroxytriptamine receptor agonist, for the treatment
of acute migraine headache. Under the terms of the agreement, the Company
acquired exclusive worldwide rights to the patents and know-how related to
IS-159. In exchange for the license, the Company paid $1 million on the closing
date and is obligated to pay up to an additional $4.5 million upon reaching
certain development and regulatory milestones. In addition, the Company shall
pay royalties on future sales of IS-159 and on any sublicense royalties earned.
The agreement also stipulates that the Company must use commercially reasonable
efforts in pursuing the development, commercialization and marketing
F-18
<PAGE> 86
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of IS-159 and meet certain development and regulatory milestones to maintain the
license. All amounts related to IS-159 have been expensed as incurred in the
accompanying financial statements.
11. STRATEGIC ALLIANCES
UCB
In December 1999, the Company entered into a commercial supply agreement with
UCB-Bioproducts S.A. ("UCB") to develop and commercialize an improved process
(the Chemilog process) for the manufacture of Angiomax bulk drug substance.
Under the terms of the agreement, the Company is responsible for funding certain
development and manufacturing activities performed by UCB. At December 31, 1999,
the Company has obligations which could total up to $8,240,000 pursuant to the
agreement for future development services of UCB. The agreement also specifies
terms for future purchases of Angiomax bulk drug substance manufactured using
the Chemilog process.
During 1999, the Company placed an order with UCB for the manufacture of
Angiomax bulk drug substance under the existing manufacturing process and
methods. Under the terms of this order, the Company is scheduled to receive
material and make payments of approximately $13.0 million in fiscal 2000.
Manufacture of approximately $6.5 million of this material was completed in
March 2000.
Lonza
In September 1997, the Company entered into an agreement with Lonza AG ("Lonza")
for the development of a new commercial manufacturing process for an advanced
intermediate compound used in the manufacturing of Angiomax ("Angiomax
intermediate"). At December 31, 1999, the services to be performed under the
agreement were substantially complete and the Company recorded a liability of
$1,026,000 for the estimated remaining amounts due under the contract.
In November 1998, the Company entered into an additional agreement with Lonza
for the engineering, procurement and installation of equipment for the initial
manufacturing of the Angiomax intermediate using the new process. The agreement
also contemplated the purchase of the Angiomax intermediate from Lonza at
specified prices for an anticipated two-year period following initial production
and stipulated the basic principles of a long-term commercial supply contract.
In January 2000, the Company notified Lonza of its intention to terminate the
agreement and in March 2000, the Company and Lonza reached termination
arrangements. As a result of the termination, the Company retains certain
ownership rights to intellectual property and is responsible for reimbursement
of all costs incurred under the terms of the agreement through the date of
notice. The estimated remaining obligation to Lonza of $1,572,000 is recorded as
a liability at December 31, 1999.
PharmaBio
In August 1996, the Company entered into a strategic alliance with one of its
stockholders, PharmaBio Development Inc. ("PharmaBio"), a wholly-owned
subsidiary of Quintiles Transnational Corp. ("Quintiles"). Under the terms of
the strategic alliance agreement, PharmaBio, or where appropriate, one or more
of PharmaBio's affiliates, which are also direct or indirect subsidiaries of
Quintiles (collectively, the "PharmaBio Affiliates") will, at no cost to the
Company, review and evaluate jointly with the Company, development programs
designed by the Company related to potential or actual product acquisitions. The
purpose of this collaboration is to optimize the duration, cost, specifications
and quality aspects of such programs. The alliance agreement provides that with
respect to Angiomax, IS-159 and CTV-05, the PharmaBio Affiliates will be offered
the opportunity to perform all services which fall within the customary scope of
their business, including without limitation, clinical and non-clinical
development services, project management, project implementation,
pharmacoeconomic services, regulatory affairs, post marketing surveillance
services, statistical, statistical programming, data processing and data
management services. The PharmaBio Affiliates will not be required to provide
services if such services cause a conflict of interest with other clients of the
PharmaBio Affiliates or to the extent services are beyond the capacity of the
PharmaBio Affiliates. In exchange for such services, the Company will pay the
PharmaBio Affiliates their then standard rates for services rendered. In
addition, if the PharmaBio Affiliates exceed certain performance milestones, the
Company has agreed to pay certain bonuses (not to exceed 10% of the net revenues
that the PharmaBio Affiliates receive for such services) which, at the PharmaBio
Affiliates' option, may be paid in shares of common stock of the Company. To
date, of the 35 work
F-19
<PAGE> 87
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
orders agreed, performance milestones have been requested and agreed on one work
order. No bonuses earned under that work order were paid in shares of common
stock. No agreed performance milestones remain outstanding. There are no
arrangements outstanding at December 31, 1999 for such bonuses. This agreement
will terminate when the PharmaBio Affiliates complete services with respect to
Angiomax, IS-159 and CTV-05. During 1997, 1998 and 1999, expenses incurred for
such services were approximately $3.7 million, $1.7 million and $3.7 million,
respectively, of which approximately $0.8 million and $1.2 million was recorded
in accounts payable and accrued expenses at December 31, 1998 and 1999,
respectively. At December 31, 1999, the Company had open orders with PharmaBio
for such services that specify estimated aggregate future payments of
approximately $3.1 million.
Innovex
In January 1997, the Company entered into a consulting agreement with Innovex,
Inc. ("Innovex"), a subsidiary of Quintiles, which was subsequently superseded
by a consulting agreement we executed with Innovex in December 1998. Pursuant to
the terms of these agreements, Innovex has provided the Company with consulting
services with respect to pharmaceutical marketing and sales. The Company has
agreed to pay Innovex its standard consulting rates for such services.
The Company has also entered into various Clinical Services Agreements with
Innovex pursuant to which Innovex provides project management, clinical
monitoring, site management, medical monitoring, regulatory affairs, data
management and quality assurance services with respect to the development of
Angiomax. Such fees and expenses will be paid in installments upon completion of
identified project goals. These agreements can be terminated with 30 days
written notice. Upon any such termination, the Company would be responsible to
pay Innovex for all services performed under the terms of the respective
agreement through the date of notice.
During 1997, 1998 and 1999, expenses incurred for services provided by Innovex
were approximately $234,000, $943,000 and $616,000 respectively, of which
approximately $102,000 and $280,000 were recorded in accounts payable and
accrued expenses at December 31, 1998 and 1999, respectively.
12. RELATED PARTY TRANSACTIONS
In 1996, the Company entered into a letter agreement with MPM Capital L.P.
("MPM"), a stockholder of the Company, and in 1998, amended the terms. Pursuant
to the terms of the amended letter agreement, MPM provided the Company with
services in support of locating and acquiring the rights to Angiomax and IS-159.
The Company recorded fees for these and other services totaling approximately
$730,000, $769,000 and $445,000 in 1996, 1997 and 1998, respectively. Under the
terms of the amended letter agreement, MPM shall also receive a fee of $125,000
upon the first sale of Angiomax in Europe or the United States and a fee of
$50,000 if the Company enters into an agreement with certain specified
companies.
Additionally, in 1998, the Company paid $52,000 to MPM for rental of office
space and in June 1997, the Company paid $890,000 to MPM for services provided
in connection with the preferred stock offering.
13. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain office furniture and equipment
under operating leases. The Company's main facilities lease expires in August
2003. Future annual minimum payments under all non-cancelable operating leases
are $489,000, $379,000, $315,000 and $184,000 in 2000, 2001, 2002 and 2003,
respectively. Rent expense was approximately $142,000, $326,000 and $442,000 for
the years ended December 31, 1997, 1998 and 1999, respectively.
The Company has entered into various agreements with a number of companies to
provide services related to clinical trials and other activities. Generally,
these agreements are cancelable with 30 days notice. Assuming all of these
agreements are carried out to completion, they would require aggregate future
payments of approximately $15.7 million.
F-20
<PAGE> 88
THE MEDICINES COMPANY
(a company in the development stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SUBSEQUENT EVENTS
On May 17, 2000, the Company issued 1,411,000 shares of Series IV Redeemable
Convertible Preferred Stock for net proceeds of $6,095,520. In addition, on May
17, 2000, the convertible notes and accrued interest were converted into
4,535,366 shares of Series IV Redeemable Convertible Preferred Stock. The Series
IV preferred stock carries terms and conditions similar to the Series I, II, III
preferred stock. The Series IV preferred stock is convertible into common stock
at a 1-for-0.73 conversion rate and automatically converts upon the closing of
the sale of shares of common stock in an underwritten public offering. The
Series IV Redeemable Convertible Preferred Stock issued on May 17, 2000
contained a beneficial conversion feature based on the estimated fair market
value of the common stock into which it is convertible. In accordance with EITF
98-5, the total amount of such beneficial conversion is approximately
$25,450,000. The beneficial conversion is analogous to a dividend and will be
recognized in the period of issuance. In addition, in conjunction with the sale
of the Series IV preferred stock, the Company received commitments of continued
financial support totaling $15,238,800 from substantially all of its existing
investors. Such commitments terminate in the event of a financing or
collaboration agreement or combination thereof of $15,238,800 or more including
an initial public offering of the Company, if any.
In May 2000, the Board of Directors approved an amendment to the 1998 Stock
Incentive Plan to increase the number of shares available under the Plan to
4,368,259. In addition, the Board of Directors also approved the 2000 Employee
Stock Purchase Plan which provides for the issuance of up to 255,500 shares of
common stock to participating employees and the 2000 Director Stock Option Plan
which provides for the issuance of up to 250,000 shares of common stock to the
Company's directors. Both the 2000 Employee Stock Purchase Plan and the 2000
Director Stock Option Plan are subject to stockholders' approval.
On June 29, 2000, the Company's Board of Directors approved a reverse stock
split of 0.73 shares for every one share of common stock then outstanding. The
reverse stock split became effective on August 4, 2000. The accompanying
financial statements and footnotes have been restated to reflect the reverse
stock split. In the period April 1, 2000 to July 31, 2000, the Company granted
1,541,315 stock options, with exercise prices ranging from $3.08 to $5.92, which
were below the estimated fair market value of the common stock as of the date of
the grant based on the estimated price of the Company's common stock in
connection with the Company's planned initial public offering. The total
deferred compensation associated with these options is approximately $13.4
million. The Company has recorded amortization expense for all deferred
compensation of approximately $470,000 for the three months ended June 30, 2000.
The Company expects to record amortization expense of approximately $3.0 million
for the six months ended December 31, 2000 and approximately $4.3 million, $4.0
million, $3.9 million and $1.5 million for the years ended 2001 through 2004,
respectively.
F-21
<PAGE> 89
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 90
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 91
[THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 92
[THE MEDICINES COMPANY LOGO]
<PAGE> 93
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
Common Stock being registered. All amounts are estimated except the SEC
registration fee, the NASD filing fees and the Nasdaq National Marketing listing
fee.
<TABLE>
<CAPTION>
----------
AMOUNT TO
BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 24,288
NASD filing fee............................................. 9,700
Nasdaq National Marketing listing fee....................... 95,000
Printing and engraving...................................... 250,000
Legal fees and expenses..................................... 400,000
Accounting fees and expenses................................ 350,000
Blue sky fees and expenses (including legal fees)........... 25,000
Transfer agent fees......................................... 25,000
Miscellaneous............................................... 121,012
----------
Total............................................. $1,300,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation (the "Certificate") provides that,
except to the extent prohibited by the Delaware General Corporation Law (the
"DGCL"), the Registrant's directors shall not be personally liable to the
Registrant or its stockholders for monetary damages for any breach of fiduciary
duty as directors of the Registrant. Under the DGCL, the directors have a
fiduciary duty to the Registrant which is not eliminated by this provision of
the Certificate and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available. In
addition, each director will continue to be subject to liability under the DGCL
for breach of the director's duty of loyalty to the Registrant, for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
DGCL. This provision also does not affect the directors' responsibilities under
any other laws, such as the Federal securities laws or state or Federal
environmental laws. The Registrant has obtained liability insurance for its
officers and directors.
Section 145 of the DGCL empowers and corporation to indemnify its directors and
officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, nay agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL
and provides that the Registrant shall fully indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the Registrant, or is or was serving at the request of the Registrant
as a director or officer of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
At present, there is no pending litigation or proceeding involving any director,
officer, employee or agent as to which indemnification will be required or
permitted under the Certificate. The Registrant is not aware of any threatened
litigation or proceeding that may result in a claim for such indemnification.
II-1
<PAGE> 94
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below in chronological order is a description of the Registrant's
sales of unregistered securities since July 31, 1996. The sales made to
investors were made in accordance with Section 4(2) or Regulation D of the
Securities Act. Sales to all of our employees, directors and officers were
deemed to be exempt from registration under the Securities Act in reliance on
Rule 701 promulgated under Section 3(b) of the Securities Act as transactions
under compensatory benefit plans and contracts relating to compensation provided
under Rule 701.
In September 1996, we issued an aggregate of 4,675 units, each unit consisting
of one share of series A preferred stock and 365 shares of common stock, for an
aggregate price of $4,677,377 to Warburg, Pincus, MPM, Hanseatic, Clive
Meanwell, Ansbert Gadicke, a principal of MPM, T. Scott Johnson and PharmaBio.
In April 1997, we issued to each of Warburg, Pincus, Hanseatic and PharmaBio
convertible promissory notes in the aggregate original principal amount of
$2,000,000. The principal amount and interest accrued on these notes were
converted to into units in the transaction which closed in June 1997.
In June 1997, we issued an aggregate of 24,600 units, each unit consisting of
one share of series A preferred stock and 208.571 shares of common stock, for an
aggregate price of $24,607,029 to Warburg, Pincus, Hanseatic, PharmaBio and
Biotech Growth S.A. Each June 1997 unit consisted of one share of our series A
preferred stock and 208.571 shares of common stock.
In December 1997, we issued an aggregate of 9,856 units, each unit consisting of
one share of series A preferred stock and 208.571 shares of common stock, for an
aggregate price of $9,748,786 to investors, including Warburg, Pincus,
Hanseatic, PharmaBio, Biotech Growth S.A., Clive Meanwell, Peyton Marshall and
John Villiger.
In December 1997, we declared a stock dividend on all outstanding shares of
series A preferred stock and issued an additional 1,175 shares of series A
preferred stock. The dividend covered the period from June 1997 through December
31, 1997.
In August 1998, we declared a stock dividend on all outstanding shares series A
preferred stock and issued an additional 1,686 shares of series A preferred
stock. The dividend covered the period from June 1, 1998 through August 31,
1998.
In August 1998, the holders of our series A preferred stock exchanged the shares
of series A preferred stock and common stock issued to them as part of the
transaction which occurred in 1996 and 1997 and the shares of series A preferred
stock issued to them in connection with the dividends declared in 1997 and 1998
for shares of series I convertible preferred stock and series II convertible
preferred stock. In connection with the exchanges, we issued an aggregate of
2,506,000 shares of series I preferred stock and 10,565,714 shares of series II
preferred stock.
In August 1998, we issued an aggregate of 8,399,593 shares of series III
convertible preferred stock for an aggregate purchase price of $36,286,241, or
$4.32 per share, to investors, including Warburg, Pincus, Morgan Stanley,
Hanseatic, Biotech Growth S.A., Alta Partners, Clive Meanwell and Peyton
Marshall.
In July 1999, we issued a stock dividend on all outstanding shares of series I
preferred stock, series II preferred stock and series III preferred stock. In
connection with the dividend we issued 172,005 shares of series I preferred
stock, 725,214 shares of series II preferred stock and 571,510 shares of series
III preferred stock. The dividend covered the period from August 8, 1998 with
respect to the series I and II preferred stock and August 12, 1998 with respect
to the series III preferred stock, to July 31, 1999.
In October 1999, we issued 8% convertible promissory notes in the aggregate
original principal amount of $6,000,000 to existing investors. In connection
with the issuance of these notes, we also issued common stock purchase warrants
to purchase 1,013,877 shares of common stock at a price of $5.92 per share at
any time prior to October 19, 2004.
In March 2000, we issued 8% convertible promissory notes in the aggregate
original principal amount of $13,348,779 to existing investors. In connection
with the issuance of these notes, we also issued common stock purchase warrants
to purchase 2,255,687 shares of common stock at a price of $5.92 per share at
any time prior to March 2, 2005.
In May 2000, the outstanding principal amount of the notes issued in October
1999 and March 2000 and the accrued interest thereon were converted into an
aggregate of 4,535,366 shares of our series IV convertible preferred stock.
In May 2000, we issued an aggregate of 1,411,000 shares of series IV convertible
preferred stock for an aggregate purchase price of $6,095,520 to Warburg,
Pincus, Biotech Growth S.A., Morgan Stanley, Alta Partners, PharmaBio and
Hanseatic.
II-2
<PAGE> 95
In July 2000, we issued a stock dividend on all outstanding shares of series I
preferred stock, series II preferred stock, series III preferred stock and
series IV preferred stock. In connection with the dividend we issued 136,844
shares of series I preferred stock, 576,961 shares of series II preferred stock,
459,556 shares of series III preferred stock and 61,609 shares of series IV
preferred stock. The dividend covered the period from August 1, 1999 to July 31,
2000 with respect to the series I, II and III preferred stock and May 17, 2000
to July 31, 2000 with respect to the series IV preferred stock.
As of July 31, 2000, we had issued 986,626 shares of restricted common stock to
employees. The shares were purchased for $0.001 per share. We have issued
177,471 shares of common stock upon the exercise of stock options at a weighted
average exercise price of $1.26. In addition, options to purchase 2,468,521
shares of common stock were outstanding under our 1998 stock incentive plan.
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<PAGE> 96
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
--------- -----------
<C> <S>
1.1*** Form of Underwriting Agreement
3.1*** Second Amended and Restated Certificate of Incorporation of
the registrant
3.2*** Form of Certificate of Amendment to Second Amended and
Restated Certificate of Incorporation of the registrant, to
be filed prior to effectiveness of this registration
statement
3.3*** Form of Third Amended and Restated Certificate of
Incorporation of the registrant, to be filed immediately
prior to the closing of this offering
3.4*** By-laws of the registrant
3.5*** Form of Amended and Restated By-laws of the registrant
4.1*** Specimen certificate representing the Common Stock
5.1*** Opinion of Hale and Dorr LLP
10.1*** 1998 Stock Incentive Plan
10.2*** Form of 2000 Employee Stock Purchase Plan
10.3*** Amended and Restated Registration Rights Agreement, dated as
of August 12, 1998, as amended to date, by and among the
registrant and the other parties set forth on the signature
pages thereto
10.4*** Third Amended and Restated Stockholders' Agreement, dated as
of August 12, 1998, as amended to date, by and among the
registrant and the other parties set forth on the signature
pages thereto
+10.5** Chemilog Development and Supply Agreement, dated as of
December 20, 1999, by and between the registrant and UCB
Bioproducts S.A.
+10.6** License Agreement, dated as of June 6, 1990, by and between
Biogen, Inc. and Health Research, Inc., as assigned to the
registrant
+10.7** License Agreement dated March 21, 1997, by and between the
registrant and Biogen, Inc.
+10.8*** Development and Commercialization Agreement, dated August
16, 1999, by and between the registrant and GyneLogix, Inc.
10.9** Consulting Agreement, dated December 1, 1998, by and between
Innovex Inc. and the registrant
10.10** Alliance Agreement, dated August 1996, by and between the
registrant and PharmaBio Development Inc., as amended
10.11*** Services Agreement dated April 1, 2000 by and between the
registrant and Stack Pharmaceuticals, Inc.
10.12*** Employment agreement dated September 5, 1996 by and between
the registrant and Clive Meanwell
10.13*** Employment agreement dated March 10, 1997 by and between the
registrant and John Villiger
10.14*** Employment agreement dated September 29, 1998 by and between
the registrant and John Nystrom
10.15*** Employment agreement dated October 27, 1997 by and between
the registrant and Dermot Liddy
10.16*** Employment agreement dated October 20, 1997 by and between
the registrant and Peyton Marshall
10.17*** Employment agreement dated March 30, 2000 by and between the
registrant and David Stack
10.18*** Lease for One Cambridge Center dated March 15, 1997 by and
between Boston Properties, Inc. and the registrant, as
amended
10.19*** Form of Common Stock Purchase Warrant dated October 19, 1999
10.20*** Form of Common Stock Purchase Warrant dated March 2, 2000
10.21*** Form of 2000 Outside Director Stock Option Plan
10.22*** Letter of Intent dated July 20, 2000 by and between Innovex
Inc. and the registrant
21.1*** Subsidiaries of the registrant
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2*** Consent of Hale and Dorr LLP (included in Exhibit 5.1)
24.1*** Powers of Attorney
27.1*** Financial Data Schedule
27.2*** Financial Data Schedule
</TABLE>
---------------
+ Confidential treatment requested for certain portions of this Exhibit
pursuant to Rule 406 promulgated under the Securities Act.
** Supercedes previously filed exhibit.
*** Previously filed.
(b) Financial Statement Schedules.
None.
II-4
<PAGE> 97
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter at
the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification to liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation of the Registrant, the Underwriting Agreement, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant will,
unless in the opinion of counsel the matter has been settled by the controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-5
<PAGE> 98
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 3 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Cambridge, Commonwealth of Massachusetts, on this 4th day of August, 2000.
THE MEDICINES COMPANY
By: /s/ PEYTON J. MARSHALL
------------------------------------------
Peyton J. Marshall
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 to the Registration Statement has been signed by the following
persons in the capacities indicated on August 4, 2000:
<TABLE>
<CAPTION>
SIGNATURE TITLE(S)
--------- --------
<S> <C>
* Chief Executive Officer and President (Principal
----------------------------------------------------- Executive Officer)
Clive A. Meanwell
/s/ PEYTON J. MARSHALL Chief Financial Officer (Principal Financial and
----------------------------------------------------- Accounting Officer)
Peyton J. Marshall
* Director
-----------------------------------------------------
Dennis B. Gillings
* Director
-----------------------------------------------------
Anders D. Hove
* Director
-----------------------------------------------------
M. Fazle Husain
* Director
-----------------------------------------------------
T. Scott Johnson
* Director
-----------------------------------------------------
Armin M. Kessler
* Director
-----------------------------------------------------
James E. Thomas
Director
-----------------------------------------------------
Robert Yedid
Director
-----------------------------------------------------
Leonard Bell
</TABLE>
*By: /s/ PEYTON J. MARSHALL
-----------------------------------------------------
Peyton J. Marshall
Attorney-in-Fact
II-6
