<PAGE>
ALKERMES, INC.
2,300,000 Shares
Common Stock
The 2,300,000 shares of Common Stock offered hereby are being issued
and sold directly by Alkermes, Inc. ("Alkermes" or the "Company"). Such
shares of Common Stock will be offered exclusively to institutional
investors and affiliates of such institutional investors. On May 7, 1996,
the last sale price of the Company's Common Stock, as reported on the
Nasdaq National Market, was $11.25 per share. See "Summary -- Market
Prices." The Common Stock of the Company is traded on the Nasdaq National
Market under the symbol "ALKS."
--------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 8.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Price to Public(1) Proceeds to
Company(2)
<S> <C> <C>
- --------------------------------------------------------------------------------
Per Share............ $10.00 $10.00
- --------------------------------------------------------------------------------
Total................ $23,000,000 $23,000,000
================================================================================
</TABLE>
(1) The final price of the Common Stock has been determined by
negotiations between the Company and prospective purchasers of the
Common Stock.
(2) Before deducting expenses payable by the Company estimated at $70,000.
No underwriting discounts or commissions will be paid by the Company
in connection with the sale of its Common Stock.
--------------------
The shares of Common Stock offered hereby are offered directly by the
Company. The Company has not fixed a minimum number of shares of Common
Stock to be sold in this offering and funds received by the Company on the
sale of less than all of the shares of Common Stock will not be placed in
an escrow, trust or similar arrangement. It is expected that delivery of
certificates representing the shares of Common Stock will be made against
payment for the Common Stock in Boston, Massachusetts, and the offering of
any unsold shares hereunder will terminate, not later than 30 days after
the date of this Prospectus.
--------------------------
The date of this Prospectus is May 8, 1996.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports,
proxy statements and other information filed by the Company may be
inspected without charge and copied at the public reference facilities
maintained by the Commission at Room 1014, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices
of the Commission: 7 World Trade Center, New York, New York 10048; and 500
West Madison Street, 14th Floor, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at the
prescribed rates. Alkermes' Common Stock is listed and traded on the
Nasdaq National Market. Reports, proxy statements and other information
filed by the Company may also be inspected at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, DC 20002.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which provide certain information with respect
to Alkermes, Inc. are incorporated by reference in this Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended March 31,
1995;
2. Quarterly reports of the Company on Form 10-Q for the fiscal
quarters ended June 30, September 30 and December 31, 1995;
3. Current report of the Company on Form 8-K, dated March 11, 1996;
and
4. Item 1 of Registration Statement on Form 8-A dated June 28, 1991,
as amended by a Report on Form 8 dated February 12, 1993.
All documents filed by Alkermes, Inc. pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing such documents. Any statement contained herein or in a document
incorporated by reference or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that such statement is modified or superseded by
any other subsequently filed document which is incorporated or is deemed to
be incorporated by reference herein. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. ALKERMES, INC. HEREBY UNDERTAKES
TO PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER,
TO WHOM THIS PROSPECTUS HAS BEEN DELIVERED, ON THE WRITTEN OR ORAL REQUEST
OF SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS REFERRED TO ABOVE
WHICH HAVE BEEN OR MAY BE INCORPORATED INTO THIS PROSPECTUS AND DEEMED TO
BE PART HEREOF, OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS. THESE
DOCUMENTS ARE AVAILABLE UPON REQUEST FROM MICHAEL J. LANDINE, SENIOR VICE
PRESIDENT AND CHIEF FINANCIAL OFFICER, ALKERMES, INC., 64 SIDNEY STREET,
CAMBRIDGE, MASSACHUSETTS 02139, (617) 494-0171.
2
<PAGE>
No person has been authorized to give information or make any
representations other than those contained in this Prospectus, and, if
given or made, such information or representations must not be relied upon
as having been authorized by the Company. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, any
securities to which it relates or an offer to, or a solicitation of, any
person in any jurisdiction where such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any time subsequent
to the date hereof.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION............................ 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.. 2
SUMMARY.......................................... 4
RISK FACTORS..................................... 8
SELECTED CONSOLIDATED FINANCIAL DATA............. 18
USE OF PROCEEDS.................................. 19
DILUTION......................................... 20
BUSINESS OF ALKERMES............................. 21
PLAN OF DISTRIBUTION............................. 39
EXPERTS.......................................... 39
LEGAL OPINIONS................................... 39
INDEMNIFICATION.................................. 39
ADDITIONAL INFORMATION........................... 40
</TABLE>
-------------------
Alkermes(R), the Alkermes logo, ProLease(R) and Medisorb(R) are
registered trademarks of Alkermes, Inc. RMP(TM), RMPs(TM), RMP-7(TM) and
Receptor-Mediated Permeabilizers(TM) are trademarks of Alkermes, Inc.
Intron(R) is a registered trademark of Schering Corporation, a
subsidiary of Schering-Plough Corporation. Nutropin(R) and Protropin(R)
are registered trademarks of Genentech, Inc.
3
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Prospectus and in the documents incorporated herein by reference.
This summary is qualified in its entirety by the more detailed information
contained in this Prospectus, and in the documents incorporated herein by
reference, to which reference is made for a more complete statement of the
matters discussed below. The securities to which this Prospectus relates
involve a high degree of risk. Prospective investors should carefully
consider the information set forth under "Risk Factors."
THE COMPANY
Alkermes, Inc. (together with its subsidiaries, "Alkermes" or the
"Company") is an emerging drug delivery company focused on the development of
products based on its sophisticated drug delivery technologies. These include
RMP-7, a product candidate designed to facilitate drug delivery to the
central nervous system, and product candidates based on the Company's two
injectable sustained release drug delivery technologies: ProLease, for
complex biopharmaceutical products; and Medisorb, for more traditional small
molecule pharmaceutical products. RMP-7 is currently being tested in
combination with the chemotherapeutic agent carboplatin in four multi-center
Phase II clinical trials in patients with recurrent malignant brain tumor and
in one multi-center Phase I/II clinical trial in patients with metastatic
brain tumor. ProLease product candidates are being developed in collaboration
with several large pharmaceutical companies. A Phase I clinical trial of a
ProLease formulation of Genentech, Inc.'s human growth hormone commenced in
February 1996. A Medisorb product candidate is being developed for a large
pharmaceutical company under a license agreement.
The Company's business strategy is to develop drug delivery systems to
address significant new drug delivery opportunities arising in the
pharmaceutical industry. This strategy has five key elements: develop broadly
applicable drug delivery systems and apply them to multiple pharmaceutical
products; collaborate with large pharmaceutical companies to assist in the
development and financing of product candidates; apply its drug delivery
systems initially to drugs that have received regulatory approval; establish
internal product development capabilities to advance its product candidates
and to facilitate collaborations; and continue to expand its intellectual
property position.
RMP-7 is a proprietary, synthetic analog of bradykinin, a compound
occurring naturally in the body and known to affect vascular permeability.
Following injection, RMP-7 triggers a brief relaxation of the tight cellular
junctions of the blood-brain barrier. During the time the tight junctions are
relaxed, permeability is increased and drug molecules in the bloodstream can
diffuse into the brain in concentrations greater than can usually be achieved
without RMP-7. Preclinical and clinical data suggest that RMP-7 can be
administered at doses that selectively increase permeability in the region of
brain tumor and other pathology while not significantly affecting
permeability in healthy brain tissue. In contrast to traditional drug
delivery systems, RMP-7 exerts a pharmacologic effect on the vasculature of
the brain and does not itself bind to or serve as a carrier for the drug of
which it is facilitating delivery. The Company believes RMP-7 may be
administered along with cancer chemotherapeutic and anti-infective agents not
currently used in the treatment of central nervous system disorders because
of their limited ability to penetrate the blood-brain barrier.
The Company's strategy to date has been to advance RMP-7 through clinical
trials independently while establishing its safety and permeability effects
in humans. To date, over 400 human subjects have received RMP-7 in a series
of Phase I, Phase I/II and Phase II clinical trials. Phase II clinical trials
of RMP-7 administered in combination with carboplatin commenced in early
1995. Four concurrent multi-center Phase II clinical trials for patients with
recurrent malignant brain tumor are currently enrolling a planned total of
225 patients in the United States and Europe. Three such trials administer
RMP-7 and carboplatin intravenously. A fourth trial administers RMP-7 and
carboplatin intra-arterially. In addition, a multi-center Phase I/II
clinical trial for patients with metastatic brain tumor commenced in Europe
in February 1996. To support the clinical
4
<PAGE>
development of RMP-7, Alkermes formed, and transferred substantially all of
its rights to the RMP technology to, Alkermes Clinical Partners, L.P. (the
"Partnership"), which completed a $46 million unit offering in April 1992.
Alkermes has the option to purchase all of the limited partnership interests
in the Partnership.
ProLease is a proprietary method of encapsulating fragile, protein-based
biopharmaceuticals in microspheres made of common medical polymers. The
Company believes its expertise in this field lies in its ability to stabilize
fragile molecules within polymers, to preserve their biological activity over
an extended period of time, and to manufacture these formulations using
components and processes suitable for human use.
Since January 1995, Alkermes has entered into or expanded collaborative
agreements for ProLease product candidates with pharmaceutical companies,
including Genentech, Inc. ("Genentech") and Schering Corporation ("Schering-
Plough"). With Genentech, the Company is developing a ProLease formulation
of human growth hormone (hGH). hGH has been approved for use in children with
short stature and other indications. Genentech reported hGH sales of $219
million in 1995. With Schering-Plough, the Company is developing a ProLease
formulation of Intron A (alpha interferon). Intron A is used in various
oncology and anti-infective indications. Schering-Plough reported Intron A
sales of $433 million in 1995.
Medisorb is a proprietary method of encapsulating traditional
pharmaceuticals in microspheres made of common medical polymers. Alkermes
acquired certain Medisorb technology and assets in March 1996. The Company
is manufacturing a Medisorb product candidate for a large pharmaceutical
company under a license agreement.
ProLease and Medisorb formulations have the potential to improve patient
compliance by reducing the need for frequent injection, to lower costs by
reducing the need for frequent office visits and to improve safety and
efficacy by reducing both the variability in drug levels inherent in frequent
injections and the aggregate amount of drug given over the course of therapy.
In addition, the Company believes that ProLease and Medisorb may provide
access to important new therapeutic markets currently inaccessible to
products that require frequent injections.
The Company was incorporated in Pennsylvania in 1987. The Company's
principal executive offices are located at 64 Sidney Street, Cambridge, MA
02139. Telephone (617) 494-0171.
RISK FACTORS
Investment in the Common Stock of the Company, par value $.01 per share
("Common Stock"), involves a high degree of risk. See "Risk Factors"
beginning on page 8.
5
<PAGE>
MARKET PRICES
The Common Stock is traded on the Nasdaq National Market under the symbol
ALKS. The following sets forth the high and low sale prices for the Common
Stock for the calendar periods indicated.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C> <C>
1993
First Quarter........ 10 1/2 7
Second Quarter....... 10 1/4 6 1/4
Third Quarter........ 8 3/4 6 3/4
Fourth Quarter....... 11 1/2 6 1/2
1994
First Quarter........ 9 3/4 6 7/8
Second Quarter....... 7 3/8 3 3/4
Third Quarter........ 4 5/8 2 7/8
Fourth Quarter....... 3 3/4 1 7/8
1995
First Quarter........ 3 3/8 1 15/16
Second Quarter....... 4 1/2 2 5/8
Third Quarter........ 9 1/4 3 5/8
Fourth Quarter....... 8 5/8 5 3/4
1996 First Quarter........ 11 1/4 7 1/8
Second Quarter
(through May 7, 1996) 11 3/4 8 1/2
</TABLE>
On May 7, 1996, the last sale price of the Common Stock as reported on the
Nasdaq National Market was $11.25. The number of shareholders of record of
the Common Stock on May 7, 1996 was 673. Alkermes has not paid any dividends
and does not expect to pay dividends in the foreseeable future.
6
<PAGE>
The Offering
Common Stock Offered by the Company........... 2,300,000 shares
Common Stock Outstanding after the Offering... 18,286,832 shares(1)
Use of Proceeds............................... For funding of preclinical
testing and clinical
trials and for other
research and development
activities, establishing
manufacturing
capabilities, for working
capital and other general
corporate purposes. See
"Use of Proceeds."
Nasdaq National Market Symbol................. ALKS
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended March 31, Nine Months Ended
-------------------- December 31,
-----------------
1993 1994 1995 1994 1995
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total revenues.............................. $11,806 $ 9,460 $13,903 $ 9,921 $11,031
Research and development expenses........... 16,709 20,480 18,955 14,108 14,913
Net loss.................................... $(40,147)(2) $(17,275) $(11,904) $(8,663) $(8,201)
======== ======== ======== ======= =======
Net loss per share.......................... $ (3.77)(2) $(1.29) $(0.88) $(0.64) $(0.57)
======== ======== ======== ======= =======
Weighted average shares outstanding......... 10,653 13,362 13,535 13,529 14,387
<CAPTION>
December 31, 1995
-----------------
(Unaudited)
Actual As Adjusted(3)
------ --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents and total investments.. $ 43,288 (4) $ 66,218 (4)
Total assets................................ 50,782 73,712
Long-term obligations....................... 10,577 10,577
Accumulated deficit......................... (95,501) (95,501)
Shareholders' equity........................ 28,599 51,529
</TABLE>
- -------------------
(1) Excludes as of May 7, 1996 outstanding options and awards for 1,749,506
shares of Common Stock and outstanding warrants to purchase 1,680,358
shares of Common Stock.
(2) Includes a one-time non-cash charge of $31,281,595 for the purchase of
in-process research and development as a result of the Company's
acquisition of Enzytech, Inc.
(3) Adjusted to reflect the sale by the Company of 2,300,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds."
(4) Includes approximately $1.4 million of investments which are
restricted.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK IS SPECULATIVE IN NATURE, INVOLVES A
HIGH DEGREE OF RISK AND SHOULD NOT BE MADE BY ANY INVESTOR WHO CANNOT
AFFORD THE LOSS OF HIS ENTIRE INVESTMENT. IN ADDITION TO THE OTHER
INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS WITH RESPECT TO
THE COMPANY SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN
THE COMMON STOCK OFFERED HEREBY.
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining regulatory approvals for the commercial sale of each
of its product candidates under development, Alkermes must demonstrate
through preclinical testing and clinical trials that the product candidate
is safe and efficacious. The results from preclinical testing and early
clinical trials may not be predictive of results obtained in subsequent
clinical trials, and there can be no assurance that the Company's clinical
trials will demonstrate the safety and efficacy of any product candidates
necessary to obtain regulatory approval. A number of companies in the
biotechnology and pharmaceutical industries have suffered significant
setbacks in advanced clinical trials, even after obtaining promising
results in earlier trials. In addition, clinical trials are often conducted
with patients having the most advanced stages of disease. During the course
of treatment, these patients can die or suffer other adverse medical
effects for reasons that may not be related to the pharmaceutical agent
being tested, but which can nevertheless affect clinical trial results.
Accordingly, the Company's RMP-7 clinical trials for patients with
recurrent malignant brain tumor may be affected by the severity and
advanced state of the disease in participating patients.
The risk and complexity of the Company's clinical trials is increased
by the Company's use of other pharmaceuticals in combination with RMP-7,
ProLease and Medisorb, its drug delivery technologies. Although such other
pharmaceuticals may have received previous approval by the FDA or other
regulatory agencies, the outcome of clinical trials is dependent upon the
performance of RMP-7, ProLease or Medisorb and the pharmaceutical agent in
combination. Moreover, such other drugs may not have been approved for the
indication for which the Company is conducting clinical trials. For
example, Alkermes is currently conducting Phase I/II and Phase II clinical
trials of RMP-7 administered in combination with the chemotherapeutic agent
carboplatin in patients with brain tumor. Carboplatin has not been approved
for the treatment of brain tumor.
In addition to its Phase I/II and Phase II clinical trials of RMP-7,
Alkermes commenced Phase I clinical trials in humans with ProLease in
February 1996. Clinical trials with a Medisorb formulation are expected to
be conducted by a large pharmaceutical company. There can be no assurance
that Alkermes or its collaborators will be permitted by regulatory
authorities to undertake additional clinical trials for RMP-7 or ProLease
or to commence clinical trials for Medisorb, or that if such trials are
conducted, any of the Company's product candidates will prove to be safe
and efficacious or will receive regulatory approvals. Any delays in or
termination of the Company's clinical trial efforts would have a material
adverse effect on the Company's business, financial condition and results
of operations. See "Business -- RMP-7","-- ProLease" and "-- Medisorb."
8
<PAGE>
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
Alkermes was founded in 1987 and all of its product candidates are in
research or development. No significant revenues have been generated from
product sales. In order to achieve profitability, Alkermes must
successfully develop, commercialize, manufacture and market its products,
either alone or in collaboration with others. Any products resulting from
the Company's research and development programs are not expected to be
commercially available for several years, if at all.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to
be promising at early stages of development may not reach the market for a
number of reasons. Such reasons include the possibilities that the
potential products will be found ineffective or cause harmful side effects
during preclinical testing or clinical trials, fail to receive necessary
regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties.
The Company's product candidates require significant additional
research and development efforts. The Company's principal drug delivery
systems, RMP-7, ProLease and Medisorb, target unsolved drug delivery
problems through new mechanisms of action which have not yet been proved
safe and effective in humans. No assurance can be given that any of the
Company's development programs will be successfully completed, that
required regulatory approvals will be obtained on a timely basis, if at
all, or that any products for which approval is obtained will be
commercially successful. If any of the Company's development programs are
not successfully completed, required regulatory approvals are not obtained,
or products for which approvals are obtained are not commercially
successful, the Company's business, financial condition and results of
operations would be materially adversely affected. See"Business -- RMP-7",
"-- ProLease" and "-- Medisorb."
NEED FOR ADDITIONAL FUNDING; UNCERTAINTY OF ACCESS TO CAPITAL
The Company's research and development of RMP-7 has been funded by the
Partnership pursuant to a Product Development Agreement, dated as of March
6, 1992, between Alkermes and the Partnership (the "Product Development
Agreement"). Such funding will end during the quarter ending June 30,
1996. Such funding will not to be sufficient to complete clinical trials
and regulatory approval of RMP-7. As a result, Alkermes intends to use its
own resources to develop RMP-7, but may be forced to seek alternative
sources of funding, including additional collaborators.
The Company has incurred additional expenses as a result of the
expansion of its clinical trials of RMP-7, its acquisition of certain
Medisorb technology and assets in March 1996 and the write-down of the
investment associated with its acquisition of units of the Partnership that
were owned by investors who defaulted on their payment obligations, which
contributed to an estimated unaudited net loss of approximately $5.8
million for the quarter ended March 31, 1996.
Alkermes will require substantial additional funding in order to
continue its research and product development programs and preclinical
testing and clinical trials of its product candidates, for operating
expenses, for the pursuit of regulatory approvals for its product
candidates and for establishing manufacturing and marketing capabilities.
The Company's future capital requirements will depend on many factors,
including continued scientific progress in its research and development
programs, the magnitude of these programs, progress with preclinical
testing and clinical trials, the time and costs involved in obtaining
regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent
9
<PAGE>
claims, competing technological and market developments, the establishment
of additional collaborative arrangements, the cost of manufacturing
facilities and of commercialization activities and arrangements, and the
cost of product in-licensing and any possible acquisitions. The Company
believes that its existing capital resources will satisfy its capital needs
through June 30, 1997. There can be no assurance, however, that the
Company's cash reserves and other liquid assets, including the net proceeds
of this offering, plus funding that may be received from the Company's
collaborators and interest income earned thereon, will be adequate to
satisfy its capital and operating requirements through such date.
Alkermes intends to seek additional funding through arrangements with
corporate collaborators and through public or private sales of the
Company's securities, including equity securities. In addition, the Company
has obtained equipment, bank and other loans and may continue to pursue
opportunities to obtain additional debt financing in the future. There can
be no assurance, however, that additional equity or debt funding will be
available on reasonable terms, if at all. Any additional equity financings
could be dilutive to the Company's shareholders. If adequate funds are not
available, Alkermes may be required to curtail significantly one or more of
its research and development programs and/or obtain funds through
arrangements with collaborative partners or others that may require
Alkermes to relinquish rights to certain of its technologies or product
candidates.
The Company has the option to purchase the Partnership interests for
cash or stock (the "Purchase Option"). If the Company elects to exercise
its option to purchase the Partnership interests for cash, the Company will
be required to make a substantial cash payment. The Company will be
required to seek additional capital for such a payment and there is no
assurance that it will be able to do so. If Alkermes does not purchase the
partnership interests of the limited partners it may not recoup any
investment made by it in the development of RMP-7. See "Rights to RMP
Technology; Effect of Exercise of the Partnership Purchase Option."
UNCERTAINTY OF FUTURE PROFITABILITY
Alkermes has had net operating losses since its inception in 1987. At
December 31, 1995, the Company's accumulated deficit was approximately
$95.5 million. The Company's losses have resulted principally from costs
incurred in research and development, including clinical trials and the
purchase of in-process research and development and from general and
administrative costs associated with the Company's operations. These costs
have exceeded the Company's revenues, which to date have been generated
almost entirely from the Partnership, collaboration and development
agreements, research grants and interest income. Alkermes expects to incur
substantial additional and increasing operating expenses over the next
several years as its research and development and clinical trial activities
accelerate. To the extent that the Company is unable to obtain third-party
funding for such expenses, the Company expects that such increased expenses
will result in increased losses from operations. Alkermes does not expect
to generate significant revenues from the sale of products, if any, for
several years. The Company's ability to achieve profitability depends in
part on its ability to obtain regulatory approval for products, enter into
agreements for product development and commercialization and develop the
capacity, or enter into agreements, for the manufacture and marketing of
any products. There can be no assurance that Alkermes will obtain required
regulatory approvals, or successfully develop, commercialize, manufacture
and market product candidates or that the Company will ever achieve
significant product revenues or profitability.
10
<PAGE>
DEPENDENCE ON OTHERS; COLLABORATIONS
The Company's strategy for research, development and commercialization
of its product candidates is to rely, in part, upon various corporate
collaborators, licensors and others and will in some cases be dependent
upon these outside parties to conduct preclinical testing and clinical
trials, and to provide adequate funding for the Company's development
programs. The Company has established several collaborative arrangements
with pharmaceutical companies including Genentech and Schering-Plough with
respect to its ProLease technology, and with the Partnership with respect
to its RMP-7 technology, and has entered into a license arrangement with a
large pharmaceutical company with respect to its Medisorb technology. The
collaboration and license agreements may be terminated in some cases at the
discretion of the Company's corporate collaborators/licensors with only
limited notice to the Company. See "Business --Collaborative Arrangements."
Neither ProLease nor Medisorb is an independently commercializeable
technology. Both technologies are dependent on therapeutic products from
third parties, which may require licensing, collaboration or other
arrangements. There can be no assurance that the Company will be able to
negotiate acceptable additional collaborative arrangements that the Company
deems necessary to develop or commercialize its product candidates. Even if
the Company is able to negotiate acceptable new collaborative arrangements,
there can be no assurance that such arrangements or the Company's existing
collaborations will be completed or will be successful or that the Company
will realize any revenues pursuant to such arrangements. Alkermes is
currently conducting clinical trials of RMP-7 with carboplatin in brain
tumor. If RMP-7 continues to proceed satisfactorily in its development, the
Company's strategy is to expand the applications of RMP-7 to different
drugs and diseases in part through collaborations with pharmaceutical
companies. There can be no assurance that such collaborations will be
completed or will be successful or that the Company will be able to do so
on favorable terms or realize any revenues resulting from them. The
Company's failure to enter into such collaborations could have a material
adverse impact on the development of RMP-7.
The amount and timing of resources which the parties to collaborative
arrangements with the Company devote to these activities is not within the
control of the Company. If any of the Company's collaborators breaches or
terminates its agreement with the Company or otherwise fails to conduct its
collaborative activities in a timely manner, the development or
commercialization of the product candidate or research program under such
collaborative agreement may be delayed, and the Company may be required to
devote unforeseen additional resources to such development or
commercialization, or terminate such program. The termination of
collaborative arrangements would have a material adverse effect on the
Company's business, financial condition and results of operations. There
can be no assurance that disputes will not arise in the future with respect
to the ownership of rights to any technology developed with third parties.
These and other possible disagreements between collaborators and the
Company could lead to delays in the collaborative research, development or
commercialization of certain product candidates, or could require or result
in litigation or arbitration, which would be time-consuming and expensive
and would have a material adverse effect on the Company's business,
financial condition and results of operations.
RIGHTS TO RMP TECHNOLOGY; EFFECT OF EXERCISE OF THE PARTNERSHIP PURCHASE
OPTION
Alkermes has transferred to the Partnership substantially all of its
technology and commercial rights relating to RMP technology. Under the
Product Development Agreement with the Partnership, Alkermes performs
research and development with respect to such technology on behalf of the
Partnership. There can be no assurance that disputes will not arise with
the Partnership over the
11
<PAGE>
ownership of rights to any technology that may be developed by Alkermes
pursuant to such agreement. In addition, there can be no assurance that
conflicts of interest between the Company and the Partnership will not
arise in relation to rights to ownership of the technology or termination
of research or marketing programs.
Alkermes has an option to purchase all of the limited partnership
interests in the Partnership (the "Purchase Option").There can be no
assurance, however, that Alkermes will exercise the Purchase Option. If
Alkermes does not exercise the Purchase Option, it will have no rights to
the RMP technology or products developed on behalf of the Partnership in
the United States and Canada.
If the Company exercises the Purchase Option, it will be required to
make a substantial cash payment or to issue shares of Common Stock. A
payment in cash could have a material adverse effect on the Company's
capital resources. A payment in shares of Common Stock could result in a
substantial decrease in the percentage ownership of the Company by its
then-existing shareholders and could negatively affect the market price of
the Common Stock. The exercise of the Purchase Option may require Alkermes
to record a significant charge to earnings for the purchase of in-process
research and development. If Alkermes acquires rights to RMPs pursuant to
the Purchase Option, the Company will have continuing obligations to pay
royalties pursuant to the Product Development Agreement. See "Business --
Collaborative Arrangements -- Alkermes Clinical Partners."
TECHNOLOGICAL CHANGE AND COMPETITION
The biotechnology and pharmaceutical industries are subject to rapid
and substantial technological change. Alkermes faces, and will continue to
face, intense competition in the development and marketing of its product
candidates from academic institutions, government agencies, research
institutions and biotechnology and pharmaceutical companies. Competition
may arise from other drug delivery technologies, methods of preventing or
reducing the incidence of disease, including vaccines, and new small-
molecule or other classes of therapeutic agents that do not require the
assistance of a drug delivery system. There can be no assurance that
developments by others will not render the Company's product candidates or
technologies obsolete or noncompetitive or that the Company's collaborators
will not choose to use competing drug delivery methods. In addition, if
Alkermes receives regulatory approvals for products, manufacturing
efficiency and marketing capabilities are likely to be significant
competitive factors. At the present time, Alkermes has no sales force or
marketing experience, and limited commercial manufacturing capability. In
addition, many of the Company's competitors and potential competitors have
substantially greater capital resources, manufacturing and marketing
experience, research and development resources, and production facilities
than does Alkermes. Many of these competitors also have significantly
greater experience than does Alkermes in undertaking preclinical testing
and clinical trials of new pharmaceutical products and obtaining FDA and
other regulatory approvals. See "Business -- Collaborative Arrangements"
and "-- Competition."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success will be dependent, in part, on its ability to
obtain patent protection for its and the Partnership's product candidates,
to maintain trade secret protection and to operate without infringing upon
the proprietary rights of others.
Two applications for patents were filed by a third party in the United
States and in Europe that contain claims covering certain analogs and uses
thereof of the same naturally occurring molecule on which RMP-7 is based.
One U.S. patent has issued from these applications. Based on an opinion
from
12
<PAGE>
patent counsel for the Company, Alkermes believes that the claims of the
issued U.S. patent are not infringed by the Partnership's or the Company's
proposed manufacture, use or sale of RMP-7. There can be no assurance that
the claims of the issued U.S. patent are not infringed, and the claims of
future patents issuing from these applications, if any, will not be
infringed, by the Partnership's or the Company's proposed manufacture, use
or sale of RMP-7. Furthermore, there can be no assurance that Alkermes or
the Partnership would prevail in any legal action seeking damages or
injunctive relief for infringement of any patent that might issue under
such applications or that any license required under any such patent would
be made available or, if available, would be available on acceptable terms.
Failure to obtain patent protection or a required license could prevent the
Company from commercializing RMP products.
The patent positions of pharmaceutical, biopharmaceutical and
biotechnology firms, including Alkermes, are generally uncertain and
involve complex legal and factual questions. In addition, there can be no
assurance that the Company's or its licensors' current patent applications
will be allowed or that any patents issued to Alkermes or its licensors (in
connection with either the Company's product candidates or the
Partnership's product candidate, or both) will be sufficiently broad to
protect the Company's or the Partnership's technology or to provide
Alkermes or the Partnership with any competitive advantages. Moreover, no
assurance can be given that patents issued to Alkermes (in connection with
either the Company's product candidates or the Partnership's product
candidate, or both), or its respective licensors, if any, will not be
contested, invalidated or circumvented. In addition, if Alkermes or the
Partnership is required to defend against a charge of patent infringement
or to protect its own proprietary rights against third parties, substantial
costs could be incurred.
In the future, Alkermes may be required to obtain additional licenses
to patents or other proprietary rights of third parties. There can be no
assurance that any such licenses will be available on acceptable terms, if
at all, and failure to obtain such licenses could result in delays in
marketing the Company's products or the inability to proceed with the
development, manufacture or sale of product candidates requiring such
licenses.
The Company also relies upon unpatented trade secrets and
improvements, unpatented know-how and continuing technological innovation
to develop and maintain its competitive position which it seeks to protect,
in part, by confidentiality agreements with its corporate partners,
collaborators, employees and consultants. There can be no assurance that
these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets will not
otherwise become known or be independently discovered by competitors. See
"Business -- Patents and Proprietary Rights."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The Company's research and preclinical testing and clinical trials of
its product candidates are, and the manufacturing and marketing of its
products will be, subject to extensive and rigorous regulation by numerous
governmental authorities in the United States and in other countries where
the Company intends to test and market its product candidates.
Prior to marketing, any product candidate developed by Alkermes must
undergo an extensive regulatory approval process, which includes
preclinical testing and clinical trials of such product candidate to
demonstrate safety and efficacy. This regulatory process can require many
years and the expenditure of substantial resources. Data obtained from
preclinical testing and clinical trials are subject to varying
interpretations, which can delay, limit or prevent FDA approval. In
addition, changes in FDA approval
13
<PAGE>
policies or requirements may occur or new regulations may be promulgated
which may result in delay or failure to receive FDA approval. Similar
delays or failures may be encountered in foreign countries. Delays and
costs in obtaining regulatory approvals would have a material adverse
effect on the Company's business, financial condition and results of
operations.
There can be no assurance that RMP-7 used in conjunction with any
pharmaceuticals, ProLease or Medisorb formulations or any other product
candidate developed by Alkermes will receive manufacturing and marketing
approval in the United States or any foreign country on a timely basis, if
at all. In the case of RMP-7, the Company must obtain FDA approval for RMP-
7 for use in conjunction with a pharmaceutical agent. The Company's lead
product candidate is RMP-7 for use in conjunction with carboplatin in the
treatment of brain tumor. Carboplatin has not been approved for this
specific use and there can be no assurance that it or any other
pharmaceutical agent to be used with RMP-7 will receive regulatory
approval. If approved, there can be no assurance that any such product will
be capable of being produced in commercial quantities at reasonable costs
and successfully marketed. In addition, if regulatory approval of any
product is granted, it may entail limitations on the uses for which the
product may be marketed. Even if regulatory approval is obtained, any
marketed drug and its manufacturer are subject to continual review and any
discovery of previously unrecognized problems with a product or
manufacturer could result in restrictions on the product, including
withdrawal of the product from the market. See "Business -- Government
Regulation."
UNCERTAINTY OF PHARMACEUTICAL PRICING AND REIMBURSEMENT
The Company's business may be materially adversely affected by the
continuing efforts of government and third-party payors to contain or
reduce the costs of health care through various means. For example, in
certain foreign markets, pricing or profitability of prescription
pharmaceuticals is subject to government control. In the United States,
there have been, and the Company expects that there will continue to be, a
number of federal and state proposals to implement similar government
control. In addition, an increasing emphasis on managed care in the United
States has and will continue to put pressure on pharmaceutical pricing.
Such initiatives and proposals, if adopted, could decrease the price that
the Company receives for any products it may develop and sell in the future
and thereby have a material adverse effect on the Company's business,
financial condition and results of operations. Further, to the extent that
such proposals or initiatives have a material adverse effect on other
pharmaceutical companies that are collaborators or prospective
collaborators for certain of the Company's potential products, the
Company's ability to commercialize its potential products may be adversely
affected.
The Company's ability to commercialize pharmaceutical products may
depend in part on the extent to which reimbursement for the costs of such
products and related treatments will be available from government health
administration authorities, private health insurers and other third-party
payors. Significant uncertainty exists as to the reimbursement status of
newly approved health care products, and third-party payors are
increasingly challenging the prices charged for medical products and
services. There can be no assurance that any third-party insurance coverage
will be available to patients for any products developed by the Company.
Government and other third-party payors are increasingly attempting to
contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products, and by refusing, in some cases,
to provide coverage for uses of approved products for disease indications
for which the FDA has not granted marketing approval. If adequate coverage
and reimbursement levels are not provided by government and third-party
payors for the Company's products, the market acceptance of these products
would be adversely affected.
14
<PAGE>
LIMITED MANUFACTURING EXPERIENCE; RELIANCE ON THIRD-PARTY MANUFACTURING
Alkermes is in the process of constructing an in-house pilot
production facility in accordance with Good Manufacturing Practices
regulations ("GMP") for product candidates incorporating its ProLease
sustained release delivery system. In connection with its March 1996
acquisition of certain assets and technology of Medisorb, Alkermes acquired
a 14,000 square foot manufacturing facility in Wilmington, Ohio at which it
is manufacturing a Medisorb product candidate for a large pharmaceutical
company. Alkermes has no other experience, however, in manufacturing or in
conducting the testing programs required to obtain regulatory approvals.
The manufacture of ProLease and Medisorb products on a commercial scale
would require significant start-up expenses and expansion of facilities and
personnel, and no assurance can be given that Alkermes can develop such
manufacturing capability on a timely basis, if at all.
Alkermes relies on a third party to manufacture RMP-7 for use in
clinical trials. There can be no assurance that this manufacturer will meet
the Company's requirements for quality, quantity and timeliness, or that
Alkermes would be able to find alternative manufacturers, if necessary.
If Alkermes is not able to develop manufacturing capacity and
experience or to continue to contract for manufacturing capabilities on
acceptable terms, its ability to conduct preclinical testing and clinical
trials will be compromised, and delays in obtaining regulatory approvals
may result. Such delays would materially adversely affect the Company's
competitive position. See "Business -- Manufacturing."
NO MARKETING OR SALES EXPERIENCE
Alkermes currently has no experience in marketing or selling
pharmaceutical products. In order to achieve commercial success for any
product candidate approved by the FDA, Alkermes must either develop a
marketing and sales force or enter into arrangements with third parties to
market and sell its products. There can be no assurance that Alkermes will
successfully develop such experience or that it will be able to enter into
marketing and sales agreements with others on acceptable terms, if at all.
If the Company develops its own marketing and sales capability, it will
compete with other companies that currently have experienced and well
funded marketing and sales operations. To the extent that the Company
enters into co-promotion or other sales and marketing arrangements with
other companies, any revenues to be received by Alkermes will be dependent
on the efforts of others and there can be no assurance that such efforts
will be successful.
PRODUCT LIABILITY EXPOSURE
The use of the Company's product candidates in clinical trials and the
sale of any resulting products may expose Alkermes to liability claims
resulting from the use of such product candidates or products. These claims
might be made directly by consumers or by pharmaceutical companies or
others selling such products. While Alkermes has obtained product liability
insurance which it deems appropriate for its current stage of development,
there can be no assurance that such insurance will be sufficient to satisfy
any liabilities that may arise. The Company's existing coverage will not be
adequate as the Company's product development activities progress. There
can be no assurance that adequate insurance coverage will be available in
the future at an acceptable cost, if at all. An inability to obtain
sufficient insurance coverage at an acceptable cost or to otherwise protect
against potential product liability claims could prevent or limit the
commercialization of any products by the Company. In addition, there can be
no assurance that any product liability claims will not have a material
adverse effect on the business, financial condition and results of
operations of Alkermes.
15
<PAGE>
RESTRICTIVE LOAN COVENANTS
The Company's loan agreements contain certain restrictive financial
covenants that require the Company to maintain minimum levels of working
capital, net worth and liquid assets. Under the terms of one loan
agreement, the Company is required to maintain an unencumbered balance of
cash and permitted investments of at least $10,000,000 and a ratio of
unencumbered cash and permitted investments to indebtedness of 2 to 1. The
second loan agreement requires the Company to maintain a net worth of not
less than $20,000,000, a maximum ratio of total liabilities to net worth of
.5 to 1, a minimum current ratio of 2 to 1 and a minimum unencumbered
balance of cash and permitted investments equal to the greater of (i)
$20,000,000, (ii) the Company's projected cash loss over the next 14 months
and (iii) an amount equal to the Company's cash loss for the previous six
months multiplied by 2.33. Upon the breach of any of these financial
covenants or the occurrence of any other event of default under this second
loan agreement, the Company will be required to deposit an amount equal to
the then outstanding principal balance of the loan plus three months
interest into a restricted account at the bank. In addition, the bank will
have the right to liquidate such account and apply the proceeds to
repayment of the loan if the Company's unencumbered cash and investment
balance falls below $5,000,000. Upon the breach of any of these covenants
or the occurrence of any other event of default, the Company's business,
financial condition and results of operations would be materially adversely
affected.
FUTURE SALES OF COMMON STOCK BY CERTAIN SHAREHOLDERS; POTENTIAL ADVERSE
EFFECT ON MARKET PRICE OF COMMON STOCK
As of May 7, 1996, 1,749,506 shares of Common Stock were issuable upon
the exercise of outstanding stock options and vesting of outstanding
restricted stock awards and 1,680,358 shares of Common Stock were issuable
upon the exercise of outstanding warrants. The issuance of Common Stock
upon exercise of such stock options and warrants, as well as future sales
of such Common Stock or of shares of Common Stock by existing shareholders,
or the perception that such sales could occur, could adversely affect the
market price of the Common Stock. The foregoing shares will be freely
tradeable upon issuance.
Alkermes has issued to Genentech a Convertible Promissory Note, dated
January 31, 1995, in the principal amount of $3.5 million. The Note
provides that Alkermes has the option to convert the outstanding balance of
the Note, together with accrued and unpaid interest thereon, into shares of
Common Stock. Under certain circumstances, Genentech also has the right to
convert the Note into shares of Common Stock. Genentech also has the right
to demand that the Common Stock be registered under certain circumstances.
The Company's issuance of Common Stock, whether or not registered, upon
exercise by Alkermes or Genentech of its conversion rights, or the
perception that such conversion could occur, could adversely affect the
market price of the Common Stock. See "Business -- Collaborative
Arrangements -- Genentech."
In addition, in July 1995, Alkermes received certain prepaid royalties
from Schering-Plough pursuant to their amended Development and License
Agreement. Schering-Plough is entitled to terminate such Agreement under
certain circumstances, in which event Alkermes will be required to repay
the prepaid royalties with interest, either in cash or in Common Stock, at
the Company's election. Any Common Stock issued to Schering-Plough must
be freely resalable. The Company's issuance of Common Stock to Schering-
Plough in repayment of the prepaid royalties, or the perception that it may
do so, could adversely affect the market price of the Common Stock. See
"Business -- Collaborative Arrangements -- Schering-Plough."
16
<PAGE>
VOLATILITY OF COMMON STOCK PRICE
The market prices for securities of biotechnology and pharmaceutical
companies, including Alkermes, 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. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products by
the Company or others, clinical trial results, developments concerning
agreements with collaborators, governmental regulation, developments in
patent or other proprietary rights, public concern as to the safety of
drugs developed by the Company or others, future sales of substantial
amounts of Common Stock by existing shareholders and general market
conditions can have an adverse effect on the market price of the Common
Stock. In particular, the realization of any of the risks described in
these "Risk Factors" could have a dramatic and adverse impact on such
market price. See "Summary -- Price Range of Common Stock."
DILUTION; NO DIVIDENDS
Upon purchase of Common Stock, investors will experience substantial
dilution in the net tangible book value of the Common Stock they acquire.
Based on the net tangible book value of the Common Stock at December 31,
1995, such dilution in net tangible book value would be $7.18 per share.
See "Dilution."
Alkermes has not paid cash dividends on the Common Stock and does not
expect to do so in the foreseeable future.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data for
Alkermes, Inc. and subsidiaries. The selected financial data for each of
the years ended March 31, 1991, 1992, 1993, 1994 and 1995 have been derived
from the Company's Consolidated Financial Statements. The selected data
for each of the nine month periods ended December 31, 1994 and 1995 have
been derived from the Company's unaudited Consolidated Financial
Statements, which reflect in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for such periods. The results for the nine
month period ended December 31, 1995 are not necessarily indicative of
results for the full year. The selected financial data should be read in
conjunction with the Company's Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" incorporated herein by reference. See "Incorporation of
Certain Documents by Reference."
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
ALKERMES, INC. AND ------------------------------------------------------ ------------------------------
SUBSIDIARIES: 1991 1992 1993 1994 1995 1994 1995
---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENT OF
OPERATIONS DATA(1):
Research and
development revenue
under collaborative
arrangements $ 33 $ 220 $ 388 $ 361 $ 3,049 $ 2,349 $ 1,773
Research and
development revenue
under
collaborative
arrangement with
related party 643 -- 9,109 7,450 9,277 6,498 7,898
Interest income 268 1,436 2,309 1,649 1,577 1,074 1,360
------- ------- ------- ------- -------- ------- -------
Total revenues 944 1,656 11,806 9,460 13,903 9,921 11,031
Research and
development expenses 3,135 7,005 16,709 20,480 18,955 14,108 14,913
Net loss $(5,891) $(8,052) (40,147)(1) $(17,275) $(11,904) $(8,663) $(8,201)
======= ======= ======= ======== ======== ======= =======
Net loss per share $(1.07) $(0.98) $(3.77)(1) $(1.29) $(0.88) $(0.64) $(0.57)
======= ======= ======= ======== ======== ======= =======
Weighted average
shares outstanding 5,509 8,193 10,653 13,362 13,535 13,529 14,387
MARCH 31, DECEMBER 31,
------------------------------------------------------ ------------
1991 1992 1993 1994 1995 1995
---- ---- ---- ---- ---- ----
(in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents and
short-term
investments $ 3,712 $45,679 $32,859 $27,948 $ 21,351 $41,915
Total assets 4,871 55,706 54,025 46,322 36,708 50,782
Long-term
obligations 315 244 2,149 6,598 8,376 10,577
Accumulated deficit (9,922) (17,974) (58,120) (75,395) (87,300) (95,501)
Shareholders' equity 4,247 54,187 47,731 31,874 21,163 28,599
</TABLE>
(1) Includes a one time non-cash charge of $31,281,595 for the purchase of
in-process research and development as a result of the Company's
acquisition of Enzytech, Inc.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of Common Stock offered
hereby, assuming the sale of all 2,300,000 shares offered hereby, are
estimated to be approximately $22,930,000.
The Company anticipates that it will use the net proceeds of this
offering for the funding of preclinical testing and clinical trials and for
other research and development activities, for working capital and other
general corporate purposes. The Company may also use a portion of its
available funds for acquisitions although no such acquisitions are
currently contemplated. Pending such uses, the Company intends to invest
the net proceeds of this offering in short-term, interest-bearing,
investment-grade securities. The Company believes that its existing
capital resources, together with the net proceeds of this offering and
interest earned thereon will satisfy its capital needs through March 31,
1998. Companies in the biotechnology industry generally expend significant
capital resources on product research and development and clinical trials.
The Company will require substantial additional funds to conduct its
operations in the future.
The amounts and timing of the Company's actual expenditures for the
purposes described above will depend upon a number of factors, including
the progress of the Company's research and development, the scope and
results of preclinical testing and clinical trials, the cost, timing and
outcomes of regulatory reviews, the rate of technological advances,
determinations as to the commercial potential of the Company's products
under development, administrative and legal expenses, the status of
competitive products, the establishment of manufacturing capacity or third-
party manufacturing arrangements, the establishment of sales and marketing
capabilities, the establishment of collaborative arrangements with other
companies and the availability of other financing.
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<PAGE>
DILUTION
The net tangible book value of the Common Stock at December 31, 1995
was $28,381,336 or $1.78 per share. After giving effect to the sale by the
Company of the 2,300,000 shares of Common Stock offered hereby and the
receipt of the net proceeds therefrom, the pro forma net tangible book
value of Alkermes as of December 31, 1995 would have been $51,311,336 or
$2.82 per share. This represents an immediate increase in net tangible book
value of $1.04 per share to existing shareholders and an immediate dilution
in net tangible book value of $7.18 per share to investors purchasing
shares at the assumed public offering price. The following table
illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price....................... $ 10.00
Net tangible book value before offering(1).. $ 1.78
Increase attributable to new investors...... 1.04
-------
Pro forma net tangible book value after
offering.................................... 2.82 (1)
-------
Dilution to new investors(2)................ $ 7.18
=======
</TABLE>
(1) Net tangible book value per share is equal to total tangible assets of
the Company less total liabilities divided by the number of shares of
Common Stock outstanding.
(2) After deduction of estimated offering expenses payable by the
Company.
20
<PAGE>
BUSINESS OF ALKERMES
GENERAL
Alkermes, Inc. is an emerging drug delivery company focused on the
development of products based on its sophisticated drug delivery
technologies. These include RMP-7, a product candidate designed to
facilitate drug delivery to the central nervous system, and product
candidates based on the Company's two injectable sustained release
drug delivery technologies: ProLease, for complex biopharmaceutical
products; and Medisorb, for more traditional small molecule
pharmaceutical products. RMP-7 is currently being tested in
combination with the chemotherapeutic agent carboplatin in four multi-
center Phase II clinical trials in patients with recurrent malignant
glioma, a form of primary brain tumor, and in one multi-center Phase
I/II clinical trial in patients with metastatic brain tumor. ProLease
product candidates are being developed in collaboration with several
large pharmaceutical companies. A Phase I clinical trial commenced in
February 1996 for a ProLease formulation of Genentech's human growth
hormone. A Medisorb product candidate is being developed for a large
pharmaceutical company under a license agreement.
OVERVIEW OF DRUG DELIVERY
Drug delivery companies apply proprietary technologies to create new
pharmaceutical products based on drugs developed by others. These
products are generally novel, cost-effective dosage forms that provide
any of several benefits including control of drug concentration in the
blood, improved safety and efficacy, improved patient compliance and
ease of use and expanded indications. Drug delivery technologies can
provide pharmaceutical companies with a means of developing new
products as well as expanding existing drug franchises.
The drug delivery industry emerged to address the opportunities for
advanced delivery of traditional pharmaceutical compounds. These
compounds are generally stable, small molecules manufactured by
conventional synthetic methods, for which oral or transdermal (through
the skin) delivery could be enabled or enhanced by drug delivery
technologies. Technologies such as passive transdermal systems
(patches) and advanced tablets and capsules have been developed and
successfully applied to a range of pharmaceutical products.
With the advent of biotechnology, new opportunities in drug delivery
have arisen. Advances in biotechnology have facilitated the
development of a new generation of biopharmaceutical products based on
proteins, peptides and nucleic acids. At the same time, the scientific
tools of biotechnology have enabled new approaches to drug delivery
based on exploiting particular biological phenomena, for example
utilizing natural properties of the blood-brain barrier to facilitate
drug delivery to the central nervous system.
Biopharmaceuticals present drug delivery challenges because they are
often large molecules which degrade rapidly in the bloodstream, have
limited ability to cross cell membranes and cannot be delivered
orally. As a result, many biopharmaceuticals must be administered by
injection, often multiple times per day or per week. Consequently, the
methods of administration of biopharmaceuticals can limit their
clinical applications to certain disease states that warrant the
expense and inconvenience of frequent injection.
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<PAGE>
Drug delivery to the central nervous system is complicated by the
existence of the blood-brain barrier, the layer of tightly joined
endothelial cells which comprise the walls of the capillaries of the
brain and limit the free flow of many blood constituents into the
brain. Many drugs cannot easily cross the blood-brain barrier, and
therefore must be administered in relatively high doses to provide a
therapeutic benefit. Drugs with limited ability to cross the blood-
brain barrier include many water soluble chemotherapeutic and anti-
infective agents that are frequently used in the treatment of diseases
outside of the central nervous system.
New opportunities in drug delivery require new technological
approaches. Traditional drug delivery systems developed to improve the
oral or transdermal delivery of traditional pharmaceutical products
will find limited applicability, if any, in these applications.
BUSINESS STRATEGY
There are five key elements to the Company's strategy:
DEVELOP BROADLY APPLICABLE DRUG DELIVERY SYSTEMS AND APPLY THEM TO
MULTIPLE PHARMACEUTICAL PRODUCTS. The Company's strategy is to
develop sophisticated drug delivery systems to address significant new
drug delivery opportunities arising in the pharmaceutical industry.
The Company has identified drug delivery systems with the potential to
be applied to multiple new product opportunities through combination
with different pharmaceutical and biopharmaceutical compounds. By
identifying and developing drug delivery systems targeted to
substantial markets and applicable to multiple products, Alkermes has
the potential for multiple, independent commercial opportunities.
COLLABORATE TO DEVELOP AND FINANCE PRODUCT CANDIDATES. In addition to
conducting product development activities on its own, the Company has
entered into collaborations with pharmaceutical and biotechnology
companies and others to develop product candidates incorporating the
Company's technologies, provide capital for product development
independent of capital markets and share development risk.
APPLY DRUG DELIVERY SYSTEMS INITIALLY TO APPROVED DRUGS. Alkermes is
initially applying RMP-7, ProLease and Medisorb to novel applications
and formulations of pharmaceutical and biopharmaceutical products that
have already been approved by the FDA or other regulatory authorities.
By doing so, the Company and its partners can develop a novel dosage
form or application with the benefit of knowledge of a drug's safety
and efficacy profile and a body of clinical experience from which to
draw information for the design of clinical trials and for regulatory
submissions.
ESTABLISH INDEPENDENT PRODUCT DEVELOPMENT CAPABILITIES FOR PROPRIETARY
PRODUCTS AND TO FACILITATE COLLABORATIONS. Alkermes has assembled its
own product development organization to enable the Company to proceed
independently for an extended period of time in the development of its
product candidates and to optimize the timing and structure of
collaborations for RMP-7, ProLease and Medisorb.
DEVELOP AND EXPAND SCIENTIFIC AND INTELLECTUAL PROPERTY LEADERSHIP
POSITION. Alkermes believes that it has a leadership position in the
development of technologies for improved drug delivery to the central
nervous system and for stabilizing and providing advanced drug
delivery for complex biomolecules, as well as traditional
pharmaceuticals. The Company believes that these areas are of
increasing importance and value in the pharmaceutical industry, and
the Company intends to capitalize on its leadership position by
seeking broad patent protection for its inventions.
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RMP-7
RMP-7, a member of a family of Receptor-Mediated Permeabilizers
("RMPs"), is a nine amino acid peptide based on bradykinin, a compound
occurring naturally in the body and known to affect vascular
permeability. RMP-7 is a proprietary, synthetic analog of bradykinin
developed by Alkermes to increase transiently the permeability of the
blood-brain barrier. Following injection, RMP-7 increases permeability
by triggering a brief relaxation of the tight cellular junctions of
the blood-brain barrier. During the time the tight junctions are
relaxed, permeability is increased and drug molecules in the
bloodstream can diffuse into the brain in concentrations greater than
can usually be achieved without RMP-7. Preclinical and clinical data
also suggest that RMP-7 can be administered at doses that selectively
increase permeability in the region of brain tumor and other pathology
while not significantly affecting permeability in healthy brain
tissue.
In contrast to traditional drug delivery systems, RMP-7 exerts a
pharmacologic effect on the vasculature of the brain and does not
itself bind to or serve as a carrier for the drug of which it is
facilitating delivery. The Company is developing RMP-7 to be
manufactured, packaged and dispensed as a standalone product. In the
clinical setting, RMP-7 is administered separately from the
therapeutic or diagnostic agent. Timing of RMP-7 administration
relative to that of the therapeutic or diagnostic agent is determined
on a drug by drug basis to optimize barrier permeability during the
time of peak drug plasma concentrations.
RMP-7 is intended to be marketed as an independent agent to increase
the utility of other therapeutic and diagnostic compounds given with
it. The Company believes RMP-7 may be administered along with cancer
chemotherapeutic and anti-infective agents not currently used in the
treatment of central nervous system disorders because of their limited
ability to penetrate the blood-brain barrier.
PRODUCT DEVELOPMENT STRATEGY. The Company's strategy to date has been
to advance RMP-7 through clinical trials independently while
establishing its safety and permeability effects in humans. To support
the clinical development of RMP-7, Alkermes formed, and transferred
substantially all of its rights to the RMP technology to, the
Partnership, which completed a $46 million unit offering in April
1992. Alkermes has the option to purchase all of the limited
partnership interests in the Partnership. See "Collaborative
Arrangements -- Alkermes Clinical Partners."
RMP-7 has the potential to be used in combination with a variety of
agents in various disease settings. The Company's goal is to expand
the applications of RMP-7 through collaborations with pharmaceutical
companies. First, Alkermes may collaborate with companies having drugs
whose uses could be expanded to include central nervous system
indications. In such cases, Alkermes and its partner could collaborate
in the clinical development of the combination without any exchange of
product rights. Second, Alkermes may collaborate with development and
marketing partners for RMP-7 in various business areas and geographic
territories. In such cases, Alkermes could license rights to RMP-7 to
its partner, subject to the rights of the Partnership. See
"Collaborative Arrangements -- Alkermes Clinical Partners."
TARGET INDICATIONS. RMP-7 is being tested initially for the treatment
of recurrent malignant glioma, an aggressive form of brain tumor.
Alkermes believes that RMP-7 may have applicability to the treatment
and diagnosis of other types of brain tumors and other diseases of the
central nervous system. In that regard, the Company initiated, in
February 1996, a Phase I/II clinical trial of RMP-7 in patients with
metastatic brain tumor.
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BRAIN TUMOR. Brain tumors can be classified into two major groups:
Primary brain tumors, which originate and recur in the brain, and
metastatic brain tumors, which are tumors that have spread to the
brain from other parts of the body. Each year in the United States and
Europe a total of 40,000 patients are diagnosed with primary brain
tumors and 150,000 patients are diagnosed with metastatic brain
tumors.
Current treatment for primary brain tumors is limited and inadequate.
Standard treatment typically involves surgery to remove cancerous
tissue, followed by radiation therapy. Some primary brain tumor
patients receive chemotherapy, but its effectiveness is limited.
Following surgery and radiation, patients typically experience a
period of time without evidence of disease progression. With few
exceptions, primary brain tumors recur after initial treatment, at
which time treatment options are limited. Upon recurrence of the
tumor, patients usually die within months.
Alkermes is first testing the efficacy of RMP-7 and the
chemotherapeutic agent carboplatin in the treatment of recurrent
malignant brain tumor. Alkermes is pursuing two alternative treatment
strategies for RMP-7 and carboplatin in patients with recurrent
malignant glioma: intravenous and intra-arterial administration. By
pursuing both treatment methods, the Company believes it strengthens
the scientific foundation of the clinical trials program and increases
the likelihood of observing a treatment effect in patients. If the
results of the Company's current Phase II clinical trials are
favorable, the Company intends to test the combination of RMP-7 and
carboplatin or other chemotherapeutic agents earlier in the treatment
of primary malignant brain tumor, prior to recurrence. In addition,
the Company initiated a Phase I/II clinical trial of RMP-7 and
carboplatin in patients with metastatic brain tumor.
OTHER APPLICATIONS. Alkermes continues to evaluate the potential for
use of RMP-7 in other applications, principally infectious diseases of
the central nervous system in combination with anti-infective drugs
and diagnostic imaging of the central nervous system in combination
with contrast agents.
CLINICAL TRIALS EXPERIENCE. The Company's clinical strategy for RMP-7
has been to establish a foundation of safety and pharmacologic effect
of increasing blood-brain barrier permeability prior to entering Phase
II efficacy studies of RMP-7 administered in combination with
therapeutic drugs. To date, over 400 human subjects have received RMP-
7 in a series of clinical trials. The clinical trials of RMP-7 can be
summarized as follows:
PHASE I. Phase I clinical trials of intravenous RMP-7 commenced in
December 1991. During Phase I, 11 clinical trials were conducted in a
total of 215 human subjects. These studies tested RMP-7 as a single
agent in healthy volunteers and in patients with brain tumor and
patients with AIDS who have increased risk of central nervous system
infections. The Phase I program was designed to provide information
regarding RMP-7's safety, to determine the maximum tolerated dose and
dose limiting toxicity of RMP-7 and to provide a limited amount of
information regarding RMP-7's vasoactivity and ability to affect
central nervous system permeability. Through the Phase I clinical
trials, RMP-7 was shown to have a good safety profile in volunteers
and patients. Transient flushing and nausea were the most consistent
adverse events noted and nausea was determined to be the dose limiting
toxicity.
To evaluate RMP-7's permeability effects, brain imaging techniques
such as computed tomography, magnetic resonance imaging and single
photon emission computed tomography were employed in four of the Phase
I clinical trials in patients with brain tumors. Data from all four
studies was limited due to the difficulty of the methods used for
obtaining quantitative permeability data from human subjects, but
provided evidence supporting RMP-7's effect on selectively increasing
permeability in the region of brain tumors.
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PHASE I/II. Phase I/II clinical trials of intravenous RMP-7 were
conducted in a total of 79 patients in two patient populations:
patients with brain tumors and patients with cryptococcal meningitis,
a fungal infection of the central nervous system associated with
immunocompromised patients, such as those with AIDS. The Phase I/II
studies were designed to test the safety of the combination of various
doses of RMP-7 and various doses of a therapeutic drug.
In two Phase I/II studies involving 24 patients with brain tumor, RMP-
7 was tested in combination with the chemotherapeutic agent,
carboplatin. One study was conducted at University of California San
Francisco, the other at Addenbrooke's Hospital in Cambridge, England.
The results of the studies showed no evidence of increased toxicity
associated with the combination of RMP-7 and carboplatin, and no
evidence of change in pharmacokinetics of carboplatin. The drug
combination was well tolerated by patients.
Brain imaging techniques employing ultra-fast computed tomography were
used in a limited number of patients in the Phase I/II clinical trial
in England and provided preliminary data supportive of RMP-7's ability
to selectively affect permeability in the region of brain tumors.
In addition to the two Phase I/II clinical trials of intravenous RMP-7
and carboplatin, a third study, involving 12 patients with brain
tumor, investigating intra-arterial administration of the drug
combination was conducted at the University of California, Los
Angeles. The results of the study showed no evidence of increased
toxicity associated with the combination of RMP-7 and carboplatin.
The drug combination was well-tolerated by patients.
In patients with cryptococcal meningitis, RMP-7 was tested in
combination with amphotericin B, an anti-fungal compound. The study
involved 20 patients and was conducted at nine sites in the United
States. Due to a decrease in the incidence of the disease resulting
from novel and effective prophylaxis, the clinical trial was closed
prior to reaching full enrollment and the Company decided in early
1995 not to proceed further in this indication. The results of the
truncated study showed no evidence of increased toxicity associated
with the combination of RMP-7 and amphotericin B and provided data
supporting RMP-7's effect on increasing amphotericin B concentrations
in cerebrospinal fluid.
PHASE II. Based on the successful completion of Phase I and Phase
I/II clinical trials, Alkermes initiated Phase II clinical trials in
Europe of intravenous RMP-7 and carboplatin in patients with primary
brain tumor in February 1995. Three concurrent Phase II clinical
trials are being conducted in this indication in the United States and
Europe, with a planned enrollment of 180 patients.
In the United States, the Phase II clinical trial commenced in March
1995 and is being conducted at ten centers. The study is designed as
a double blind, placebo controlled study in approximately 90 patients,
comparing treatment with intravenous RMP-7 and carboplatin to
treatment with carboplatin alone in patients with recurrent malignant
glioma. In Europe, two separate studies commenced in early 1995.
These studies are multi-center, open label studies testing the
efficacy of intravenous RMP-7 and carboplatin in approximately 90
patients with recurrent malignant glioma.
Alkermes initiated a multi-center Phase II clinical trial in the
United States of intra-arterial RMP-7 and carboplatin in March 1996.
The study is expected to involve approximately 45 patients and to be
conducted at nine centers.
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Alkermes initiated a multi-center Phase I/II clinical trial in Europe
of intravenous RMP-7 and carboplatin in patients with metastatic brain
tumor in February 1996. The study is open label, will be conducted at
two centers, and is expected to involve approximately 14 patients.
PROLEASE
ProLease is a proprietary method of encapsulating fragile, protein-
based biopharmaceuticals in microspheres made of common medical
polymers. The Company's proprietary expertise in this field lies in
its ability to encapsulate drugs, to stabilize fragile molecules
within polymers, to preserve their biological activity over an
extended period of time and to manufacture these formulations using
components and processes believed to be suitable for human
pharmaceutical use. ProLease is designed to enable novel formulations
of biopharmaceutical products by replacing frequent injections with
controlled, sustained release over time. The Company believes ProLease
formulations have the potential to improve patient compliance by
reducing the need for frequent self-injection, to lower costs by
reducing the need for frequent office visits and to improve safety and
efficacy by reducing both the variability in drug levels inherent in
frequent injections and the aggregate amount of drug given over the
course of therapy. In addition, ProLease may provide access to
important new markets currently inaccessible to products that require
frequent injections.
The ProLease formulation process has been designed to assure stability
of fragile compounds during the manufacturing process, during storage
and throughout the release phase in the body. The formulation and
manufacturing process consists of two basic steps: First, the drug is
formulated with stabilizing agents and dried to create a fine powder.
Second, the powder is microencapsulated at very low temperatures.
Incorporation of the drug substance as a stabilized solid under cold
temperatures is critical to protecting fragile molecules from
degradation during the manufacturing process and is a key element of
the ProLease technology. The microspheres then are suspended in a
small volume of liquid and administered to a patient by injection
under the skin or into a muscle. Drug release from ProLease can be
controlled to last from days to months.
Drug release from the microsphere is controlled by diffusion of the
bioactive molecule through the microsphere and by biodegradation of
the polymer. These processes can be modulated through a number of
formulation and fabrication variables including drug substance and
microsphere particle sizing and choice of polymers and excipients.
The ProLease manufacturing process is tailored to preserve the
biological activity of fragile biopharmaceutical compounds. A complete
aseptic process using a closed system with steam-in-place vessels and
scaleable unit operations has been designed and is currently being
assembled and tested. Scale-up to large quantity production for
clinical studies is currently underway.
PRODUCT DEVELOPMENT STRATEGY. The Company's strategy is to generate
multiple product opportunities by applying ProLease technology to the
development of superior formulations of several significant
biotechnology products. The Company believes these formulations have
the potential to expand the utilization of these products and improve
the competitive advantage of its partners in major markets.
The Company's goal is to develop ProLease formulations in
collaboration with partners having expertise, established marketing
strength and patent protection relating to important biopharmaceutical
products. The Company's first commercial applications of ProLease are
intended to be advanced formulations of major biotechnology products
which have already received regulatory approvals and have been
marketed by the Company's partners for several years. Since January
1995, Alkermes has entered
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into or expanded several collaborative agreements with pharmaceutical
companies, including Genentech and Schering-Plough. See "Collaborative
Arrangements."
The product development plan for individual ProLease formulations is
expected to proceed in several stages. First, the Company, either on
its own or pursuant to a collaboration, conducts initial feasibility
work to test various ProLease formulations for a particular drug in
vitro and in vivo. Following the successful completion of the
feasibility stage, preclinical development and manufacturing scale-up
activities directed toward the initiation of clinical trials of the
ProLease formulation would be conducted in collaboration with a
partner.
The first phase of clinical trials will be designed primarily to test
the safety and drug release profile of the ProLease formulation. The
Company and its partner may elect to conduct several early clinical
trials of various ProLease formulations of the same drug in order to
select a lead formulation to advance into later stage clinical trials.
Alkermes may conduct such early stage clinical trials of certain
ProLease product candidates or they may be conducted by its partners.
If targeted drug release levels are achieved over the desired duration
and if the safety and tolerability of the ProLease product is
adequate, the Company expects that it and its partner would elect to
proceed into expanded clinical trials of the ProLease formulation in
order to support regulatory approvals. Late stage clinical trials are
expected to be conducted by the Company's partners.
PROLEASE PRODUCTS IN DEVELOPMENT
PROLEASE HUMAN GROWTH HORMONE. Alkermes is developing a ProLease
formulation of Genentech's human growth hormone (hGH) in collaboration
with Genentech. Genentech is the leading supplier of hGH in the
United States. hGH is approved for use in the treatment of children
with growth hormone deficiency and other indications and is being
tested in additional indications in adults. hGH is currently
administered frequently, often daily, by subcutaneous injection. In
1995, Genentech reported sales of $219 million for its hGH products
Protropin and Nutropin.
PROLEASE ALPHA INTERFERON. Alkermes is developing a ProLease
formulation of Schering-Plough's Intron A interferon alpha 2b product
in collaboration with Schering-Plough. Schering-Plough is the leading
supplier of alpha interferon in the world. Intron A is approved for
use in several infectious disease and oncology indications including
hepatitis, hairy cell leukemia and Kaposi's sarcoma. Intron A is
currently administered by frequent injection. In 1995, Schering-Plough
reported sales of $433 million for Intron A.
PROLEASE EXPERIENCE. The Company's experience with the application of
ProLease to a wide range of biopharmaceuticals has shown that high
incorporation efficiencies and high protein loads can be achieved.
Through formulation and manufacturing at the research scale,
biopharmaceuticals incorporated into ProLease microspheres have shown
excellent integrity (low levels of aggregates or other degradation
products) and stability and biological activity for up to 30 days in
in vitro experiments.
The results of animal studies with several different ProLease
formulations have shown that ProLease can release targeted levels of
drugs over extended periods of time and that the pharmacodynamic
response with ProLease formulations can match that of continuous drug
infusion. Suitable in vivo delivery patterns in rodents and primates
have been achieved with different therapeutic proteins.
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MEDISORB
The Medisorb technology is a proprietary method of encapsulating
traditional pharmaceuticals in microspheres made of common medical
polymers. Medisorb is designed to enable novel formulations of
traditional pharmaceuticals by replacing frequent injections with
controlled, sustained release over time. The Company believes that
Medisorb formulations also have the potential to improve patient
compliance by reducing the need for frequent self injection, to lower
costs by reducing the need for frequent office visits and to improve
safety and efficacy by reducing both the variability in drug levels
inherent in frequent injections and the aggregate amount of drug given
over the course of therapy. In addition, Medisorb may provide access
to important new markets currently inaccessible to products that
require frequent injections.
The Medisorb formulation process has been designed to assure stability
of pharmaceuticals during manufacture, storage and throughout the
release phase in the body. The formulation and manufacturing process
consists of three basic steps. First, the drug is combined with a
polymer solution. Second, the drug/polymer solution is mixed in water
to form liquid microspheres (an emulsion). Third, the liquid
microspheres are dried to produce finished product. The microspheres
are then administered to a patient by injection under the skin or into
a muscle. Drug release from Medisorb can be controlled to last from
days to weeks.
Drug release from the microsphere is controlled by diffusion of the
pharmaceutical through the microsphere and by biodegradation of the
polymer. These processes can be modulated through a number of
formulation and fabrication variables, including drug substance and
microsphere particle sizing and choice of polymers and excipients.
PRODUCT DEVELOPMENT STRATEGY. The Company's strategy is to generate
multiple product opportunities by applying Medisorb technology to the
development of superior formulations of traditional pharmaceutical
products. The Company believes these formulations have the potential
to expand the utilization of these products and improve the
competitive advantage of its partners in major markets.
The Company's goal is to develop Medisorb formulations in
collaboration with partners having expertise, established marketing
strength and patent protection relating to important pharmaceutical
products. The Company's first commercial applications of Medisorb are
intended to be advanced formulations of major pharmaceutical products
which have already received regulatory approvals and have been
marketed by the Company's partners for several years. Alkermes has
licensed the technology necessary to formulate a Medisorb product
candidate to a large pharmaceutical company. See "Collaborative
Arrangements."
The product development plan for individual Medisorb formulations is
expected to proceed in several stages. First, the Company, either on
its own or pursuant to a collaboration, conducts initial feasibility
work to test various Medisorb formulations for a particular drug in
vitro and in vivo. Following the successful completion of the
feasibility stage, preclinical development and manufacturing scale-up
activities directed toward the initiation of clinical trials of the
Medisorb formulation would be conducted in collaboration with a
partner.
The first phase of clinical trials will be designed primarily to test
the safety and drug release profile of the Medisorb formulation. The
Company and its partner may elect to conduct several early clinical
trials of various Medisorb formulations of the same drug in order to
select a lead formulation to advance into later stage clinical trials.
Alkermes may conduct such early stage clinical trials of certain
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Medisorb product candidates or they may be conducted by its partner.
If targeted drug release levels are achieved over the desired duration
and if the safety and tolerability of the Medisorb product is
adequate, the Company expects that it and its partner would elect to
proceed into expanded clinical trials of the Medisorb formulation in
order to support regulatory approvals. Late stage clinical trials are
expected to be conducted by the Company's partner.
MEDISORB PRODUCTS IN DEVELOPMENT
Medisorb Product Candidate. Alkermes is developing and manufacturing
a Medisorb product candidate for a large pharmaceutical company under
a license agreement.
COLLABORATIVE ARRANGEMENTS
The Company's business strategy includes forming collaborations with
other pharmaceutical companies to provide technological, financial,
marketing, manufacturing and other resources. To date, the Company has
entered into the following corporate collaborations:
Schering-Plough
Under an amended Development and License Agreement with Schering-
Plough, the Company has agreed to develop an injectable delivery
system which incorporates Intron A as an active ingredient utilizing
the Company's ProLease delivery system and has granted to Schering-
Plough an exclusive worldwide license to manufacture, use and sell any
such system that may be developed pursuant to the amended agreement.
Under the amended agreement, Schering-Plough will also be responsible
for conducting clinical trials and securing regulatory approvals. The
amended agreement provides for development funding to the Company and
provides for certain payments to be made by Schering-Plough to the
Company for its achievement of certain milestones. The Company and
Schering-Plough entered into a Prepaid Royalty Agreement pursuant to
which Schering-Plough has prepaid certain royalties. In total,
payments to the Company are expected to approximate $7.0 million by
September 30, 1996, and future milestone payments could exceed an
additional $5.0 million.
Schering-Plough has the right to terminate the amended agreement upon
60 days' written notice upon the occurrence of certain events,
including if the Company fails to meet product specifications or an
agreed upon delivery schedule, the results of a safety and
pharmacokinetics study provide Schering-Plough with reasonable
justification not to proceed to a Phase II clinical trial, the use of
the product results in adverse effects that justify termination of
clinical trials, Schering-Plough is unable to manufacture the product
on a commercial scale, or upon completion or permanent discontinuation
of the clinical study. Either party may terminate the amended
agreement upon the insolvency or bankruptcy of the other party or upon
a breach by the other party which has not been cured after 60 days'
notice. Schering-Plough also has the right to terminate the amended
agreement upon 90 days' written notice or continue the development
project on its own in the event Alkermes fails by an agreed upon date
to deliver batches of a ProLease formulation of Intron A that meet
agreed upon specifications. In the event Schering-Plough elects to
continue the development project, it will remain obligated to pay
Alkermes milestone payments and royalties upon commercial sale. In the
event Schering-Plough terminates the amended agreement for any reason,
Alkermes must repay the prepaid royalties received from Schering-
Plough with interest. Such repayment obligation would be evidenced by
an interest-bearing note and would be payable in full on the third
anniversary of the date of the note. Alkermes will have the right,
subject to the satisfaction of certain conditions, to satisfy its
repayment obligation through the issuance of shares of its Common
Stock. The number of shares that may be issued would be based upon the
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average closing price of Alkermes Common Stock on the Nasdaq National
Market for the 30 business days immediately preceding the date on
which the shares are delivered. Any Common Stock issued to Schering-
Plough must be freely resaleable.
Genentech
In January 1995, Alkermes entered into a collaborative agreement with
Genentech, pursuant to which the Company agreed to develop sustained
release formulations of up to two Genentech proteins utilizing the
Company's ProLease microencapsulation technology. One of these
proteins is hGH and the other protein has not been publicly disclosed.
In the initial phase of the collaboration, the Company will develop a
sustained release formulation of hGH, which is approved for marketing
in the United States for the treatment of children with growth hormone
deficiencies and growth failure due to renal insufficiency. The
Company commenced a Phase I clinical trial for hGH in February 1996.
The initial phase of the Genentech collaboration is expected to be
completed within two years. During the initial phase, the parties have
agreed to work exclusively with each other regarding the use of the
Company's ProLease technology for the encapsulation of hGH.
At any time prior to the date that is six months after the conclusion
of the Phase I clinical trial for the ProLease formulation of hGH,
Genentech has the option to obtain a worldwide exclusive license to
make, use and sell products incorporating hGH and/or the other
Genentech protein and the Company's ProLease encapsulation technology.
In the event Genentech exercises such option, the parties have agreed
to negotiate in good faith regarding the terms of the definitive
license agreement, which shall include royalties, milestone payments
and other terms which have already been agreed upon by the parties. If
Genentech elects to exercise its option to develop ProLease
formulations of both proteins, and assuming the successful development
and regulatory approval of the ProLease formulations of both proteins,
total milestone payments to Alkermes could reach $16.5 million.
To fund the Company's activities during the initial phase of the
collaboration, Genentech has loaned the Company the aggregate amount
of $3.5 million pursuant to a Convertible Promissory Note dated
January 31, 1995 (the "Note"). The outstanding principal amount of the
Note accrues interest at the prime rate of interest as reported by the
Bank of America NT & SA from time to time. The outstanding principal
amount of the Note and accrued but unpaid interest thereon becomes due
and payable on January 31, 2000.
Under the terms of the Note, Alkermes has the option to convert, at
any time, all outstanding principal and accrued but unpaid interest
thereon (as such amount may exist from time to time, the "Conversion
Amount") into shares of Common Stock. The number of shares into which
the Note will be converted shall be determined by dividing the
Conversion Amount by the average closing price of the Common Stock on
the Nasdaq National Market for the 20 trading days immediately
preceding the conversion date (the "Conversion Price"). In addition,
Genentech shall have the right to convert the Conversion Amount into
shares of Common Stock at the Conversion Price if at any time the
total cash, cash equivalents and marketable debt instruments of the
Company shall be less than the sum of (i) all indebtedness which ranks
senior to the indebtedness evidenced by the Note, and (ii) the
Conversion Amount. Genentech also has the right to demand that the
Common Stock be registered under certain circumstances.
Pursuant to the collaboration agreement, both Alkermes and Genentech
have the right to terminate the agreement upon the other's material
breach which is not cured within 30 days' written notice or upon
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the other's insolvency or bankruptcy. Genentech also has the right to
terminate the agreement at any time upon 30 days' written notice to
Alkermes.
Medisorb Licensee
Pursuant to a Development Agreement, the Company is collaborating
exclusively with a large pharmaceutical company in the development of
sustained release formulations of a Medisorb product candidate. Under
the Development Agreement, the Company is responsible for production
of the Medisorb product candidate for clinical trials. The
pharmaceutical company is responsible for conducting clinical trials
of the Medisorb product candidate and securing all necessary
regulatory approvals.
Under related license agreements (the "License Agreements"), the
pharmaceutical company and an affiliate have exclusive world-wide
licenses from the Company to manufacture and have manufactured, to use
and to have used, and to sell and have sold, the Medisorb product
candidate. If the pharmaceutical company decides to employ third-
party suppliers of the Medisorb product candidate, the Company has a
right of first refusal for the manufacture and supply to the
pharmaceutical company of all Medisorb product candidate, and
component bio-absorbable polymers thereof, developed under the
Development Agreement. Under the License Agreements, the
pharmaceutical company is required to pay Alkermes certain royalties
with respect to all Medisorb product candidate sold to customers.
The pharmaceutical company can terminate the Development Agreement or
the License Agreements upon 30 days' prior written notice.
Alkermes Clinical Partners
In April 1992, Units consisting of limited partnership interests in
the Partnership and warrants to purchase the Company's Common Stock
were sold to investors in a private placement (the "Private
Placement"). See "Corporate Matters -- Private Placement and Warrant
Exchange." The net proceeds of the $46 million Private Placement are
being used to fund the further development and clinical testing of
RMPs for human pharmaceutical use in the United States and Canada.
Pursuant to a Product Development Agreement, dated March 6, 1992,
Alkermes transferred substantially all of its rights to the RMP
technology to the Partnership. Alkermes has an option to purchase all
of the limited partnership interests in the Partnership and thereby
reacquire the transferred technology.
Research and development of RMPs is being conducted by Alkermes for
the Partnership pursuant to the Product Development Agreement.
Alkermes is reimbursed by the Partnership for its actual costs
incurred in conducting such research and development, and also
receives a management fee of 10% of such costs. During the fiscal
year ended March 31, 1995, Alkermes recorded as revenue an aggregate
of approximately $9.8 million from the Partnership. In addition,
approximately $1.6 million has been recorded as deferred revenue at
March 31, 1995. The revenues recorded by Alkermes from the
Partnership during the fiscal year ended March 31, 1995 constituted
approximately 67% of the Company's net revenues during such period.
The Partnership's funding obligations will end in the quarter ending
June 30, 1996 and Alkermes intends thereafter to fund the development
of RMPs, but may be forced to seek alternative sources of funding
thereafter.
The Partnership may terminate the research program for any or all
products upon the affirmative vote of 75% of the directors of the
general partner of the Partnership, Alkermes Development
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Corporation II ("ADC II"), a wholly owned subsidiary of Alkermes, that
such research is not feasible or is uneconomic. The Partnership may
terminate the marketing program for any or all products upon the
affirmative vote of 75% of the directors of ADC II based on the
directors' good faith business judgment. The Partnership may also
terminate the research or marketing program if Alkermes has materially
breached the agreement and not cured such breach within 30 days'
written notice. Both parties may terminate the research or marketing
program upon mutual consent to terminate or upon the insolvency or
bankruptcy of the other party.
The Partnership has granted Alkermes an exclusive interim license to
manufacture and market RMPs for human pharmaceutical use in the United
States and Canada. Upon the first marketing approval of an RMP product
by the FDA, Alkermes is obligated to make a payment to the Partnership
equal to 20% of the aggregate capital contributions of all limited
partners. Additionally, Alkermes will pay royalty payments equal to
12% of United States and Canadian revenues and, in certain
circumstances, 10% of European revenues from any sales of RMPs by
Alkermes. The interim license will terminate if Alkermes does not
exercise its option to acquire all of the limited partners' interests
in the Partnership.
The general partner of the Partnership is ADC II. Fifty percent of the
members of the board of directors of ADC II are persons not affiliated
with Alkermes. Such non-affiliated persons were nominated by the sales
agent for the Private Placement. The sales agent will continue to
have the right to nominate at least half of the members of ADC II's
board of directors unless certain events occur.
OTHER RESEARCH ACTIVITIES
Alkermes is evaluating other drug delivery technologies principally
through research collaborations with academic institutions. These
research projects are focused typically on novel drug delivery systems
that fit the Company's strategic focus on sophisticated technologies
potentially applicable to multiple product candidates.
COMPETITION
The biotechnology and pharmaceutical industries are subject to rapid
and substantial technological change. Alkermes faces, and will
continue to face, intense competition in the development,
manufacturing, marketing and commercialization of its product
candidates from academic institutions, government agencies, research
institutions and biotechnology and pharmaceutical companies. There
can be no assurance that developments by others will not render the
Company's product candidates or technologies obsolete or
noncompetitive. At the present time, Alkermes has no sales force,
commercial manufacturing capability or marketing experience. In
addition, many of the Company's competitors and potential competitors
have substantially greater capital resources, manufacturing and
marketing experience, research and development resources, and
production facilities than does Alkermes. Many of these competitors
also have significantly greater experience than Alkermes in
undertaking preclinical testing and clinical trials of new
pharmaceutical products and obtaining FDA and other regulatory
approvals.
With respect to RMP-7, there are currently no products approved by the
FDA for increasing the permeability of the blood-brain barrier.
Guilford Pharmaceuticals, Inc., however, has filed for approval of a
surgically implantable polymer wafer containing BCNU, a
chemotherapeutic agent, for the treatment of brain tumor.
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The Company is aware of certain programs under development by
competitors that are focused on the delivery of biopharmaceuticals
utilizing a sustained release vehicle. However, the Company is not
aware of any company that has initiated clinical trials involving the
Company's partners' products or products which would compete with the
Company's programs. Many of these competitors have greater resources
than the Company. There can be no assurance that the Company will be
able to compete successfully with such companies. The existence of
products developed by the Company's competitors, or other products or
treatments of which the Company is not aware, or products or
treatments that may be developed in the future, may adversely affect
the marketability of products developed by the Company.
PATENTS AND PROPRIETARY RIGHTS
The Company's success will be dependent, in part, on its ability to
obtain patent protection for its and the Partnership's products, to
maintain trade secret protection and to operate without infringing
upon the proprietary rights of others.
The Company has a proprietary portfolio of patent rights and exclusive
licenses to patents and patent applications. The Company has filed
numerous U.S. and international patent applications directed to
composition of matter as well as processes of preparation and methods
of use, including applications relating to: permeabilizers, certain
rights to which have been licensed to the Partnership, of which one
U.S. patent was issued in each of May 1992, December 1993 and April
1996; carriers for enabling passage into the brain of therapeutic
compounds, of which one U.S. patent was issued in each of October 1992
and January 1993; therapeutic applications of cationized antibodies;
the ProLease microencapsulation process, of which one U.S. patent was
issued in December 1993; the formulation of ProLease product
candidates of which one U.S. patent was issued in May 1995; the
Medisorb microencapsulation process of which one U.S. patent was
issued in June 1983; two additional U.S. patents related to processes
of preparation of which one was issued in each of June 1993 and
February 1994; and the formulation of product candidates, of which
nine U.S. patents were issued between July 1985 and June 1995. In the
future, the Company plans to file further U.S. and foreign patent
applications directed to new or improved products and processes. The
U.S. patents issued to the Company will expire between 2000 and 2013.
Alkermes intends to file additional patent applications when
appropriate and intends to defend its patent position aggressively.
Alkermes has exclusive rights through licensing agreements with
several institutions to seven issued U.S. patents, a number of U.S.
patent applications and to corresponding foreign patents and patent
applications in many countries, subject in certain instances to the
rights of the U.S. government to use the technology covered by such
patents and patent applications and, with respect to one patent
application, the right of one other licensee to use the technology
covered by such patent application on a co-exclusive basis. The
Company has an exclusive option for exclusive rights to one U.S.
patent application and a related international patent application for
gene therapy. The U.S. patents that have been licensed to the Company
will expire between the years 2003 and 2013. Under certain licensing
agreements, the Company currently pays license maintenance fees and/or
minimum annual royalties. During the fiscal year ended March 31, 1995,
such fees were approximately $117,000. In addition, under all
licensing agreements, Alkermes is obligated to pay royalties on future
sales of products, if any, covered by the licensed patents.
Two applications for patents were filed by a third party in the United
States and in Europe that contain claims covering certain analogs and
uses thereof of the same naturally occurring molecule on which RMP-7
is based. One U.S. patent has issued from these applications. Based on
an opinion of the Company's patent counsel, Alkermes believes that the
claims of the issued U.S. patent are not infringed
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by the Partnership's or the Company's proposed manufacture, use or
sale of RMP-7. However, there can be no assurance that the claims of
the issued U.S. patent are not infringed and the claims of future
patents issuing from these applications, if any, will not be infringed
by the Partnership's or the Company's proposed manufacture, use or
sale of RMP-7. There can be no assurance that Alkermes or the
Partnership would prevail in any legal action seeking damages or
injunctive relief for infringement of any patent that might issue
under such applications or that any license required under any such
patent would be made available or, if available, would be available on
acceptable terms. Failure to obtain a required license could result in
the inability to proceed with RMP-based products.
The patent positions of pharmaceutical, biopharmaceutical and
biotechnology firms, including Alkermes, are generally uncertain and
involve complex legal and factual questions. In addition, there can be
no assurance that the Company's or its licensors' current patent
applications will be allowed or that the claims of any patents issued
to Alkermes or its licensors (in connection with either or both the
Company's product candidates or the Partnership's product candidate)
will be sufficiently broad to protect the Company's or the
Partnership's technology or to provide Alkermes or the Partnership
with any competitive advantages. Moreover, no assurance can be given
that patents issued to Alkermes (in connection with either or both the
Company's product candidates or the Partnership's product candidate),
or its respective licensors, if any, will not be contested,
invalidated or circumvented. In addition, if Alkermes or the
Partnership is required to defend against a charge of patent
infringement or to protect its own proprietary rights against third
parties, substantial costs could be incurred.
In the future, Alkermes may be required to obtain additional licenses
to patents or other proprietary rights of third parties. There can be
no assurance that any such licenses will be available on acceptable
terms, if at all, and failure to obtain such licenses could result in
delays in marketing the Company's products or the inability to proceed
with the development, manufacture or sale of product candidates
requiring such licenses.
The Company also relies upon unpatented trade secrets and
improvements, unpatented know-how and continuing technological
innovation to develop and maintain its competitive position which it
seeks to protect, in part, by confidentiality agreements with its
corporate partners, collaborators, employees and consultants. There
can be no assurance that these agreements will not be breached, that
the Company would have adequate remedies for any breach, or that the
Company's trade secrets will not otherwise become known or be
independently discovered by competitors.
The Company's practice is to require its employees, consultants and
advisors to execute a confidentiality agreement upon the commencement
of an employment or consulting relationship with the Company. The
agreements provide that all confidential information developed or made
known to an individual during the course of the employment or
consulting relationship shall be kept confidential and not disclosed
to third parties except in specified circumstances. In the case of
employees, the agreements provide that all inventions conceived by the
individual while employed by the Company shall be the exclusive
property of the Company. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's
trade secrets in the event of unauthorized use or disclosure of such
information.
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MANUFACTURING
RMP-7 is a small peptide manufactured using standard synthetic
techniques. Alkermes relies on an independent company for the
manufacture and supply of RMP-7. Alkermes believes that, if necessary,
there are other companies which could manufacture and supply its
requirements for RMP-7. Nevertheless, there can be no assurance that
any manufacturer of RMP-7 will meet the Company's demands for quality,
quantity, cost and timeliness.
Medisorb manufacturing involves microencapsulation of drug substances
provided to Alkermes by its collaborator. Alkermes is manufacturing,
in accordance with GMP, a product candidate incorporating its Medisorb
sustained release delivery system, for use in clinical trials, at its
recently acquired facility in Wilmington, Ohio. It does not
manufacture such product candidates on a commercial scale.
ProLease manufacturing involves microencapsulation of drug substances
provided to Alkermes by its collaborators. Alkermes is in the process
of constructing an in-house pilot production facility, in accordance
with GMP, of product candidates incorporating its ProLease sustained
release delivery system for use in clinical trials. Pursuant to
agreements with certain of its partners, Alkermes has the option to
manufacture ProLease products for commercial sale.
The manufacture of either Medisorb or ProLease products on a
commercial scale would require significant start-up expenses and
expansion of facilities and personnel, and no assurance can be given
that Alkermes can develop such manufacturing capability successfully.
If Alkermes is not able to develop manufacturing capacity and
experience or to continue to contract for manufacturing capabilities
on acceptable terms, its ability to conduct preclinical testing and
clinical trials will be compromised, and delays in obtaining
regulatory approvals might result. Such delays could materially
adversely affect the Company's competitive position and its business,
financial condition and results of operations.
MARKETING
Alkermes plans to market and sell RMP-7, if successfully developed and
approved, either directly or through co-promotion or other licensing
arrangements with third parties. Such arrangements may be exclusive or
nonexclusive and may provide for marketing rights worldwide or in a
specific market.
Alkermes intends to market any ProLease and Medisorb products through
its corporate partners. Alkermes has entered into development
agreements, including sales and marketing, for ProLease product
candidates with Genentech and Schering-Plough, and for a Medisorb
product candidate with the a large pharmaceutical company. See
"Collaborative Arrangements."
Alkermes has no marketing experience and there can be no assurance
that it will successfully develop such experience or that it will be
able to enter into marketing agreements with others on acceptable
terms. To the extent the Company enters into co-promotion
arrangements, any revenues received by the Company will be dependent
on the efforts of third parties, and there can be no assurance that
such efforts will be successful.
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GOVERNMENT REGULATION
The manufacture and marketing of pharmaceutical products in the United
States require the approval of the FDA under the Federal Food, Drug
and Cosmetic Act. Similar approvals by comparable agencies are
required in most foreign countries. The FDA has established mandatory
procedures and safety standards which apply to the preclinical testing
and clinical trials, manufacture and marketing of pharmaceutical
products. Pharmaceutical manufacturing facilities are also regulated
by state, local and other authorities.
As an initial step in the FDA regulatory approval process, preclinical
studies are typically conducted in animal models to assess the drug's
efficacy and to identify potential safety problems. The results of
these studies must be submitted to the FDA as part of an IND, which
must be reviewed by the FDA before proposed clinical testing can
begin. Typically, clinical testing involves a three-phase process.
Phase I trials are conducted with a small number of subjects and are
designed to provide information about both product safety and the
expected dose of the drug. Phase II trials are designed to provide
additional information on dosing and preliminary evidence of product
efficacy. Phase III trials are large scale studies designed to provide
statistical evidence of efficacy and safety in humans. The results of
the preclinical testing and clinical trials of a pharmaceutical
product are then submitted to the FDA in the form of a New Drug
Application ("NDA"), or for a biological product in the form of a
Product License Application ("PLA"), for approval to commence
commercial sales. Preparing such applications involves considerable
data collection, verification, analysis and expense. In responding to
an NDA or PLA, the FDA may grant marketing approval, request
additional information or deny the application if it determines that
the application does not satisfy its regulatory approval criteria.
Prior to marketing, any product developed by Alkermes must undergo an
extensive regulatory approval process, which includes preclinical
testing and clinical trials of such product candidate to demonstrate
safety and efficacy. This regulatory process can require many years
and the expenditure of substantial resources. Data obtained from
preclinical testing and clinical trials are subject to varying
interpretations, which can delay, limit or prevent FDA approval. In
addition, changes in FDA approval policies or requirements may occur
or new regulations may be promulgated which may result in delay or
failure to receive FDA approval. Similar delays or failures may be
encountered in foreign countries. Delays and costs in obtaining
regulatory approvals would have a material adverse effect on the
Company's business, financial condition and results of operations.
Among the conditions for NDA or PLA approval is the requirement that
the prospective manufacturer's quality control and manufacturing
procedures conform on an ongoing basis with GMP. An Establishment
License Application ("ELA") must be submitted for approval by the FDA
with information about manufacturing facilities. Before approval of
the ELA, the FDA will perform a prelicensing inspection of the
facility to determine its compliance with GMP and other rules and
regulations. In complying with GMP, manufacturers must continue to
expend time, money and effort in the area of production and quality
control to ensure full technical compliance. After the establishment
is licensed, it is subject to periodic inspections by the FDA.
The requirements which the Company must satisfy to obtain regulatory
approval by governmental agencies in other countries prior to
commercialization of its products in such countries can be as rigorous
and costly as those described above.
The Company is also subject to various laws and regulations relating
to safe working conditions, laboratory and manufacturing practices,
the experimental use of animals and the use and disposal of
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hazardous or potentially hazardous substances, including radioactive
compounds and infectious disease agents, used in connection with the
Company's research. Compliance with laws and regulations relating to
the protection of the environment has not had a material effect on
capital expenditures, earnings or the competitive position of the
Company. However, the extent of government regulation which might
result from any legislative or administrative action cannot be
accurately predicted.
EMPLOYEES
As of May 7, 1996, the Company had 162 full-time employees, of whom 24
held M.D. degrees or Ph.D. degrees in the fields of organic chemistry,
pharmaceutics, chemical engineering, organic polymer chemistry,
synthetic protein chemistry, molecular biology, oncology, toxicology,
pharmacology, pharmacy and polymer science and engineering. A
significant number of the Company's management and professional
employees have had prior experience with pharmaceutical, biotechnology
or medical product companies. Alkermes believes that it has been
highly successful in attracting skilled and experienced scientific
personnel; however, competition for such personnel is intense. None of
the Company's employees is covered by a collective bargaining
agreement.
CORPORATE MATTERS
Alkermes, a Pennsylvania corporation, was organized in 1987.
Medisorb Transaction
In March 1996, a wholly owned subsidiary of the Company, Alkermes
Controlled Therapeutics Inc. II ("ACT II") acquired certain Medisorb
technology and assets owned or used by Medisorb Technologies
International, L.P., a privately owned limited partnership. Included
in the acquisition was a 14,000 square foot pharmaceutical production
facility located in Wilmington, Ohio. The purchase was made with
cash.
Enzytech Merger
In February 1993, Enzytech, Inc. ("Enzytech"), an unrelated entity,
was merged with and into Alkermes Controlled Therapeutics, Inc., a
wholly owned subsidiary of the Company (the "Merger"). The Merger was
consummated by converting the shares of all classes of Enzytech
capital stock then outstanding into shares of the Company's Common
Stock. The Company also granted to certain of Enzytech's employees
and consultants options to purchase shares of the Company's Common
Stock. The business acquired in the Merger is focused on the
development of products incorporating proprietary drug delivery
systems based on microencapsulation technologies which may enable
injectable sustained release or oral formulations to be made of
biopharmaceutical products such as proteins and peptides.
Private Placement and Warrant Exchange
On April 10, 1992, Alkermes and the Partnership sold in the Private
Placement (i) 920 Class A units, each unit consisting of one Class A
limited partnership interest in the Partnership, a 1992 warrant to
purchase 2,800 shares of the Company's Common Stock, par value $.01
per share ("Common Stock"), and a 1995 warrant to purchase 300 shares
of Common Stock, and (ii) one Class B unit consisting of one Class B
limited partnership interest in the Partnership, a 1992 warrant to
purchase 5,600 shares of Common Stock and a 1995 warrant to purchase
600 shares of Common Stock. The purchase price was $50,000 for each
Class A Unit (subject to certain reductions for certain investors) and
$100,000 for the
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Class B Unit. The purchase price for the Class A and Class B Units
was payable in installments due on an annual basis which commenced in
and ended in 1995.
The Class A 1992 Warrants, the Class A 1995 Warrants, the Class B 1992
Warrant and the Class B 1995 Warrant were issued by the Company in
consideration of the grant by each limited partner to the Company of
an option to purchase, under certain circumstances, the limited
partnership interest held by such limited partner.
The Class A 1992 Warrants and the Class B 1992 Warrant may be
exercised during the period which began on August 1994 and ends on
July 31, 1999, and upon the payment of a warrant exercise price per
share of $20.03. The Class A 1995 Warrants and the Class B 1995
Warrant may be exercised during the period which began on April 15,
1995 and ends on April 14, 2000, and upon the payment of a warrant
exercise price per share of $3.54.
PaineWebber Development Corporation, the sales agent for the Units
(the "Sales Agent"), purchased the Class B Unit in the Private
Placement. An affiliate of the Sales Agent (the "Fund Affiliate")
purchased 133 Class A units in the Private Placement. In
consideration of such purchase, the Company issued to the Sales Agent
Affiliate a warrant to purchase 13,300 shares of Common Stock (the
"Fund Warrant"). The Fund Warrant had the same exercise period and
exercise price ($20.03) as the Class A 1992 Warrants. As part of the
Private Placement, the Company also issued to an affiliate of the
Sales Agent (the "Incentive Affiliate") a warrant to purchase 77,100
shares of Common Stock (the "Incentive Warrant"). The Incentive
Warrant had an exercise period which began on August 1, 1994 and ends
on July 31, 1997 and had a warrant exercise price per share of $20.83.
The Company completed an exchange offer on January 27, 1995 with
respect to the foregoing warrants. Pursuant to the exchange offer,
Class A limited partners had the option to exchange both the Class A
1992 Warrants and the Class A 1995 Warrants for a new 1994 Class A
Warrant to purchase, at $5.00 per share, 1,700 shares of the Company's
Common Stock for every 3,100 shares of Common Stock issuable upon
exercise of the Class A 1992 Warrant and Class A 1995 Warrant
exchanged therefor. The Sales Agent had the option to exchange both
the Class B 1992 Warrant and the Class B 1995 Warrant for a new 1994
Class B Warrant to purchase 3,400 shares of the Company's Common Stock
at $5.00 per share. The Fund Affiliate had the option to exchange the
Fund Warrant for a new 1994 Fund Warrant to purchase 7,293 shares of
Common Stock at $5.00 per share. The Incentive Affiliate had the
option to exchange the Incentive Warrant for a new 1994 Incentive
Warrant to purchase 42,280 shares of Common Stock at $5.25 per share.
The 1994 Class A Warrants, 1994 Class B Warrant, and 1994 Fund Warrant
are exercisable during the period which began on April 1, 1995 and
ends on March 31, 2000. The 1994 Incentive Warrant is exercisable
during the period which began on April 1, 1995 and ends on March 31,
1998.
Holders of approximately 92% of the Class A 1992 Warrants and the
Class A 1995 Warrants originally issued exchanged such warrants in
response to the exchange offer. The Sales Agent, the Fund Affiliate
and the Incentive Affiliate also exchanged the warrants they acquired
in the Private Placement for new 1994 warrants.
In February and April 1996, the Company purchased an aggregate of 74
Class A Units that were owned by investors who defaulted on their
payment obligations. The aggregate purchase price for such Units was
the aggregate amount of the unpaid installments, approximately
$2,052,000.
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PLAN OF DISTRIBUTION
The Common Stock offered hereby is being offered for sale directly by
the Company to a limited number of institutional buyers, and affiliates of
such buyers. The Company does not anticipate offering the Common Stock
through underwriters, but may engage a registered broker/dealer to effect
sales of the shares. If the Company does offer the Common Stock through
underwriters or broker/dealers or agents, the net proceeds to the Company
would be reduced by any discounts or commissions which would be required to
be paid by the Company to any such underwriter, broker/dealer or agent.
The price of the Common Stock offered hereby has been determined through
negotiations between the Company and prospective purchasers of the Common
Stock.
There can be no assurance that the Company will be successful in
selling any or all of the Common Stock offered hereby. The Company has not
fixed a minimum number of shares of Common Stock to be sold pursuant to
this Prospectus. Therefore, the Company may sell less than all of the
Common Stock offered hereby, which may significantly reduce the amount of
proceeds to be received by the Company. Funds received by the Company on
the sale of less than all of the Common Stock offered hereby will not be
placed in an escrow, trust or similar account. It is expected that
delivery of certificates representing the shares of Common Stock will be
made against payment for the Common Stock in Boston, Massachusetts, and the
offering of any unsold shares hereunder will terminate not later than 30
days after the date of this Prospectus.
The Chief Executive Officer, the President and the Chief Financial
Officer of the Company, with assistance of other officers as needed, will
participate in the sale of the Common Stock to the purchasers. The Company
expects that these participants, who will not receive any compensation for
these sales, will not be deemed to be brokers under the Exchange Act.
EXPERTS
The consolidated financial statements incorporated in this Prospectus
by reference from the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated
herein by reference, and have been so incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
LEGAL OPINIONS
The validity of the securities offered hereby has been passed upon by
Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania. Morris
Cheston, Jr., Secretary of Alkermes and of Alkermes Controlled
Therapeutics, Inc., ACT II and ADC II, all of which are wholly owned
subsidiaries of Alkermes, and Martha J. Hays, Secretary of Alkermes
Investments, Inc., a wholly owned subsidiary of Alkermes, are partners in
the law firm of Ballard Spahr Andrews & Ingersoll.
INDEMNIFICATION
Article 5 of the Company's By-Laws provides that the Company shall
indemnify any director, officer, employee or agent of the Company or any of
its subsidiaries who was a party to any proceeding, whether formal or
informal, and whether brought by or in the right of the Company, its
shareholders or
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otherwise, by reason of the fact that such person was or is an authorized
representative of the Company to the fullest extent permitted by law,
including without limitation indemnification against expenses, damages,
penalties and fines and amounts paid in settlement, actually and reasonable
incurred by such person in connection with such proceeding, unless the act
or failure to act giving rise to the claim is finally determined by a court
to have constituted willful misconduct or recklessness. The provisions of
Article 5 are sufficiently broad to require indemnification of directors,
officers and controlling persons against liabilities incurred by such
persons under the Securities Act.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company
has been informed that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The Company has also obtained Directors' and Officers' Liability
Insurance in the amount of $3,000,000 which insures its officers and
directors against certain liabilities such persons may incur in their
capacities as officers or directors of the Company.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of Common Stock offered hereby (the
"Registration Statement"). This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
For further information, reference is made to the Registration Statement,
copies of which may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Statements
contained in this Prospectus as to the contents of any contract or other
document filed, or incorporated by reference, as an exhibit to the
Registration Statement are qualified in all respects by such reference.
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