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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED MARCH 31, 1996
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD FROM
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COMMISSION FILE NUMBER: 0-18976
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CELTRIX PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 94-3121462
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
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3055 PATRICK HENRY DRIVE, SANTA CLARA, CA 95054-1815
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (408) 988-2500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by nonaffiliates of the
registrant based upon the closing price of the Common Stock on June 18, 1996 in
the NASDAQ National Market was approximately $33.5 million as of such date.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of June 18, 1996, the Registrant had outstanding 15,234,241 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following document are incorporated by reference in Part III of
this Form 10-K Report: the Proxy Statement for the Registrant's 1996 Annual
Meeting of Stockholders scheduled to be held on August 27, 1996.
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PART I
ITEM 1. BUSINESS
GENERAL
Celtrix Pharmaceuticals, Inc. ("Celtrix" or the "Company") is a
biopharmaceutical company developing novel therapeutics for the treatment of
seriously debilitating, degenerative conditions primarily associated with severe
trauma, chronic diseases or aging. Company programs are focused on the use of
SomatoKine(R), a novel IGF-BP3 complex, to treat destructive metabolic processes
(catabolism) in acute indications such as major surgery, organ damage/failure
and traumatic injury. Potential chronic indications could include osteoporosis,
chronic renal (kidney) failure, and wasting conditions associated with cancer
and AIDS.
The Company's development focus is on SomatoKine, a naturally occurring
complex formed by the anabolic hormone insulin-like growth factor-I (IGF-I) and
its major binding protein, BP3, which shows potential as a hormone replacement
therapy for patients suffering from severe physical trauma and serious, chronic
illnesses. In fiscal 1996, the Company completed preclinical safety and efficacy
studies on SomatoKine, which support the belief that SomatoKine offers a
promising method for providing safe, therapeutically effective doses of IGF-I
that could promote enhanced nutrient utilization and muscle and bone formation.
Celtrix initiated Phase I human clinical testing in May 1996 and subsequently,
in June 1996, reported that data emerging from the first Phase I clinical study
confirmed that SomatoKine allows for the safe administration of IGF-I at doses
far above what others have been able to achieve. A multi-dose Phase I safety
study is expected to begin July 1996. These safety studies are expected to pave
the way for the initiation of Phase II clinical studies later in fiscal 1997.
Celtrix's strategy is to initially focus on patients who could potentially
benefit from short-term hormone replacement therapy, such as those undergoing
major surgery or those suffering from organ damage/failure or trauma. Through
current and future collaborative agreements, the Company plans to build toward
capturing increasingly larger market opportunities. These could potentially
include the treatment of wasting diseases associated with cancer, AIDS, chronic
obstructive pulmonary disease, short bowel syndrome, chronic renal failure,
osteoporosis and neurodegenerative diseases. Celtrix has an ongoing
collaboration with The Green Cross Corporation ("Green Cross"), a Japanese
pharmaceutical company, covering the development and commercialization of
SomatoKine for the treatment of osteoporosis in Japan.
While the Company's internal development focus is on the SomatoKine
program, Celtrix is continuing to pursue the development of the cell-regulating
protein TGF-beta-2 primarily through its collaborative relationship with Genzyme
Corporation ("Genzyme"). Genzyme is currently developing TGF-beta-2 for tissue
repair and treatment of systemic indications.
BACKGROUND: THERAPEUTIC AGENTS
Many of the body's physiological functions, such as tissue healing, immune
processes and growth of bone and muscle, are controlled by proteins (growth
factors, cytokines, and protein hormones) that bind to specific cells to
modulate their function. When the body produces appropriate levels of these
proteins and when the target cells respond properly, the body functions
normally. When the body encounters adverse situations such as trauma,
infections, or chronic disease, the production and regulation of these factors
can become unbalanced. Normally, the body has the ability to naturally modulate
the production of these regulating proteins to return to a balanced
physiological state (homeostasis). However, when the ability to make these
changes is lost, this can result in a number of undesirable consequences
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including, but not limited to, poor nutritional status and an impaired ability
to maintain and repair tissues and organs normally. Celtrix is developing
biopharmaceuticals, alone or in collaboration with others, based on such
naturally occurring, regulating proteins.
SomatoKine
SomatoKine is the recombinant equivalent of the naturally occurring complex
formed by insulin-like growth factor-I (IGF-I) and its major binding protein
(BP3). The active portion of the complex is IGF-I, an anabolic hormone produced
naturally by many different cells in the body, which promotes diverse biological
activities including:
-- Nutrient utilization
-- Muscle formation
-- Tissue and organ repair
-- Promotion of renal (kidney) function
-- Bone formation
-- Neurotrophic activity important to healthy nervous system
-- Immune system stimulation
Because of its importance in human health, IGF-I has been evaluated for
some time both preclinically and clinically by academic and industry scientists
for a variety of therapeutic indications. However, IGF-I does not normally exist
in quantity free of its binding proteins. Limitations associated with using free
IGF-I therapeutically have proven significant: acute insulin effects (such as
hypoglycemia), suppression of growth hormone secretion, short circulating half
life, and limited efficacy at safe dosage levels. Celtrix believes that
development of the SomatoKine complex serves as a better solution for hormone
replacement therapy than IGF-I without BP3, since when IGF-I is bound to BP3, as
it is in nature, it does not appear to display these limitations.
Evidence obtained from the Company's preclinical toxicology and efficacy
studies indicates that SomatoKine substantially improves the safety and efficacy
profile of IGF-I. The overall development of SomatoKine is aimed at providing a
circulating reservoir of IGF-I consistent with the naturally occurring hormone
complex. The natural association of the two molecules IGF-I and BP3 appears to
be of fundamental biological significance. If IGF-I circulates free of its
binding protein at even modest levels, hypoglycemia can result, but when IGF-I
is bound to the binding protein, BP3, this activity is not observed. In
preclinical studies, Celtrix has been able to safely administer higher doses of
IGF-I in the form of SomatoKine, revealing efficacies that could not be achieved
safely with free IGF-I at safe dosage levels. Data from Celtrix's recent Phase I
human clinical study confirmed the safe administration of IGF-I at higher dosage
levels. Furthermore, the interaction of IGF-I with its binding protein BP3 is
required to increase the half-life of IGF-I in the circulation, which could
reduce the need for frequent administration. Celtrix believes that this will
enable the complex to serve as a natural slow-release system and to modulate the
availability of IGF-I in the bloodstream consistent with what is observed in
nature. This regulation helps ensure that the hormone is active in the body only
when and where needed. Celtrix believes that the use of SomatoKine could open up
major opportunities for treating a variety of seriously debilitating,
degenerative conditions for which no adequate therapies currently exist.
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Conclusions Based On Preclinical Results
Severe physical trauma, extended illness and advanced aging are frequently
associated with abnormally low blood levels of IGF-BP3. In many instances, this
means physicians must contend not only with the patient's trauma or disease but
also with a dangerous catabolic state in which the body poorly utilizes
nutrients leading to the breakdown of muscle for energy. The inability of
damaged tissue to rapidly heal, aggravated in some cases by a compromised immune
system, increases the risk of serious infection and delays restoration of organ
and body function. In addition, lost strength and mobility may require extended
hospitalization, intravenous medication, surgery and rehabilitation procedures.
Preclinical data suggest that hormone replacement therapy with SomatoKine could
make a significant difference in the patient's recovery and quality of life.
As SomatoKine moves into human clinical studies, it is backed by extensive
research conducted by Celtrix, academic collaborators and others in the
healthcare field. Conclusions made from key preclinical findings are summarized
below:
SomatoKine can potentially preserve and restore the strength and
mobility needed to recover from major illness or injury. While many
critically ill patients tend to receive intravenous feeding, the inability
of their bodies to properly utilize nutrients can lead to serious weight
loss, reduced muscle and bone mass, and overall physical weakness.
Naturally occurring IGF-I is an anabolic hormone that normally circulates
in the bloodstream bound to BP3 and plays a major role in enhancing
nutrient utilization, preventing muscle breakdown, and stimulating protein
synthesis. Used therapeutically, it offers the potential to safely and
effectively stabilize or restore the strength and mobility necessary for
the body to combat serious illness and overcome traumatic injury.
SomatoKine can potentially speed organ and tissue repair and restore
normal body function following major surgery or trauma. A significant
relationship exists between tissue and organ repair activity and protein
malnutrition, immunity and infection. IGF-BP3 stimulates cell division and
the differentiation of a wide variety of cells. As such, it offers the
potential to 1) accelerate regrowth of the structural matrix that supports
new tissue following injury, 2) regenerate the mucosal lining in the
gastrointestinal tract post-surgery, thereby improving the patient's
capacity to absorb nutrients and reducing the threat of infection, 3)
accelerate the return to normal organ function, and 4) stimulate immune
system functions.
SomatoKine can potentially rebuild lost bone and supportive muscle in
patients with severe osteoporosis. While existing therapies can help to
prevent bone loss, no therapy is currently available to rebuild significant
bone mass and restore critical muscle support. However, as demonstrated in
preclinical models mimicking the bone loss seen in post-menopausal
women -- the primary group affected by osteoporosis -- systemic
administration of SomatoKine may substantially restore the matrix support
structure and calcified tissue within bones while also adding lean muscle
mass. A relatively short period of intensive treatment with SomatoKine
could potentially form enough new bone and supportive muscle to restore the
patient's strength and mobility, thus enhancing the quality of life and
reducing the risk of fracture. SomatoKine therapy also could potentially be
used in combination with conventional medical treatments to prevent further
bone loss.
SomatoKine presents other therapeutic opportunities. A number of other
biological activities have been demonstrated for IGF-I, suggesting that it
may be beneficial to a wide range of other patient groups. These activities
include stimulation of the immune system, enhancement of kidney functions,
promotion of tissue repair (both locally and systemically), and
neurotrophic activity. These activities, in combination with its anabolic
activities, make it an attractive agent to evaluate for the treatment of
conditions such as cachexia associated with cancer and
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AIDS, chronic renal failure, or muscle and bone loss due to either chronic
pulmonary disease, chronic steroid treatment, or osteoporosis.
Clinical Program
Clinical indications suitable for SomatoKine therapy can be categorized
into two groups: a) acute indications (short-term treatments) and b) chronic
indications (longer-term treatments). Celtrix's strategy is to initially treat
destructive metabolic processes (catabolism) in acute indications such as major
surgery, organ damage/failure and traumatic injury where short-term SomatoKine
therapy could be beneficial. Since SomatoKine represents the equivalent form in
which the body normally delivers IGF-I, Celtrix believes that there are
significant opportunities and benefits associated with conditions where
circulating levels are below normal, even in short-term therapies. Proper
nutritional status for patients subject to severe trauma or major surgery is an
important parameter in determining a positive clinical outcome. In many of these
patients, it has been clinically demonstrated that their circulating levels of
IGF-I are lower than in normal individuals. In these cases, SomatoKine treatment
may be considered a hormone replacement therapy. Through current and future
collaborative agreements, Celtrix plans to build toward treating chronic
indications such as the treatment of osteoporosis, chronic renal (kidney)
failure, and wasting conditions associated with cancer and AIDS.
The results of the first of two Phase I human studies of SomatoKine, which
commenced in May 1996, were reported in June 1996. The data emerging from this
open-label, single-dose escalation study indicate that SomatoKine allows for the
safe administration of IGF-I at doses far above what others have been able to
achieve. In this first study in humans, SomatoKine was administered as single
intravenous doses to 12 healthy men and women. Four escalating dosage levels
were tested. The lowest dosage level provided a substantially higher amount of
IGF-I than others have been able to safely administer using free (unbound) IGF-I
in clinical testing and subsequent dosage levels were many times higher. The
first three dosage levels were safe and well tolerated and minor, reversible
side effects were observed at the highest dosage. A multiple-dose Phase I human
clinical study of SomatoKine is expected to begin in July 1996 with up to 24
healthy men and women. This second study's objectives are to evaluate the safety
and metabolic effects of a range of dosage levels, administered daily for six
days. Information from this study will guide Phase II efficacy studies planned
for later in fiscal 1997. Clinical study targets for Phase II will be based on
strong preclinical data that support the likelihood of treatment success,
involve short-term therapy, allow quick assessment of clinical end points, and
can be accommodated using Celtrix's own manufacturing operations.
TGF-beta-2
TGF-beta-2 is a member of a family of cytokines known as the transforming
growth factor-betas (TGF-beta 1-5). TGF-betas are found in nearly all human
tissues and appear to have a broad range of biological effects, such as the
ability to modulate cell proliferation, differentiation, and the production of
extracellular matrix. For example, in preclinical and clinical studies for
non-healing wounds, TGF-beta-2 has been shown to be a potent stimulator of
granulation tissue formation. In addition, TGF-beta-2 has shown to inhibit
certain inflammatory and immune system responses and may, therefore, have
application in modifying immune-mediated diseases. These results have suggested
other therapeutic roles for TGF-beta-2 in a variety of medical conditions, some
of which are currently being pursued by Genzyme (see "Genzyme Corporation" under
"Corporate Collaborations" section). Celtrix is not currently pursuing an
in-house TGF-beta-2 program, other than as related to the Genzyme program.
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CORPORATE COLLABORATIONS
To maximize the therapeutic potential of SomatoKine and TGF-beta-2, Celtrix
has two significant strategic alliances: The Green Cross Corporation, which is
developing SomatoKine for the treatment of osteoporosis in Japan, and Genzyme
Corporation, which is developing wound healing and systemic applications of
TGF-beta-2.
The Green Cross Corporation
In July 1994, Celtrix entered into a license agreement with Green Cross, a
Japanese pharmaceutical company, which covers the development and
commercialization of SomatoKine for the treatment of osteoporosis in Japan.
Under the terms of the agreement, Green Cross is responsible for all related
research, development and marketing, as well as product manufacturing to support
its needs in Japan. Celtrix receives license fees and milestone payments and,
upon commercialization, will receive royalties on product sales. In addition,
Celtrix has full rights to related know-how and technology development by Green
Cross, such as product formulation, manufacturing scale-up, and osteoporosis
clinical study design and data. Celtrix has retained full rights to SomatoKine
outside of Japan.
Osteoporosis reportedly affects over 20 million people in the United
States, 80% of whom are women and most in the menopausal and post-menopausal age
groups. The most significant consequence of osteoporosis is bone fracture, with
approximately 1.3 million fractures each year in the United States attributed to
osteoporosis. The most common fractures associated with osteoporosis are those
of the hip (femoral neck), spine (vertebral), and wrist. Preclinical studies
have demonstrated that SomatoKine can promote bone formation at multiple sites,
including those often associated with osteoporotic fractures, such as the
femoral neck and the vertebrae. In addition, these studies have shown that
systemically administered SomatoKine also promotes formation of lean body mass,
thus addressing two of the key debilitating aspects of osteoporosis.
Genzyme Corporation
In June 1994, the Company entered into a product development, license and
marketing agreement with Genzyme on TGF-beta-2 which included equity
investments, milestone payments and potential royalties to Celtrix. The
objective was to commercialize TGF-beta-2 for tissue repair and treatment of
systemic applications. Genzyme has been granted worldwide commercialization
rights, excluding Asia, for all systemic applications and select local
applications of TGF-beta-2. Celtrix has retained all rights to applications of
TGF-beta-2 concerning ophthalmic disease, mucositis, and certain localized
tissue damage. The Company has the option to reacquire rights to other product
applications not pursued by Genzyme. Celtrix is not currently pursuing an
in-house TGF-beta-2 program, other than as related to the Genzyme program.
Upon initiation of this agreement, Celtrix sold to Genzyme 1,550,388 of
newly issued shares of Celtrix common stock for a total of $9.9 million, net,
and in December 1995, upon Celtrix's exercise of a put option, Celtrix sold to
Genzyme another 1,472,829 shares for a total of $4.4 million, net. The total
shares issued to Genzyme comprise an ownership position of 19.9% of Celtrix's
15.2 million shares outstanding.
Prior to transferring this program to Genzyme in June 1994, Celtrix had
conducted two human clinical studies to evaluate the utility of TGF-beta-2 in
venous stasis (leg) ulcers, a medical problem that affects approximately 600,000
patients annually in the United States.
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These studies indicated that TGF-beta-2, when administered in a collagen
delivery vehicle, increased the rate of wound closure in venous stasis ulcers.
This program is now sponsored by Genzyme who is conducting a 12-center,
double-blinded, randomized Phase II clinical study to evaluate the treatment of
200 diabetic patients suffering from neurotrophic diabetic foot ulcers. Dermal
ulcers can arise from several conditions. In severe cases, these wounds can
penetrate the skin and frequently expose underlying tissue, such as muscle and
bone. Celtrix scientists have developed a potential wound-healing product that
the Company believes will address important treatment aspects of dermal wound
care. TGF-beta-2 and a proprietary collagen-based delivery vehicle are key
components to the product to simplify treatment and promote healing. The
delivery vehicle is a biocompatible, resorbable material, inserted into the
wound site to deliver TGF-beta-2 and to provide a natural, three-dimensional
substrate for potential tissue regeneration. This delivery system can be
delivered repeatedly and because it is absorbed by the body, there is no need to
remove anything from the wound.
OTHER CORPORATE AGREEMENTS
Genentech, Inc.
In March 1993, the Company entered into a cross-license agreement with
Genentech. Under the terms of the agreement, Genentech granted Celtrix rights to
certain process patents which may have application in the manufacturing of
TFG-beta-2 and TGF-beta receptors, in return for a $4.0 million licensing fee
and future product royalties. Celtrix granted Genentech patent rights to
TGF-beta for certain fields of use for future product royalties. The license fee
was balanced by an equity purchase by Genentech of 572,450 shares of newly
issued Celtrix common stock for a total value of $4.0 million, resulting in a
non-cash transaction.
Collagen Corporation
The Company and Collagen entered into a number of agreements in connection
with the distribution as a stock dividend of all issued Celtrix common stock by
Collagen to its stockholders in a spin-off in February 1991. Certain of these
agreements impose limitations on the development activities of both Collagen and
Celtrix, prohibit Celtrix from manufacturing or working with others to
manufacture collagen-based materials, and, subject to certain conditions,
require Celtrix to purchase its requirements of collagen-based materials from
Collagen. In addition, Collagen purchased a warrant to acquire 427,000 shares of
Celtrix Common Stock at an exercise price of $11.00 per share. This warrant
expired unexercised in February 1996.
Celtrix has also entered into a contract with Collagen for Collagen to
manufacture and distribute Vitrogen(R)100 Collagen for Celtrix for an initial
term of ten years. In January 1995, the Company entered into a separate
agreement under which Collagen was granted distribution rights and an option to
purchase the Vitrogen business. Collagen exercised the option in May 1995.
RESEARCH & DEVELOPMENT
The Company's research and development staff has substantial expertise with
IGF-I and BP3. Through in-house programs and an extensive collaboration program
with leading scientists world-wide, research and development efforts are focused
on demonstrating the safety and effectiveness of SomatoKine in animal models
that are relevant to the human disease conditions being evaluated. Studies to
evaluate optimal formulations, doses and dosing frequencies are being conducted
to aid in the development of SomatoKine. Other activities include determining
IGF-I and BP3 levels in blood and tissue of various patient populations. These
collaborative efforts have made progress toward the Company's understanding of
the
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underlying causes and potential treatment strategies for conditions leading to
muscle and bone loss and other catabolic conditions. Celtrix is continuing to
expand collaborations into other fields where SomatoKine therapy may be of
benefit.
The Company's research staff is developing a novel protein expression
technology for SomatoKine. Recent advances by the Company in this area provide
Celtrix the opportunity to significantly increase SomatoKine production and
streamline purification methods. Use of this proprietary technology will be an
important component of Celtrix's ability to produce SomatoKine in a cost
efficient manner. Efforts in this area will continue to focus on ways that this
technology can advance the SomatoKine program. The Company believes that this
technology not only provides benefits to Celtrix programs, but also offers the
potential of being useful to other biopharmaceutical companies in need of novel
protein expression technology. Licensing options will be evaluated.
MANUFACTURING
Celtrix currently manufactures clinical-grade human recombinant SomatoKine
according to current Good Manufacturing Practices (GMP) at its Santa Clara
location. This facility has the capacity to meet anticipated SomatoKine supply
needs for current and future clinical studies at least through Phase II testing.
When larger-scale manufacturing is needed, Celtrix may elect to further expand
its manufacturing capabilities or to work through collaborative relationships or
contract manufacturers. Celtrix is currently in the process of manufacturing
SomatoKine for its anticipated Phase II clinical testing.
INTELLECTUAL PROPERTY
Proprietary protection for Celtrix's potential products is important to its
business. Celtrix's policy is to protect its technology by filing patent
applications for technology that it considers important to the development of
its business. Celtrix intends to file additional patent applications, when
appropriate, relating to improvements in its technology and other specific
products that it develops.
In the U.S., Celtrix currently holds one issued patent with claims to a BP3
composition-of-matter, and two issued therapeutic use patents for SomatoKine.
Celtrix has ten families of pending applications regarding the therapeutic use
of BP3, antibodies to BP3 and their uses, and therapeutic uses of the complex,
SomatoKine. Celtrix also has two issued, two allowed, and three families of
pending patent applications regarding novel expression and production methods
which may be used for the manufacture of SomatoKine. The pending applications
are in various stages of review. In Europe, Celtrix has an issued patent with
claims to: a BP3 composition-of-matter; certain therapeutic uses of BP3; and
certain therapeutic uses of the complex, SomatoKine. Celtrix has recently
received notice of the European Patent Office's intent to grant an European
patent with claims to: recombinantly produced BP3; therapeutic uses of BP3; and
therapeutic uses of the complex, SomatoKine.
The Company also owns or co-owns 19 issued patents and two allowed and four
pending applications regarding the composition-of-matter, methods of
purification, and therapeutic uses of TGF-beta-2. Celtrix also owns the rights
to one issued U.S. patent relating to products and methods for topical wound
healing using collagen and heparin-containing matrices. Celtrix owns the rights
to a collection of patent applications relating to TGF-beta antagonists. The
collection consists of: a family of patent applications relating to antibodies
to TGF-beta, including one allowed application; a family of patent applications
relating to TGF-beta receptors (exclusively licensed from the Whitehead
Institute); and two families of patent applications relating to uses of TGF-beta
antagonists.
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Celtrix is in the process of seeking patent protection for its inventions
and discoveries in the United States and, in most instances, Australia, Canada,
Japan and various countries in Europe. As with any pending patent application,
there can be no assurance that any of these applications will be issued in the
United States or foreign countries.
At least three large biotechnology and pharmaceutical companies with
substantial financial and legal resources have patent applications on file in
the United States and abroad directed at the production of recombinant IGF-I by
various methods. The earliest date of filing of these patent applications is
April 25, 1983. Unless and until these applications issue in the United States,
it is not possible to determine the breadth of these claims regarding a process
for IGF-I production. Furthermore, a large biotechnology and pharmaceutical
company with substantial financial and legal resources has a patent issued in
the United States directed towards certain DNA molecules encoding BP3 and the
corresponding BP3 protein. This same patent is currently pending abroad and has
been granted in Europe. Celtrix has opposed the grant of this patent in Europe.
The patent application filed on the method of production of BP3 is pending both
in the United States and abroad. In addition, this company has been issued a
patent directed toward the subcutaneous administration of IGF-BP3.
Each of the referenced companies can be expected to defend its patent
position vigorously. Although Celtrix does not believe that the claims to the
methods for production of recombinant BP3 are patentable in view of Celtrix's
own earlier-filed patent application directed to BP3, there can be no assurance
that a contrary position will not be asserted, or that, if asserted, such a
claim would not prevail. Celtrix also does not believe that its manufacture,
sale or use of its SomatoKine will infringe on other IGF or BP3 patents although
there can be no assurance that a contrary position will not be asserted. Celtrix
has filed patent applications covering novel molecular biology techniques which
could potentially circumvent some or all intellectual property concerns
regarding IGF-I, BP3 or SomatoKine recombinant production. There can be no
assurances that these patents will issue or will be commercially viable.
Celtrix has licensed certain intellectual property rights concerning
certain recombinant materials and procedures for producing TGF-beta and TGF-beta
receptors. In March 1993, the Company entered into a cross-license patent
agreement with Genentech which gives Celtrix rights to certain process patents
which may have application in the manufacturing of TGF-beta and TGF-beta
receptors. (See "Genentech, Inc." under "Corporate Collaboration" section.) In
addition, a United States government patent has been issued relating to work
done at the National Institute of Health ("NIH") identifying and isolating
TGF-beta-1.
There can be no assurance that any patents issued to Celtrix will not be
infringed or circumvented by others, that others have not obtained or will not
obtain patents that Celtrix would need to license or circumvent or that
Celtrix's processes or products will not infringe patents or proprietary rights
of others. There can be no assurance that licenses that might be required for
Celtrix's processes or products would be available on reasonable terms or at
all. In addition, there can be no assurance that Celtrix's patents would be held
valid by a court of competent jurisdiction.
Celtrix relies on trade secrets and improvements, unpatented know-how and
continuing technological innovation to develop and maintain its competitive
position. No assurance can be given that others will not independently develop
substantially equivalent proprietary information and techniques, or otherwise
gain access to Celtrix's trade secrets or disclose such technology, or that
Celtrix can meaningfully protect its rights to its unpatented trade secrets.
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Collaborators and contract customers of Celtrix may be provided access to
certain of Celtrix's technology under confidentiality agreements. To the extent
that collaborators or contract customers use this technological information,
disputes may arise as to the proprietary and patent rights to such information
and developments based on or related to such information. In addition, there can
be no assurance that these confidentiality agreements will provide meaningful
protection for Celtrix's trade secrets in the event of unauthorized use or
disclosure of such information.
COMPETITION
In each of the Company's potential product areas, competition from large
pharmaceutical companies, biotechnology companies and other companies,
universities and research institutions is substantial. Relative to the Company,
most of these entities have greater capital resources, research and development
staffs, facilities and experience in conducting clinical trials and obtaining
regulatory approvals, as well as in manufacturing and marketing pharmaceutical
products. Furthermore, the Company believes that competitors have used, and may
continue to use, litigation to gain competitive advantage. In addition, these
and other entities may have or develop new technologies or use existing
technologies that are, or may in the future be, the basis for competitive
products.
Any potential products that the Company succeeds in developing and for
which it gains regulatory approval will have to compete for market acceptance
and market share. For certain of the Company's potential products, an important
factor in such competition may be the timing of market introduction of
competitive products. Accordingly, the relative speed with which the Company can
develop products, complete the clinical testing and regulatory approval
processes and supply commercial quantities of the product to the market are
expected to be important competitive factors. The Company expects that
competition will be based, among other things, on product efficacy, safety,
reliability, availability, timing and scope of regulatory approval and price.
There can be no assurance that the Company's competitors will not succeed in
developing technologies and products that are more effective than any that are
being developed by the Company or that would render the Company's technology and
products obsolete or noncompetitive. In addition, many of the Company's
competitors may achieve product commercialization or patent protection earlier
than the Company.
GOVERNMENT REGULATION
The production and marketing of Celtrix's product and its research and
development activities are and will be subject to regulation for safety and
efficacy by numerous governmental authorities in the United States and other
countries. In the United States, pharmaceutical products are subject to rigorous
Food and Drug Administration ("FDA") regulation. The Federal Food, Drug and
Cosmetic Act and the regulations promulgated thereunder, as well as other
federal and state statutes and regulations, govern, among other things, the
testing, manufacture, safety, effectiveness, labeling, storage, record-keeping,
approval, advertising and promotion of Celtrix's potential products.
The steps required before a pharmaceutical product may be marketed in the
United States include (i) preclinical laboratory and animal tests, (ii) the
submission to the FDA of an Investigational New Drug ("IND") application, which
must become effective before human clinical trials may commence, (iii) the
conduct of adequate and well-controlled human clinical trials to establish the
safety and efficacy of the product, (iv) the submission to the FDA of a New Drug
Application ("NDA") for pharmaceuticals, and (v) FDA approval of the NDA prior
to any commercial shipment or sale of the product.
10
<PAGE> 11
Although SomatoKine is a DNA-derived protein complex and is manufactured
using biotechnology techniques, the FDA has indicated to Celtrix that products
containing SomatoKine will fall into the category of hormones and will be
reviewed as drugs. The review has been assigned to the Division of Endocrine and
Metabolism Products, Center for Drug Evaluation and Research (CDER). During the
investigational phase, the IND requirements will govern the development of the
drug. Prior to marketing, FDA approval of products containing SomatoKine will be
based on submission of an NDA containing the results of preclinical and clinical
studies, and complete manufacturing and controls information. Furthermore, NDA
approval requires preapproval inspection by the FDA of the proposed commercial
manufacturing facilities.
Prior to the commencement of clinical trials for its potential products,
Celtrix must conduct preclinical tests of its products, which include laboratory
evaluation of laboratory product characterization of the products and the
conduct of animal studies to assess preliminarily the safety and pharmacological
effect of the products. The preclinical safety tests must be conducted in
laboratories that comply with FDA regulations regarding good laboratory
practices. The results of preclinical tests must be submitted to the FDA as part
of the IND application and reviewed by the FDA during the course of the agency's
determination as to whether the clinical trials described in the IND application
may commence. There is no certainty that submission of an IND application will
result in FDA authorization to commence clinical trials.
Clinical trials involve the administration of the investigational compound
to healthy volunteers or to patients under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with
protocols that detail the objectives of the study, the parameters to be used to
monitor safety and the efficacy criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND application. Further, each clinical
study must be conducted under the auspices of an independent Institutional
Review Board at the institution at which the study will be conducted, and
informed consent must be obtained from each clinical subject.
Clinical trials of drug products are typically conducted in three phases,
but the phases may overlap. In Phase I, the product is tested for safety
(adverse effects) and may include dosage tolerance, metabolism, distribution,
excretion and clinical pharmacology. Phase II involves studies in a limited
patient population to (i) determine the efficacy of the product for specific,
targeted indications, (ii) determine dosage tolerance and optimal dosage, and
(iii) identify possible adverse effects and safety risks. When a compound is
found to be effective and to have an acceptable safety profile in Phase II
evaluations, Phase III trials are undertaken to further confirm clinical
efficacy and to further test for safety within an expanded patient population at
geographically dispersed clinical study sites. There can be no assurance that
Phase I, Phase II or Phase III testing will be completed successfully within any
specified time period, if at all, with respect to any of Celtrix's products
subject to such testing. Furthermore, Celtrix or the FDA may suspend clinical
trials at any time if it is felt that the subjects or patients are being exposed
to an unacceptable health risk.
The results of the product development efforts, preclinical studies and
clinical studies are submitted to the FDA in the form of an NDA for approval to
permit marketing and commercial shipment and sales of the pharmaceutical
product. The testing and approval process is likely to require substantial time
and effort and there can be no assurance that any approval will be granted on a
timely basis, if at all. The FDA may deny an NDA if applicable regulatory
criteria are not satisfied, may require additional testing or information if it
does not view the NDA as containing adequate evidence of the safety and efficacy
of the product, or may require post-marketing testing and surveillance to
monitor the safety of Celtrix's products. Notwithstanding the submission of such
data, the FDA may ultimately decide that the application does not satisfy its
regulatory criteria for approval. Finally, product approvals
11
<PAGE> 12
may be withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing.
Among the conditions for NDA approval is the requirement that the
manufacturer's manufacturing procedures and quality control must comply with the
FDA regulations as published in the current GMP regulations, as well as any
additional standards or guidelines issued for specific drug or biological
products. The FDA monitors compliance with these requirements by requiring all
drug manufacturers to register with the FDA, which subjects them to biennial FDA
inspections of manufacturing facilities. In addition, a precondition for NDA
approval is that the FDA conducts an inspection of the manufacturing facility
and determines that it complies with all applicable regulatory requirements. In
order to assure compliance with those requirements, manufacturers must continue
to expend time, resources and effort in the areas of production and quality
control to ensure full technical compliance.
The Company is also subject to licensure in California as a drug
manufacturer by the Food and Drug Branch of the California Department of Health
Services. Licensure requires annual inspections of the Company's manufacturing
facilities by inspectors from the Food and Drug Branch, to ensure continued
compliance with applicable GMP requirements. In addition to regulations enforced
by the FDA, Celtrix also is subject to regulation under the Occupational Safety
and Health Act, the Environmental Protection Act, the Toxic Substances Control
Act, the Resource Conservation and Recovery Act and other present and potential
future federal, state or local regulations. For marketing outside the United
States, Celtrix also is subject to foreign regulatory requirements governing
human clinical trials and marketing approval for drugs. The requirements
governing the conduct of clinical trials, product licensing, pricing and
reimbursement may vary from country to country.
INSURANCE; PRODUCT LIABILITY
The Company currently has in force general liability insurance, with
coverage limits of $1.0 million per incident and $2.0 million in the aggregate
annually, and product liability insurance with coverage limits of $1.0 million
per incident and $1.0 million in the aggregate annually. The Company's insurance
policies provide coverage for product liability and general liability on a
claims made basis. These policies are subject to annual renewal. Such insurance
may not be available in the future on acceptable terms or at all. There can be
no assurance that the Company's insurance coverage will be adequate or that a
product liability claim or recall would not materially adversely affect the
business or financial condition of the Company.
The use of the Company's potential products or technology in clinical
trials and the sale of such products may expose the Company to liability claims.
Such risks exist even with respect to those potential products, if any, that
receive regulatory approval for commercial sale. Although Celtrix has taken and
will continue to take what it believes are appropriate precautions, there can be
no assurance that it will avoid significant product liability exposure. There
also can be no assurance that the Company's insurance coverage will be adequate
or that a product liability claim or recall would not materially adversely
affect the business or financial condition of the Company.
EMPLOYEES
As of March 31, 1996, Celtrix employed 60 full-time and part-time
employees. No employee is represented by a union and the Company believes its
employee relations are good. The Company is highly dependent on the principal
members of its management and scientific staff and its future success depends in
large part upon its ability to attract and retain highly qualified scientific
and management personnel. Celtrix faces significant competition for such
personnel from other companies, academic institutions, government entities and
other
12
<PAGE> 13
organizations. There can be no assurance that Celtrix will be successful in
hiring or retaining requisite personnel.
EXECUTIVE OFFICERS OF THE COMPANY
The following sets forth certain information with respect to the executive
officers of Celtrix and their ages as of June 18, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- --- --------------------------------------------
<S> <C> <C>
Andreas Sommer, Ph.D. 54 Chief Executive Officer, President and
Director
Mary Anne Ribi 33 Vice President, Finance and Administration,
Chief Financial Officer and Assistant
Secretary
David M. Rosen, Ph.D. 40 Vice President, Research and Development
</TABLE>
Dr. Sommer was elected President and CEO of Celtrix in April 1995. Prior to
that, Dr. Sommer served as Celtrix's Senior Vice President from July 1993 to
April 1995 and as a member of the Board of Directors since May 1994. Previously,
Dr. Sommer served as Vice President, Research of Celtrix since 1992, following
Celtrix's merger with BioGrowth, Inc., where he served as Vice President,
Research and Development since 1989. He previously was a member of the
scientific management team at Synergen. Also during his professional career, Dr.
Sommer served as an advanced research fellow in the Department of Microbiology
at the University of Basel Biocenter and was a postdoctoral fellow in the
Department of Biological Chemistry at the University of California, Davis. He
received his Ph.D. in Microbiology from the University of California, Davis, and
has published extensively in noted scientific journals.
Ms. Ribi has served as Vice President of Finance and Administration and
Chief Financial Officer since January 1995. Previously, she served as Celtrix's
director of finance and administration and controller since 1990. Prior to
joining Celtrix, Ms. Ribi helped found and organize Biocircuits Corporation, a
medical instrumentation company, and previously was with Ernst & Young LLP. She
is a certified public accountant with a M.B.A. with an emphasis in Finance from
Golden Gate University, San Francisco.
Dr. Rosen was appointed Vice President of Research and Development in April
1995. Previously, he served as Celtrix's director of research since January
1994. He has served at Celtrix since its founding by Collagen Corporation and
has extensive research and project management experience, as well as an in-depth
working knowledge of SomatoKine. Dr. Rosen worked at Collagen since 1982,
initially serving as a scientist in the Company's connective tissue research
laboratories. Dr. Rosen received his Ph.D. in biochemistry from the University
of California, Riverside and has over forty research publications to his credit.
The Board of Directors elects Celtrix's officers and such officers serve at
the discretion of the Board of Directors of Celtrix. There are no family
relationships among the directors or officers of Celtrix.
13
<PAGE> 14
FORWARD-LOOKING STATEMENTS
The Company notes that certain of the foregoing statements are forward
looking within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Actual results may differ materially from the statements made
due to a variety of factors including, but not limited to, (i) the efficacy and
safety of SomatoKine and other of the Company's products, (ii) results of
clinical studies, (iii) significant unforeseen delays in the regulatory approval
process, (iv) complications relating to the use of SomatoKine, (v) competitive
products and technology, and (vi) other risk factors described herein.
OTHER FACTORS AFFECTING STOCK PRICE
The market prices for securities of biopharmaceutical and biotechnology
companies have historically been highly volatile, and the market has from time
to time experienced significant price and volume fluctuations that are unrelated
to the operating performance of particular companies. Since the Company's common
stock became listed for public trading, its market price has fluctuated over a
wide range. Announcements concerning the Company or its competitors, including
the results of testing, technological innovations, corporate alliances,
licensing of compounds or new commercial products, government regulations,
developments concerning proprietary rights, litigation or public concern as to
safety of the Company's potential products as well as changes in general market
conditions may have a significant effect on the market price of Celtrix's common
stock.
ITEM 2. PROPERTIES
Celtrix leases a 69,000 square foot facility at 3055 Patrick Henry Drive,
Santa Clara, California 95054-1815. Celtrix anticipates that its facilities will
be adequate for administrative and research and development purposes at least
through fiscal 1997.
ITEM 3. LEGAL PROCEEDINGS
As of the date hereof, there are no legal proceedings pending against or
involving Celtrix or its assets that, in the opinion of management, could result
in a materially adverse change in the business or financial condition of
Celtrix.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
fiscal quarter ended March 31, 1996.
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the NASDAQ National Market under
the symbol CTRX. The following table represents quarterly information on the
high and low prices of Celtrix's common stock for the last two fiscal years:
<TABLE>
<CAPTION>
HIGH LOW
----- ------
<S> <C> <C>
Fiscal Year 1996
First Quarter.............................................. $3 $1 1/4
Second Quarter............................................. $2 7/8 $2
Third Quarter.............................................. $2 5/8 $1 11/16
Fourth Quarter............................................. $2 7/8 $2 3/16
Fiscal Year 1995
First Quarter.............................................. $7 3/8 $5 3/8
Second Quarter............................................. $7 7/8 $5 1/2
Third Quarter.............................................. $7 3/8 $2
Fourth Quarter............................................. $3 1/8 $1 7/16
</TABLE>
As of March 31, 1996, there were approximately 1,370 stockholders of
record. No cash dividends have been paid to date by the Company on its common
stock. Celtrix does not anticipate the payment of dividends in the foreseeable
future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Total revenues.......................... $ 1,750 $ 2,220 $ 858 $ 776 $ 829
Acquired in-process research and
development and licensing fees(1)..... -- -- -- $ 5,050 $ 12,281
Operating loss.......................... $(11,334) $(21,592) $(18,457) $(23,773) $(22,784)
Net loss................................ $ (7,246) $(20,749) $(17,760) $(22,302) $(21,325)
Net loss per share...................... $ (0.51) $ (1.57) $ (1.64) $ (2.71) $ (4.82)
Shares used in per share computation.... 14,161 13,255 10,805 8,240 4,424
Total assets............................ $ 30,145 $ 35,024 $ 44,089 $ 41,499 $ 58,450
Long-term obligations................... $ 238 $ 828 $ 1,456 $ 2,030 $ 181
Total stockholders' equity.............. $ 26,786 $ 29,436 $ 39,121 $ 35,195 $ 51,301
</TABLE>
- ---------------
(1) The acquired in-process research and development and licensing fee charges
of $5.0 million and $12.3 million for the years ended March 31, 1993 and
1992, respectively, resulted from the Genentech, Inc. licensing fee in March
1993 ($4.0 million), the Baltimore Biotech, Inc. acquisition in September
1992 ($1.0 million), and the BioGrowth, Inc. merger in December 1991 ($12.3
million).
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Celtrix Pharmaceuticals, Inc. is a biopharmaceutical company developing
novel therapeutics for the treatment of seriously debilitating, degenerative
conditions primarily associated with severe trauma, chronic diseases or aging.
The Company's development focus is on SomatoKine(R), the recombinant equivalent
of the naturally occurring complex formed by the anabolic hormone insulin-like
growth factor-I (IGF-I) and its major binding protein, BP3, which shows
potential as a hormone replacement therapy for patients suffering from severe
physical trauma or serious illness. Celtrix's goal is to initially develop
SomatoKine for acute conditions, such as major surgery, organ damage or failure,
and traumatic injury. These conditions often involve abnormally low blood levels
of IGF-BP3 which are associated with a catabolic state in which the body poorly
utilizes nutrients and breaks down muscle for energy.
In fiscal 1996, the Company completed its preclinical safety and efficacy
studies on SomatoKine, which support the belief that SomatoKine offers a
promising method for providing safe, therapeutically effective doses of IGF-I,
which is critical in nutrient utilization and in muscle and bone formation.
Celtrix initiated Phase I human clinical testing in May 1996.
The Company has a license agreement with The Green Cross Corporation
("Green Cross"), a Japanese pharmaceutical company, covering the development and
commercialization of SomatoKine for the treatment of osteoporosis in Japan. The
Company also has a product development, license and marketing agreement with
Genzyme Corporation ("Genzyme") for TGF-beta-2, a potential pharmaceutical based
on a naturally occurring compound which appears to play an important role in
regulating healthy cell functions. Genzyme is currently developing TGF-beta-2
for tissue repair and the treatment of systemic indications.
Celtrix has not earned substantial revenues from product sales and at March
31, 1996 has an accumulated deficit of $91.4 million, which includes
non-recurring, non-cash charges of $17.3 million for acquired in-process
research and development and licensing fees. The Company expects to incur
additional operating losses, which may fluctuate quarter to quarter, for at
least the next several years as the Company expands its development activities,
including clinical trials and manufacturing.
The Company's product revenues to date consist primarily of revenues from
sales of Vitrogen(R)100 Collagen, a sterile solution of collagen purchased from
Collagen Corporation ("Collagen") under a long-term supply agreement. In May
1995, pursuant to a distribution rights and option to purchase agreement,
Collagen exercised its option to purchase the Vitrogen business. As a result, no
further Vitrogen sales have been recorded. The Company also sells other products
for use in research and assay applications. To date, sales of these products,
along with Vitrogen, have not been material.
There can be no assurance that Celtrix will ever achieve either significant
revenues from product sales or profitable operations. To achieve profitable
operations, the Company, alone or with others, must successfully develop, obtain
regulatory approval for and market its potential products. No assurance can be
given that the Company's product development efforts will be successfully
completed, that required regulatory approvals will be obtained, or that any
products, if developed and introduced, will be successfully marketed or achieve
market acceptance.
16
<PAGE> 17
RESULTS OF OPERATIONS
The Company incurred net losses of $7.2 million, $20.7 million, and $17.8
million in 1996, 1995, and 1994, respectively. Net losses per share for these
years were $0.51, $1.57, and $1.64, respectively.
Revenues decreased 18% to $1.8 million in 1996 from $2.2 million in 1995
due primarily to an initial licensing fee received from Green Cross in 1995,
partially offset by proceeds received from Collagen for sale of the Vitrogen
business in 1996. Revenues increased $1.3 million in 1995 from $858,000 in 1994
due primarily to the Green Cross licensing fees. Gross margins on product sales
increased to 69% in 1996 from 55% in 1995 due primarily to a shift in the mix of
research material sales. Gross margin remained flat in 1995 as compared to 1994.
Research and development expenses decreased 39% to $11.0 million in 1996
from $18.1 million in 1995 due primarily to the Company's restructuring and
cost-reduction program implemented in the second half of 1995 when Celtrix
discontinued its in-house TGF-beta-2 program for the treatment of ophthalmic
conditions as a result of disappointing clinical results. Research and
development expenses increased 11% in 1995 from $16.3 million in 1994 due
primarily to an increase in costs associated with the now-discontinued
ophthalmic program, as well as an increase in process development costs related
to the manufacturing scale-up of SomatoKine.
General and administrative expenses decreased 40% to $2.1 million in 1996
from $3.5 million in 1995 due primarily to the restructuring and cost-reduction
program implemented in 1995. General and administrative expenses increased 25%
to $3.5 million in 1995 from $2.8 million in 1994, due primarily to TGF-beta-2
marketing preparations for the Company's now-discontinued ophthalmic program.
Expenses of $2.1 million were charged in 1995 primarily for severance costs
relating to the Company's restructuring and reduction in workforce of 65
employees, or approximately 44% of the Company's employees at such time.
Interest income, net of interest expense, decreased 26% to $625,000 in 1996
from $843,000 in 1995 due primarily to lower average cash, cash equivalents and
short-term investment balances. Net interest income increased 21% in 1995 from
$697,000 in 1994, due primarily to a slightly higher rate of return on
investments and a decrease in interest expense. Interest expense was $176,000,
$264,000, and $345,000 in 1996, 1995, and 1994, respectively.
During 1996, the Company sold its equity investment in Metra Biosystems,
Inc. ("Metra"), a biomedical company, resulting in a reported gain of $3.5
million.
At March 31, 1996, the Company had net operating loss and tax credit
carryforwards for federal income tax purposes of approximately $87.0 million and
$3.0 million, respectively, expiring in the years 2006 through 2011. Due to
ownership changes as defined by the Internal Revenue Code, the Company's
utilization of its net operating loss carryforwards and tax credits is subject
to substantial annual limitations. Effective April 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The effect of the change on the Company's financial statements was not
material. The Company has determined that a valuation allowance for deferred tax
assets of $36.0 million and $33.0 million at March 31, 1996 and 1995,
respectively, is required to reduce the deferred tax assets to the amount
realizable, zero, based upon the Company's history of losses.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
Celtrix has funded its activities with proceeds from public and private
offerings, advances from Collagen, research and development revenues and
licensing fees from collaborative arrangements, lease and debt financing
arrangements, proceeds from liquidating its equity investment in Metra, and, to
a lesser extent, other revenues and product sales.
At March 31, 1996, Celtrix's cash, cash equivalents and short-term
investments were $17.6 million compared to $19.9 million at March 31, 1995. This
net decrease of $2.3 million was due primarily to cash outlays totaling $10.5
million related to its operations and payments under long-term obligations,
offset by $3.8 million from the sale of an equity investment in Metra and $4.4
million of net equity proceeds received from Genzyme. In December 1995, Celtrix
exercised its option to receive an equity investment from Genzyme, pursuant to a
1994 Common Stock Purchase Agreement, which resulted in the issuance of
1,472,829 shares of Celtrix common stock and increased Genzyme's total ownership
position in Celtrix to 19.9% (3,023,217 shares) of its 15.2 million shares
outstanding.
The Company believes that its existing capital resources will be adequate
to satisfy its anticipated requirements through the middle of calendar 1997. The
Company continues to pursue the possibility of securing additional corporate
partner arrangements that are consistent with the Company's product development
and commercialization strategies, raising additional capital by means of selling
equity or debt securities, and evaluating other options including mergers and
acquisitions. The Company's future success may depend, in part, on its
relationships with third parties, including their willingness to collaborate in
the development of any potential products under development, their strategic
interest in such products and, eventually, their success in marketing.
The Company anticipates that it will expend significant capital resources
in product research and development, which is typical in the biopharmaceutical
industry. Capital resources may also be used for the acquisition of
complementary businesses, products or technologies. The Company's future capital
requirements will depend on many factors, including scientific progress in its
research and development programs, the magnitude of these programs, progress
with preclinical and clinical trials, the cost of scaling up manufacturing and
establishing facilities, the time and costs involved in obtaining regulatory
approvals, the time and costs involved in filing, prosecuting, enforcing and
defending patent claims, competition in technological and market developments,
the establishment of and changes in collaborative relationships and the cost of
commercialization activities and arrangements. The Company anticipates that it
will be required to raise substantial additional capital over a period of
several years in order to continue its research and development programs,
including clinical trials, and to prepare for commercialization by expanding
manufacturing and marketing capabilities. No assurance can be given that such
additional capital will be available on reasonable terms or at all. The
unavailability of such financing could delay or prevent the development and
marketing of the Company's potential products.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Financial Statement Schedules of the Company
required by this item are incorporated herein and listed under Item 14(a)(1) and
(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
18
<PAGE> 19
PART III
Certain information required by Part III is omitted from this report
because the Registrant will file a definitive proxy statement within 120 days
after the end of its fiscal year pursuant to Regulation 14(A) (the "Proxy
Statement") for its Annual Meeting of Stockholders scheduled to be held on
August 27, 1996 and the information included therein is incorporated herein by
reference to the extent detailed below.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Registrant's directors required by this Item
is incorporated by reference to the information under the caption "Election of
Directors -- Nominees" in the Registrant's Proxy Statement.
The information concerning the Registrant's executive officers is set forth
in "Item 1 -- Business -- Executive Officers of the Company" in this Annual
Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
information under the captions "Election of Directors -- Compensation of
Directors," "Compensation of Executive Officers -- Summary Compensation Table,"
"Compensation of Executive Officers -- Stock Option Grants in Last Fiscal Year,"
and "Compensation of Executive Officers -- Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values" in the Registrant's Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
information under the caption "Common Stock Ownership of Certain Beneficial
Owners and Management" in the Registrant's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
information under the caption "Transactions with Management and Others" in the
Registrant's Proxy Statement.
19
<PAGE> 20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) INDEX TO FINANCIAL STATEMENTS
The financial statements required by this item are submitted in a separate
section beginning on page 28 of this report:
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................... 28
Consolidated Balance Sheets -- March 31, 1996 and 1995................ 29
Consolidated Statements of Operations
Years Ended March 31, 1996, 1995 and 1994........................... 30
Consolidated Statements of Stockholders' Equity
Years Ended March 31, 1996, 1995 and 1994........................... 31
Consolidated Statements of Cash Flows
Years Ended March 31, 1996, 1995 and 1994........................... 32
Notes to the Consolidated Financial Statements........................ 33
</TABLE>
(A)(2) FINANCIAL STATEMENT SCHEDULES
Schedules have been omitted because they are not applicable or are not
required or the information required to be set forth therein is included in the
Financial Statements or notes thereto.
(A)(3) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
2.1 -- Stock Exchange Agreement dated September 14, 1992, among Registrant, Baltimore
Biotech, Inc. ("BBI") and holders of outstanding stock of BBI.(6)(10)
3.1 -- Certificate of Incorporation of the Registrant.(4)
3.2 -- Bylaws of the Registrant.(1)
4.1 -- Certificate of Incorporation of the Registrant. (See Exhibit 3.1)
4.2 -- Bylaws of the Registrant. (See Exhibit 3.2)
4.3 -- Warrant of the Registrant dated November 17, 1993 to Warburg, Pincus Investors,
L.P.(13)
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
10.1 -- Distribution Agreement dated January 23, 1991, between Collagen Corporation and
the Registrant.(2)
10.2a -- Registrant's 1991 Directors' Stock Option Plan.(3)
10.3a -- Registrant's 1991 Employee Stock Purchase Plan.(3)
10.4a -- Registrant's 1991 Stock Option Plan.(3)
10.5 -- Agreement by the Registrant to provide services to Collagen Corporation dated as
of February 1, 1991, between Collagen Corporation and the Registrant.(2)
10.6 -- Supply and License Agreement from the Registrant to Collagen Corporation effective
as of February 1, 1991, between Collagen Corporation and the Registrant.(2)(8)
10.7 -- Agreement by Collagen Corporation to provide services to the Registrant dated as
of February 1, 1991, between Collagen Corporation and the Registrant.(2)
10.8 -- Supply and License Agreement from Collagen Corporation to the Registrant effective
as of February 1, 1991, between Collagen Corporation and the Registrant.(2)(8)
10.9 -- Distribution Agency Agreement dated as of February 1, 1991, among the Registrant,
Collagen Corporation and the Bank of New York.(2)
10.11 -- Tax Allocation Agreement dated as of February 1, 1991, between Collagen
Corporation and the Registrant.(2)
10.12 -- Vitrogen(R) Agreement Between Collagen Corporation and the Registrant effective as
of February 1, 1991.(2)(8)
10.13 -- Warrant Purchase and Registration Rights Agreement dated as of February 1, 1991,
among Collagen Corporation, the Registrant and The Bank of New York, as Warrant
Agent.(2)
10.13a -- Amendment to Warrant Purchase and Registration Rights Agreement dated as of
December 26, 1991, between Collagen Corporation and Registrant.(4)
10.14 -- Joint Venture Agreement dated as of March 26, 1987, between Collagen Corporation
and Hercules Incorporated.(1)
10.15 -- Letter Agreement dated as of July 21, 1989, by and among Collagen Corporation,
Hercules Incorporated and Epicor Laboratories, Inc.(1)
10.16 -- License Agreement for Wound Healing Composition dated as of April 15, 1987,
between the University of Washington and Collagen Corporation.(1)
10.17 -- Consulting Agreement dated as of February 1, 1991, between Collagen Corporation
and Bruce B. Pharriss.(2)
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
10.18 -- Form of Indemnification Agreement between the Registrant and each of its executive
officers and directors.(1)
10.19 -- Form of Loan and Security Agreement between the Registrant and certain of its
employees.(1)
10.20 -- Agreement Between Bristol-Myers Squibb and Collagen Corporation dated September 7,
1990.(1)
10.21 -- License Agreement dated as of December 4, 1991, among Massachusetts Institute of
Technology, Whitehead Institute and the Registrant.(4)(9)
10.22 -- License Agreement dated as of June 15, 1990, between the Board of Trustees of the
Leland Stanford Junior University and BioGrowth, Inc.(4)
10.23 -- Lease Agreement dated as of August 1, 1991, between Spieker French Foster #249, a
California General Partnership, and the Registrant, as amended.(4)
10.24 -- Escrow Agreement dated as of December 12, 1991, among the Registrant, BioGrowth,
Inc., The Bank of New York, and Larry Brown and James Bennington, M.D., as
representatives of and on behalf of the BioGrowth, Inc. Shareholders.(4)
10.25 -- Form of Non-Competition Agreement between the Registrant and each of Edward O.
Lanphier II, Andreas Sommer, Christopher Maack and E. Martin Spencer.(4)
10.26 -- Form of Affiliate's Agreement between the Registrant and each of Edward O.
Lanphier II, Andreas Sommer and certain other shareholders of BioGrowth, Inc.(4)
10.27 -- Loan and Security Agreement dated as of January 28, 1992, between the Registrant
and Edward O. Lanphier II.(4)
10.28 -- Loan and Security Agreement dated as of January 28, 1992, between the Registrant
and Andreas Sommer.(4)
10.29 -- Master Lease Agreement Number 10439 between the Registrant and Lease Management
Service, Inc.(5)
10.30 -- Master Lease Agreement Number 9131 between the Registrant and LeasTec
Corporation.(6)
10.31 -- Master Lease Agreement dated November 16, 1992, between the Registrant and General
Electric Capital Corporation.(7)
10.32 -- Development Agreement dated February 23, 1993, between the Registrant and Santen
Pharmaceutical Co., Ltd.(11)(12)
10.33 -- License Agreement dated April 1, 1993, between the Registrant and Genentech,
Inc.(11)(12)
10.34 -- Registration Rights Agreement dated April 1, 1993, between the Registrant and
Genentech, Inc.(12)
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
10.35 -- First Amendment to Warrant Purchase and Registration Rights Agreement between the
Registrant and Collagen Corporation.(12)
10.36 -- Loan Agreement dated as of June 8, 1992, between the Registrant and Peter P.
Kowalchuk.(12)
10.37 -- Common Stock Purchase Agreement dated June 2, 1993, between the Registrant and
Certain Purchasers of its Common Stock.(12)
10.38 -- Common Stock and Warrant Purchase Agreement dated October 27, 1993, between the
Registrant and Warburg, Pincus Investors, L.P.(14)
10.39 -- Registration Rights Agreement dated November 17, 1993, between the Registrant and
Warburg, Pincus Investors, L.P.(13)
10.40 -- Common Stock Purchase Agreement dated June 22, 1994, between the Registrant and
Genzyme Corporation(15)
10.41 -- Registration Rights Agreement dated June 22, 1994, between the Registrant and
Genzyme Corporation(15)
10.42 -- License and Development Agreement dated June 22, 1994, between the Registrant and
Genzyme Corporation(15)(16)
10.43 -- License Agreement dated July 5, 1994, between the Registrant and The Green Cross
Corporation.(17)(18)
10.44 -- Common Stock Purchase Agreement dated September 2, 1994, between the Registrant
and Kingsbury Capital Partners, L.P.(19)
10.45 -- Registration Rights Agreement dated September 2, 1994, between the Registrant and
Kingsbury Capital Partners, L.P.(19)
10.46 -- Vitrogen Distribution Agreement and Option to Purchase dated January 1, 1995,
between the Registrant and Collagen Corporation.(20)(21)
10.47 -- Consulting Agreement dated May 13, 1995, between the Registrant and Dr. Dale A.
Stringfellow.(22)
10.48 -- Separation Agreement and Mutual Release between the Registrant and the employees
who participated in the Registrant's reductions-in-force.(22)(23)
10.49 -- Amendment dated September 29, 1995 to Common Stock Purchase Agreement dated June
24, 1994, between the Registrant and Genzyme Corporation.(24)
21 -- Subsidiaries of the Registrant.(4)
24.1 -- Consent of Ernst & Young LLP, Independent Auditors. (See page 40 of this report.)
25 -- Power of Attorney. (See page 26 of this report.)
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
27 -- Financial Data Schedule
</TABLE>
- ---------------
(1) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10 Registration Statement, filed with the Securities and
Exchange Commission on January 14, 1991.
(2) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 8 Amendment to Form 10 Registration Statement, filed with
the Securities and Exchange Commission on January 30, 1991.
(3) Incorporated by reference to identically numbered exhibits filed with
Registrant's Registration Statement on Form S-1 (File No. 33-40915), filed
with the Securities and Exchange Commission declared effective on July 23,
1991.
(4) Incorporated by reference to identically numbered exhibits filed with
Registrant's Registration Statement on Form S-1 (File No. 33-45370), filed
with the Securities and Exchange Commission declared effective on March 6,
1992.
(5) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-K for the year ended March 31, 1992, filed with the
Securities and Exchange Commission on June 26, 1992.
(6) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-Q for the quarterly period ended September 30, 1992,
filed with the Securities and Exchange Commission on November 9, 1992.
(7) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-Q for the quarterly period ended December 31, 1992,
filed with the Securities and Exchange Commission on February 11, 1993.
(8) Confidential treatment has been granted with respect to portions of this
exhibit by order dated February 1, 1991.
(9) Confidential treatment has been granted with respect to portions of this
exhibit by order dated March 6, 1992.
(10) Confidential treatment has been granted with respect to portions of this
exhibit by order dated December 1, 1992.
(11) Confidential treatment has been granted with respect to portions of this
exhibit by order dated August 6, 1993.
(12) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-K for the year ended March 31, 1993, filed with the
Securities and Exchange Commission on June 18, 1993.
(13) Exhibit to the Registrant's Current Report on Form 8-K dated November 18,
1993.
(14) Exhibit to the Registrant's Current Report on Form 8-K dated October 29,
1993.
24
<PAGE> 25
(15) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-K for the year ended March 31, 1994, filed with the
Securities and Exchange Commission on June 28, 1994.
(16) Confidential treatment has been granted with respect to portions of this
exhibit by order dated August 16, 1994.
(17) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-Q for the quarterly period ended June 30, 1994, filed
with the Securities and Exchange Commission on August 15, 1994.
(18) Confidential treatment has been granted with respect to portions of this
exhibit by order dated February 17, 1995.
(19) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-Q for the quarterly period ended September 30, 1994,
filed with the Securities and Exchange Commission on November 15, 1994.
(20) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-Q for the quarterly period ended December 31, 1994,
filed with the Securities and Exchange Commission on February 13, 1995.
(21) Confidential treatment has been granted with respect to portions of this
exhibit by order dated March 31, 1995.
(22) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-K for the year ended March 31, 1995, filed with the
Securities and Exchange Commission on June 28, 1995.
(23) Confidential treatment has been requested with respect to portions of this
exhibit by order dated June 26, 1995.
(24) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-Q for the quarterly period ended December 31, 1995,
filed with the Securities and Exchange Commission on February 12, 1996.
(B) REPORTS ON FORM 8-K
The Company filed the following report on Form 8-K during the quarter ended
March 31, 1996:
Report Date: January 23, 1996
Item 5. Other Events
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
The Registrant announced financial results for the quarter ended December
31, 1995.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CELTRIX PHARMACEUTICALS, INC.
By: /s/ ANDREAS SOMMER
-----------------------------------
Andreas Sommer, Ph.D.
Chief Executive Officer and
President
Date: June 21, 1996
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints jointly and severally, Andreas Sommer and Mary
Anne Ribi, and each one of them, his or her attorneys-in-fact, each with the
power of substitution, for him or her in any and all capacities, to sign any and
all amendments to this Report on Form 10-K, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his or her substitute or substitutes, may do or cause to
be done by virtue hereof.
26
<PAGE> 27
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------------ --------------
<C> <S> <C>
/s/ ANDREAS SOMMER Chief Executive Officer, June 21, 1996
- ----------------------------------------------- President and Director
(Andreas Sommer)
/s/ MARY ANNE RIBI Vice President, Finance and June 21, 1996
- ----------------------------------------------- Administration, Chief
(Mary Anne Ribi) Financial Officer and
Assistant Secretary
(Principal Financial and
Accounting Officer)
/s/ HENRY E. BLAIR Director June 21, 1996
- -----------------------------------------------
(Henry E. Blair)
/s/ PETER STALKER III Director June 21, 1996
- -----------------------------------------------
(Peter Stalker III)
/s/ TIMOTHY J. WOLLAEGER Director June 21, 1996
- -----------------------------------------------
(Timothy J. Wollaeger)
/s/ JAMES E. THOMAS Chairman of the Board June 21, 1996
- -----------------------------------------------
(James E. Thomas)
</TABLE>
27
<PAGE> 28
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Celtrix Pharmaceuticals, Inc.
We have audited the accompanying consolidated balance sheets of Celtrix
Pharmaceuticals, Inc. as of March 31, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1996. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Celtrix
Pharmaceuticals, Inc. at March 31, 1996 and 1995, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 31, 1996, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Palo Alto, California
April 26, 1996
28
<PAGE> 29
CELTRIX PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH MARCH
31, 31,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 10,183 $ 6,778
Short-term investments........................................... 7,460 13,151
Receivables and other current assets 195 307
------- -------
Total current assets..................................... 17,838 20,236
Property and equipment, at cost:
Leasehold improvements........................................... 11,065 11,064
Machinery and equipment 8,657 8,650
------- -------
19,722 19,714
Less accumulated depreciation and amortization..................... (9,709) (7,511)
------- -------
10,013 12,203
Intangible and other assets, net of accumulated amortization of
$477 and $293 at March 31, 1996 and 1995, respectively........... 2,294 2,585
------- -------
$ 30,145 $ 35,024
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 488 $ 291
Accrued compensation............................................. 208 340
Accrued restructuring costs...................................... -- 1,306
Other accrued liabilities........................................ 605 849
Current portion of long-term obligations......................... 633 639
------- -------
Total current liabilities................................ 1,934 3,425
Deferred rent...................................................... 1,187 1,335
Long-term obligations.............................................. 238 828
Commitments
Stockholders' equity:
Preferred stock, $.01 par value, authorized 2,000,000 shares;
none issued and outstanding................................... -- --
Common stock, $.01 par value, authorized 30,000,000 shares;
15,213,992 shares and 13,719,219 shares issued and
outstanding at March 31, 1996 and 1995, respectively.......... 152 137
Additional paid-in capital....................................... 118,052 113,622
Accumulated deficit.............................................. (91,418) (84,323)
------- -------
Total stockholders' equity....................................... 26,786 29,436
------- -------
$ 30,145 $ 35,024
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
CELTRIX PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Product sales............................................ $ 99 $ 296 $ 459
Related party............................................ 420 60 11
Licensing revenues and other............................. 1,231 1,844 388
-------- -------- --------
1,750 2,200 858
Costs and expenses:
Cost of sales............................................ 31 134 206
Research and development................................. 10,990 18,091 16,286
General and administrative............................... 2,063 3,459 2,823
Restructuring costs...................................... -- 2,108 --
-------- -------- --------
13,084 23,792 19,315
-------- -------- --------
Operating loss............................................. (11,334) (21,592) (18,457)
Interest income, net....................................... 625 843 697
Gain on sale of investment in Metra
Biosystems, Inc.......................................... 3,463 -- --
-------- -------- --------
Net loss................................................... $ (7,246) $(20,749) $(17,760)
======== ======== ========
Net loss per share......................................... $ (0.51) $ (1.57) $ (1.64)
======== ======== ========
Shares used in per share computation....................... 14,161 13,255 10,805
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
CELTRIX PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED STOCKHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at March 31, 1993......................... $ 89 $ 80,749 $ (45,643) $ 35,195
Issuance of 1,768,421 shares of
common stock in a private placement............. 18 9,880 -- 9,898
Issuance of 1,340,845 shares of common
stock and a 5-year warrant to purchase
687,155 shares of common stock at $9
per share in a private placement................ 13 11,942 -- 11,955
Issuance of 5,405 shares of common stock
upon exercise of stock options.................. -- 41 -- 41
Unrealized loss on available-for-sale
securities -- -- (208) (208)
Net loss.......................................... -- -- (17,760) (17,760)
---- -------- -------- --------
Balance at March 31, 1994......................... 120 102,612 (63,611) 39,121
Issuance of 1,550,388 shares of common
stock to Genzyme Corporation.................... 16 9,875 -- 9,891
Issuance of 156,000 shares of common
stock to Kingsbury Capital Partners, L.P. ...... 1 991 -- 992
Issuance of 5,890 shares of common stock
upon exercise of stock options.................. -- 33 -- 33
Issuance of 50,000 shares of common stock
under the Employee Stock Purchase Plan -- 111 -- 111
Unrealized gain on available-for-sale
securities...................................... -- -- 37 37
Net loss.......................................... -- -- (20,749) (20,749)
---- -------- -------- --------
Balance at March 31, 1995......................... 137 113,622 (84,323) 29,436
Issuance of 1,472,829 shares of common
stock to Genzyme Corporation.................... 15 4,382 -- 4,397
Issuance of 21,944 shares of common stock
under the Employee Stock Purchase Plan.......... -- 48 -- 48
Unrealized gain on available-for-sale
securities...................................... -- -- 151 151
Net loss.......................................... -- -- (7,246) (7,246)
---- -------- -------- --------
Balance at March 31, 1996......................... $152 $ 118,052 $ (91,418) $ 26,786
==== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
CELTRIX PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................... $ (7,246) $(20,749) $(17,760)
Adjustments to reconcile net loss to net cash used in
operating activities:
Gain on investment....................................... (3,463) -- --
Depreciation and amortization 2,234 2,164 2,104
Changes in operating accounts:
Receivables and other current assets.................. 112 235 76
Accounts payable, accrued restructuring costs, accrued
compensation and other accrued liabilities.......... (1,485) 1,332 (688)
-------- -------- --------
Net cash used in operating activities............ (9,848) (17,018) (16,268)
Cash flows from investing activities:
Maturities of available-for-sale securities.............. 26,950 25,050 22,581
Sales of available-for-sale securities................... 7,594 -- 801
Purchase of available-for-sale securities (24,940) (14,578) (28,148)
Capital expenditures..................................... (8) (2,184) (739)
Increase in intangible and other assets.................. (192) (302) (386)
-------- -------- --------
Net cash provided by (used in) investing
activities..................................... 9,404 7,986 (5,891)
Cash flows from financing activities:
Proceeds from issuance of common stock, net.............. 4,445 11,027 21,894
Proceeds from lease and debt transactions................ -- 985 35
Principal payments under long-term obligations........... (596) (563) (500)
-------- -------- --------
Net cash provided by financing activities........ 3,849 11,449 21,429
Net increase (decrease) in cash and cash equivalents....... 3,405 2,417 (730)
Cash and cash equivalents at beginning of year............. 6,778 4,361 5,091
-------- -------- --------
Cash and cash equivalents at end of year................... $ 10,183 $ 6,778 $ 4,361
======== ======== ========
Supplemental disclosure:
Interest paid............................................ $ 176 $ 264 $ 345
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 33
CELTRIX PHARMACEUTICALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Celtrix Pharmaceuticals, Inc. is a biopharmaceutical company focused on
developing novel therapeutics for the treatment of seriously debilitating,
degenerative conditions primarily associated with severe trauma, chronic
diseases or aging. Celtrix was a wholly owned subsidiary of Collagen Corporation
("Collagen") prior to February 1991. Collagen distributed Celtrix's common stock
as a special dividend to the Collagen stockholders in February 1991.
The consolidated financial statements include the accounts of Celtrix and
its wholly owned subsidiaries, BioGrowth, Inc. and Baltimore Biotech, Inc. All
significant intercompany accounts and transactions have been eliminated.
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 amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
Cash Equivalents and Short-term Investments
Celtrix considers all highly liquid investment securities with maturity
from date of purchase of three months or less to be cash equivalents and
investment securities with maturity from date of purchase of more than three
months to be short-term investments.
To date, all marketable securities have been classified as
available-for-sale and are carried at fair value, with unrealized gains and
losses reported in accumulated deficit. Fair values of investment securities are
based on quoted market prices, and the costs of securities sold are based on the
specific identification method. Premiums and discounts are amortized over the
period from acquisition to maturity and are included in investment income, along
with interest and dividends.
Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. The Company will adopt Statement No. 121
in fiscal 1997, and based on current circumstances, does not believe the effect
of adoption will be material.
33
<PAGE> 34
CELTRIX PHARMACEUTICALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment
Depreciation and amortization of property and equipment is provided on the
straight-line method over the term of the lease for equipment under capital
lease obligations and leasehold improvements or the life of the asset, whichever
is shorter, and three to seven years for other machinery and equipment.
Intangible Assets
Patents, carried at cost, are amortized using the straight-line method over
the estimated useful lives of the related intellectual property, generally 12
years.
Revenue Recognition
Licensing revenues are recorded when contractually earned. Revenue from
product sales is recognized at time of shipment.
Stock-Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees", and, accordingly,
recognizes no compensation expense for the stock option grants.
Net Loss Per Share
Net loss per share is calculated using the weighted average number of
common shares outstanding. Common equivalent shares from stock options and
warrants are excluded from the calculation as their effect is antidilutive.
Reclassifications
Certain reclassifications have been made to prior year financial statements
to conform with the 1996 presentation.
2. INVESTMENT SECURITIES
The following is a summary of available-for-sale securities at March 31,
1996 and 1995 (in thousands). Gross unrealized gains were immaterial for the two
years.
<TABLE>
<CAPTION>
1996 1995
-------------------------------- --------------------------------
NET ESTIMATED NET ESTIMATED
UNREALIZED FAIR UNREALIZED FAIR
COST LOSSES VALUE COST LOSSES VALUE
------- ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
U.S. treasury securities and
obligations of U.S.
government agencies.......... $15,021 $ 18 $15,003 $17,367 $148 $17,219
U.S. corporate security........ 1,021 2 1,019 1,020 23 997
------- --- ------- ------- ---- -------
$16,042 $ 20 $16,022 $18,387 $171 $18,216
======= === ======= ======= ==== =======
Classified as:
Cash equivalents............. $ 8,564 $ 2 $ 8,562 $ 5,066 $ 1 $ 5,065
Short-term investments....... 7,478 18 7,460 13,321 170 13,151
------- --- ------- ------- ---- -------
$16,042 $ 20 $16,022 $18,387 $171 $18,216
======= === ======= ======= ==== =======
</TABLE>
34
<PAGE> 35
CELTRIX PHARMACEUTICALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During fiscal year 1996, sales of available-for-sale debt securities
amounted to $3,832,000, resulting in $20,000 of gross realized gains. An
additional gain of $3.5 million was realized on the sale of the Company's equity
investment in Metra Biosystems, Inc. (Refer to Note 9 for additional
information.) During fiscal year 1995, no gains or losses were realized on
available-for-sale securities. At March 31, 1996, by contractual maturity, all
of the available-for-sale securities are due in one year or less.
3. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist primarily of patents and employee
receivables. Amounts due from employees as of March 31, 1996 and 1995 of
$164,000 and $523,000, respectively, consist primarily of secured promissory
notes that bear interest between five and seven percent and have terms of up to
nine years. Principal and interest are due and payable upon maturity.
4. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following at March 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
----- ------
<S> <C> <C>
Capital lease obligations................................ $ 747 $1,246
Long-term debt........................................... 124 221
----- ------
871 1,467
Less current portion..................................... (633) (639)
----- ------
$ 238 $ 828
===== ======
</TABLE>
The Company is obligated under capital leases and long-term debt for
certain equipment and leasehold improvements with a carrying value of $485,000,
net of $2,469,000 accumulated amortization at March 31, 1996, and $1,091,000,
net of $1,817,000 accumulated amortization at March 31, 1995. Amortization
expense for leased assets is included in depreciation and amortization expense.
These obligations bear interest ranging from ten to fifteen percent, have up to
five year terms, and contain various buy-out options at the term expiration,
including purchasing the assets at fair market value. Under these obligations,
the Company is required to meet various financial covenants with which it was in
compliance at March 31, 1996.
At March 31, 1996, future minimum lease payments under capital leases and
principal payments under long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL LEASES LONG-TERM DEBT
-------------- --------------
<S> <C> <C>
1997.......................................... $ 575 $ 124
1998.......................................... 254 --
----- -------
Total minimum lease payments and principal
payments.................................... 829 124
Amount representing interest.................. (82) --
-----
Present value of minimum lease payments....... 747
Current portion of obligations................ (509) (124)
----- -------
Obligations due after one year................ $ 238 $ --
===== =======
</TABLE>
35
<PAGE> 36
CELTRIX PHARMACEUTICALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. OPERATING LEASES
The Company leases its office, laboratory and manufacturing facility under
a noncancelable operating lease which expires in the year 2004 and contains
several option periods to extend the lease up to an additional 18 years.
Payments are adjusted based on changes in the Consumer Price Index ("CPI"),
under the terms of the facility lease agreement. Deferred rent reflects the
landlord's funding of certain leasehold improvements prior to lease commencement
and is amortized over the lease term to offset rent expense.
The Company also leases certain equipment under noncancelable operating
leases. Future minimum lease payments under operating leases at March 31, 1996
(exclusive of potential CPI adjustments) are as follows (in thousands):
<TABLE>
<S> <C>
1997.............................................. $1,295
1998.............................................. 1,295
1999.............................................. 1,122
2000.............................................. 969
2001.............................................. 969
Thereafter........................................ 2,905
------
Total minimum lease payments...................... $8,555
======
</TABLE>
Rent expense was $1.2 million, $2.1 million, and $1.5 million for the years
ended March 31, 1996, 1995, and 1994 respectively.
6. INCENTIVE AND BENEFIT PLANS
Under Celtrix's 1991 Employee Stock Purchase Plan, 50,000 shares of common
stock were reserved for issuance. In January 1995, the Company's Board of
Directors authorized an increase in the number of shares reserved for issuance
to 250,000 shares of common stock, which was approved by the stockholders in
August 1995. Under the plan, employees have an opportunity to purchase common
stock of Celtrix at 85% of the fair market value at the beginning or end of each
12 month offering period, whichever is lower. The first offering period
commenced January 1, 1994. As of March 31, 1996, 71,944 shares of common stock
have been issued to company employees.
Under Celtrix's 1991 Stock Option Plan and the 1991 Directors' Stock Option
Plan, 1,500,000 and 200,000 shares of Celtrix's common stock have been reserved
for issuance, respectively. The exercise prices under these plans are determined
by the Board of Directors or its committee and may not be less than 100% of the
fair market value of Celtrix's common stock at the time of grant. The options
expire ten years from the date of grant, unless otherwise provided in the option
agreement. The options generally become exercisable over four years.
In November 1994, the Company allowed employees to cancel their outstanding
options in exchange for new options covering 50% of their original underlying
options at an exercise price of $2.50 per share, the fair market value of the
Company's stock on the date of Board approval. The exchange resulted in the
cancellation and issuance of options for 771,470 and 385,735 shares of common
stock, respectively.
At March 31, 1996, the Company has 210,000 shares subject to nonstatutory
options which were issued outside of the Company's 1991 Stock Option Plan. The
options are exercisable at $8.25 per share and expire on September 8, 1996.
36
<PAGE> 37
CELTRIX PHARMACEUTICALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Activity under the stock option plans for the three years ended March 31,
1996 is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
SHARES AVAILABLE -------------------------------------
FOR GRANT NUMBER OF SHARES PRICE PER SHARE
---------------- ---------------- ------------------
<S> <C> <C> <C>
Balance at March 31, 1993......... 493,746 1,205,624 $5.50 - $12.50
Options granted................... (177,582) 177,582 $6.75 - $10.50
Options exercised................. -- (5,405) $5.50 - $ 9.50
Options canceled.................. 275,375 (275,375) $5.50 - $12.50
-------- --------- --------------
Balance at March 31, 1994......... 591,539 1,102,426 $5.50 - $11.50
Options granted................... (949,667) 949,667 $2.50 - $ 9.50
Options exercised................. -- (5,890) $ 5.50
Options canceled.................. 1,145,715 (1,145,715) $2.50 - $10.50
-------- --------- --------------
Balance at March 31, 1995......... 787,587 900,488 $2.50 - $11.50
Options granted................... (640,699) 640,699 $1.25 - $ 2.63
Options canceled.................. 506,447 (506,447) $2.50 - $ 9.50
-------- --------- --------------
Balance at March 31, 1996......... 653,335 1,034,740 $1.25 - $11.50
======== ========= ==============
</TABLE>
At March 31, 1996, options to purchase approximately 228,000 common shares
were exercisable under the Stock Option Plan.
Under Celtrix's 1991 retirement savings plan ("401(k) Plan"), employees may
elect to defer up to 16% of their total compensation, not to exceed the amount
allowed by applicable Internal Revenue Service guidelines. There were no
employer contributions to the plan as of March 31, 1996.
7. RELATED PARTY TRANSACTIONS
In February 1991, pursuant to the distribution of Celtrix common stock by
Collagen, Celtrix entered into various agreements with Collagen, including
supply and license agreements (up to 20-year terms), and a Vitrogen(R)100
Collagen manufacturing agreement (up to 15-year term). Any materials supplied
are provided at prices equal to a multiple of fully burdened manufacturing
costs. In January 1995, Celtrix entered into a separate agreement with Collagen
under which Collagen was granted distribution rights and an option to purchase
the Vitrogen business; Collagen exercised the purchase option for $400,000 in
May 1995. These revenues are reported as related party revenues.
In September 1994, the Company issued 156,000 shares to Kingsbury Capital
Partners, L.P. ("Kingsbury Capital"). The general partner of Kingsbury Capital
is Timothy J. Wollaeger, who has been a member of Celtrix's Board of Directors
since 1991.
8. LICENSE AND COLLABORATIVE ARRANGEMENTS
In July 1994, Celtrix entered into a license agreement with The Green Cross
Corporation ("Green Cross"), a Japanese pharmaceutical company, covering the
development and commercialization of SomatoKine for the treatment of
osteoporosis in Japan. Under the terms of the agreement, Green Cross is
responsible for all related research, development and marketing, as well as
manufacturing product to support its preclinical, clinical and commercial needs
in Japan. Celtrix receives licensing fees and additionally, could receive
milestone payments upon reaching specific product development activities and
royalties on product sales. In addition, Celtrix has full rights outside of
Japan to SomatoKine and also to related know-how and technology developed by
Green Cross such as product formulation, manufacturing scale-up and osteoporosis
clinical study design and data.
37
<PAGE> 38
CELTRIX PHARMACEUTICALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1994, the Company entered into a product development, license and
marketing agreement with Genzyme Corporation ("Genzyme") on TGF-beta-2 which
includes equity investments, milestone payments and potential royalties to
Celtrix. Under the terms of the agreement, Genzyme has been granted worldwide
commercialization rights, excluding Asia, for all systemic applications and
select local applications of TGF-beta-2. Celtrix has retained rights to select
applications of TGF-beta-2, including all ophthalmic diseases and disorders, as
well as certain localized tissue damage. The Company has the option to reacquire
rights to other product applications not pursued by Genzyme.
As part of this agreement, in June 1994, Celtrix sold to Genzyme 1,550,388
shares of Celtrix common stock resulting in net proceeds to the Company of $9.9
million. In December 1995, Celtrix exercised the option to receive an additional
investment by Genzyme for 1,472,829 shares of Celtrix common stock, at $3.00 per
share, resulting in $4.4 million of net proceeds to the Company.
Since inception, Celtrix has entered into various other research and
development and licensing arrangements. Some of these agreements contain royalty
and other obligations.
9. GAIN ON SALE OF INVESTMENT IN METRA BIOSYSTEMS, INC.
During 1996, Celtrix liquidated an equity investment, held since 1990, in
Metra Biosystems, Inc. ("Metra"), a biomedical company. Following Metra's
initial public offering in June 1995, the Company's investment became marketable
and reclassified as an available-for-sale security. The $3.5 million gain on
investment was the result of the Company's sale of 231,480 shares of Metra
common stock.
10. RESTRUCTURING COSTS
During 1995, the Company canceled its ophthalmic program, restructured, and
reduced its work force by 65 employees (approximately 44%) from all job levels.
Consequently, in 1995, the Company expensed $1.4 million for severance costs and
$682,000 for equipment leases and a purchase commitment related to the
ophthalmic program. In 1996, the Company paid $1.2 million in restructuring
costs.
11. INCOME TAXES
At March 31, 1996, the Company had net operating loss and tax credit
carryforwards for federal income tax purposes of approximately $87.0 million and
$3.0 million, respectively, expiring in the years 2006 through 2011. The federal
net operating loss carryforward differs from the accumulated deficit principally
due to (i) the nondeductibility for tax purposes of the charges for in-process
research and development resulting from the BioGrowth, Inc. merger and the
Baltimore Biotech, Inc. acquisition, and (ii) timing difference in the
recognition of certain revenue and expense items for financial and federal tax
reporting purposes (primarily certain expenses not currently deductible).
Approximately $8.0 million of the total federal net operating losses are
available only to offset future consolidated taxable income to the extent
contributed by the Company's wholly owned subsidiary, BioGrowth, Inc.
Utilization of the net operating losses and credits is subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986.
38
<PAGE> 39
CELTRIX PHARMACEUTICALS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes as of March 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward...................... $ 29,800 $ 27,704
Research credits..................................... 4,281 3,481
Acquired intangibles................................. 1,038 1,186
Research expenses capitalized for tax purposes....... 2,148 1,719
Other -- net......................................... (1,481) (1,178)
-------- --------
Net deferred tax assets.............................. 35,786 32,912
Valuation allowance for deferred tax assets.......... (35,786) (32,912)
-------- --------
Total deferred tax assets............................ $ -- $ --
======== ========
</TABLE>
The valuation allowance increased by $2.9 million, $8.2 million and $7.9
million during the years ended March 31, 1996, 1995 and 1994, respectively.
39
<PAGE> 40
EXHIBIT 24.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-55482) pertaining to the Celtrix Pharmaceuticals, Inc. 1991
Stock Option Plan and 1991 Directors' Stock Option Plan, in the Registration
Statement (Form S-8 No. 33-42703) pertaining to the Celtrix Pharmaceuticals,
Inc. 1991 Stock Option Plan, 1991 Employee Stock Purchase Plan, and 1991
Directors' Stock Option Plan and in the Registration Statement (Form S-3 No.
33-66008) of Celtrix Pharmaceuticals, Inc. of our report dated April 26, 1996
with respect to the consolidated financial statements of Celtrix
Pharmaceuticals, Inc. included in this Annual Report (Form 10-K) for the year
ended March 31, 1996.
/s/ ERNST & YOUNG LLP
Palo Alto, California
June 25, 1996
40
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ---------------------------------------------------------------------------------- -----------
<C> <C> <S> <S>
2.1 -- Stock Exchange Agreement dated September 14, 1992, among Registrant, Baltimore
Biotech, Inc. ("BBI") and holders of outstanding stock of BBI.(6)(10)
3.1 -- Certificate of Incorporation of the Registrant.(4)
3.2 -- Bylaws of the Registrant.(1)
4.1 -- Certificate of Incorporation of the Registrant. (See Exhibit 3.1)
4.2 -- Bylaws of the Registrant. (See Exhibit 3.2)
4.3 -- Warrant of the Registrant dated November 17, 1993 to Warburg, Pincus Investors,
L.P.(13)
10.1 -- Distribution Agreement dated January 23, 1991, between Collagen Corporation and
the Registrant.(2)
10.2a -- Registrant's 1991 Directors' Stock Option Plan.(3)
10.3a -- Registrant's 1991 Employee Stock Purchase Plan.(3)
10.4a -- Registrant's 1991 Stock Option Plan.(3)
10.5 -- Agreement by the Registrant to provide services to Collagen Corporation dated as
of February 1, 1991, between Collagen Corporation and the Registrant.(2)
10.6 -- Supply and License Agreement from the Registrant to Collagen Corporation effective
as of February 1, 1991, between Collagen Corporation and the Registrant.(2)(8)
10.7 -- Agreement by Collagen Corporation to provide services to the Registrant dated as
of February 1, 1991, between Collagen Corporation and the Registrant.(2)
10.8 -- Supply and License Agreement from Collagen Corporation to the Registrant effective
as of February 1, 1991, between Collagen Corporation and the Registrant.(2)(8)
10.9 -- Distribution Agency Agreement dated as of February 1, 1991, among the Registrant,
Collagen Corporation and the Bank of New York.(2)
10.11 -- Tax Allocation Agreement dated as of February 1, 1991, between Collagen
Corporation and the Registrant.(2)
10.12 -- Vitrogen(R) Agreement Between Collagen Corporation and the Registrant effective as
of February 1, 1991.(2)(8)
10.13 -- Warrant Purchase and Registration Rights Agreement dated as of February 1, 1991,
among Collagen Corporation, the Registrant and The Bank of New York, as Warrant
Agent.(2)
10.13a -- Amendment to Warrant Purchase and Registration Rights Agreement dated as of
December 26, 1991, between Collagen Corporation and Registrant.(4)
10.14 -- Joint Venture Agreement dated as of March 26, 1987, between Collagen Corporation
and Hercules Incorporated.(1)
10.15 -- Letter Agreement dated as of July 21, 1989, by and among Collagen Corporation,
Hercules Incorporated and Epicor Laboratories, Inc.(1)
10.16 -- License Agreement for Wound Healing Composition dated as of April 15, 1987,
between the University of Washington and Collagen Corporation.(1)
10.17 -- Consulting Agreement dated as of February 1, 1991, between Collagen Corporation
and Bruce B. Pharriss.(2)
10.35 -- First Amendment to Warrant Purchase and Registration Rights Agreement between the
Registrant and Collagen Corporation.(12)
10.36 -- Loan Agreement dated as of June 8, 1992, between the Registrant and Peter P.
Kowalchuk.(12)
10.37 -- Common Stock Purchase Agreement dated June 2, 1993, between the Registrant and
Certain Purchasers of its Common Stock.(12)
10.38 -- Common Stock and Warrant Purchase Agreement dated October 27, 1993, between the
Registrant and Warburg, Pincus Investors, L.P.(14)
10.39 -- Registration Rights Agreement dated November 17, 1993, between the Registrant and
Warburg, Pincus Investors, L.P.(13)
10.40 -- Common Stock Purchase Agreement dated June 22, 1994, between the Registrant and
Genzyme Corporation(15)
10.41 -- Registration Rights Agreement dated June 22, 1994, between the Registrant and
Genzyme Corporation(15)
10.42 -- License and Development Agreement dated June 22, 1994, between the Registrant and
Genzyme Corporation(15)(16)
10.43 -- License Agreement dated July 5, 1994, between the Registrant and The Green Cross
Corporation.(17)(18)
10.44 -- Common Stock Purchase Agreement dated September 2, 1994, between the Registrant
and Kingsbury Capital Partners, L.P.(19)
10.45 -- Registration Rights Agreement dated September 2, 1994, between the Registrant and
Kingsbury Capital Partners, L.P.(19)
10.46 -- Vitrogen Distribution Agreement and Option to Purchase dated January 1, 1995,
between the Registrant and Collagen Corporation.(20)(21)
10.47 -- Consulting Agreement dated May 13, 1995, between the Registrant and Dr. Dale A.
Stringfellow.(22)
10.48 -- Separation Agreement and Mutual Release between the Registrant and the employees
who participated in the Registrant's reductions-in-force.(22)(23)
10.49 -- Amendment dated September 29, 1995 to Common Stock Purchase Agreement dated June
24, 1994, between the Registrant and Genzyme Corporation.(24)
21 -- Subsidiaries of the Registrant.(4)
24.1 -- Consent of Ernst & Young LLP, Independent Auditors. (See page 40 of this report.)
25 -- Power of Attorney. (See page 26 of this report.)
27 -- Financial Data Schedule
</TABLE>
- ---------------
(1) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10 Registration Statement, filed with the Securities and
Exchange Commission on January 14, 1991.
(2) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 8 Amendment to Form 10 Registration Statement, filed with
the Securities and Exchange Commission on January 30, 1991.
(3) Incorporated by reference to identically numbered exhibits filed with
Registrant's Registration Statement on Form S-1 (File No. 33-40915), filed
with the Securities and Exchange Commission declared effective on July 23,
1991.
(4) Incorporated by reference to identically numbered exhibits filed with
Registrant's Registration Statement on Form S-1 (File No. 33-45370), filed
with the Securities and Exchange Commission declared effective on March 6,
1992.
(5) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-K for the year ended March 31, 1992, filed with the
Securities and Exchange Commission on June 26, 1992.
(6) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-Q for the quarterly period ended September 30, 1992,
filed with the Securities and Exchange Commission on November 9, 1992.
(7) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-Q for the quarterly period ended December 31, 1992,
filed with the Securities and Exchange Commission on February 11, 1993.
(8) Confidential treatment has been granted with respect to portions of this
exhibit by order dated February 1, 1991.
(9) Confidential treatment has been granted with respect to portions of this
exhibit by order dated March 6, 1992.
(10) Confidential treatment has been granted with respect to portions of this
exhibit by order dated December 1, 1992.
(11) Confidential treatment has been granted with respect to portions of this
exhibit by order dated August 6, 1993.
(12) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-K for the year ended March 31, 1993, filed with the
Securities and Exchange Commission on June 18, 1993.
(13) Exhibit to the Registrant's Current Report on Form 8-K dated November 18,
1993.
(14) Exhibit to the Registrant's Current Report on Form 8-K dated October 29,
1993.
(15) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-K for the year ended March 31, 1994, filed with the
Securities and Exchange Commission on June 28, 1994.
(16) Confidential treatment has been granted with respect to portions of this
exhibit by order dated August 16, 1994.
(17) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-Q for the quarterly period ended June 30, 1994, filed
with the Securities and Exchange Commission on August 15, 1994.
(18) Confidential treatment has been granted with respect to portions of this
exhibit by order dated February 17, 1995.
(19) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-Q for the quarterly period ended September 30, 1994,
filed with the Securities and Exchange Commission on November 15, 1994.
(20) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-Q for the quarterly period ended December 31, 1994,
filed with the Securities and Exchange Commission on February 13, 1995.
(21) Confidential treatment has been granted with respect to portions of this
exhibit by order dated March 31, 1995.
(22) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-K for the year ended March 31, 1995, filed with the
Securities and Exchange Commission on June 28, 1995.
(23) Confidential treatment has been requested with respect to portions of this
exhibit by order dated June 26, 1995.
(24) Incorporated by reference to identically numbered exhibits filed with
Registrant's Form 10-Q for the quarterly period ended December 31, 1995,
filed with the Securities and Exchange Commission on February 12, 1996.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS INCLUDED IN ITS FORM 10-K FOR THE FISCAL YEAR
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 10,183
<SECURITIES> 7,460
<RECEIVABLES> 130
<ALLOWANCES> 46
<INVENTORY> 0
<CURRENT-ASSETS> 17,838
<PP&E> 19,722
<DEPRECIATION> 9,709
<TOTAL-ASSETS> 30,145
<CURRENT-LIABILITIES> 1,934
<BONDS> 0
0
0
<COMMON> 152
<OTHER-SE> 26,634
<TOTAL-LIABILITY-AND-EQUITY> 30,145
<SALES> 99
<TOTAL-REVENUES> 1,750
<CGS> 31
<TOTAL-COSTS> 31
<OTHER-EXPENSES> 10,990
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 176
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,246)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,246)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
