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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 For the
fiscal year ended December 31, 1999
Commission file number 0-20713
ENTREMED, INC.
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(Exact name of registrant as specified in its charter)
Delaware 58-1959440
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(State of Incorporation) (I.R.S. Employer Identification No.)
9640 Medical Center Drive, Rockville, MD 20850
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 217-9858
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Securities registered pursuant to Section 12 (g) of the Act:
Title of Each Class Name of Exchange on Which Registered
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Common Stock, Par Value $.01 Per Share Nasdaq National Market
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K [X]
As of March 24, 2000, 15,379,772 shares of common stock were outstanding and the
aggregate market value of the shares of common stock held by non-affiliates was
approximately $856,410,996.
DOCUMENTS INCORPORATED BY REFERENCE
See Part III hereof with respect to incorporation by reference from the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 and the Exhibit Index hereto.
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ENTREMED, INC. AND SUBSIDIARIES
FORM 10-K - FISCAL YEAR ENDED DECEMBER 31, 1999
Contents and Cross Reference Sheet
<TABLE>
<CAPTION>
Form 10-K Form 10-K Form 10-K
Part No. Item No. Description Page No.
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<S> <C> <C> <C>
I 1 BUSINESS .......................................................3
2 PROPERTIES ......................................................35
3 LEGAL PROCEEDINGS......................................................36
4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS ......................................................36
II 5 MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS........................................37
6 SELECTED FINANCIAL DATA................................................38
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..........................39
7(A) QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK......................................................42
8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................42
9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................43
III 10-13 ......................................................43
IV 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K................................................43
SIGNATURES ....................................................II-1
FINANCIAL STATEMENTS .....................................................F-1
</TABLE>
This document includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended ("Exchange Act"). All statements in
this Form 10-K that are not descriptions of historical facts are forward-looking
statements, based on management's estimates, assumptions and projections, that
are subject to risks and uncertainties. Although we believe that the
expectations reflected in such forward-looking statements are reasonable as of
the date hereof, actual results could differ materially from those currently
anticipated due to a number of factors, including risks relating to the early
stage of products under development; uncertainties relating to clinical trials;
dependence on third parties; future capital needs; and risks relating to the
commercialization, if any, of our proposed products (such as marketing, safety,
regulatory, patent,
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product liability, supply, competition and other risks). Additional important
factors that could cause actual results to differ materially from our current
expectations are included in the section below entitled "Risk Factors." We
assume no obligation to update its forward-looking statements.
PART I
ITEM 1. BUSINESS
OVERVIEW
We are an innovative biopharmaceutical company engaged in the
development of products that address the role of blood and blood vessels in
health and disease. Angiogenesis is the biological process by which new blood
vessels are formed. As The Angiogenesis Company(TM), our primary efforts are
focused on developing antiangiogenic drugs designed to inhibit the abnormal new
blood vessel growth associated with a broad range of diseases, such as cancer,
certain types of blindness and atherosclerosis. Our current portfolio of
antiangiogenic products includes Endostatin, Angiostatin and 2ME2. We began
Phase I clinical testing of Endostatin in September 1999. Patient recruitment is
underway for Phase I clinical trials of Angiostatin and 2ME2, and we plan to
commence drug administration in April 2000.
Our core technologies represent one of the new paradigms in medicine.
Traditional cancer treatment involves surgery or radiation therapy to treat the
primary tumor, and follow-up radiation therapy to eliminate any remaining cancer
and discourage the initiation or spread of metastatic disease. We are pioneering
a different approach, by which we attempt to starve the tumor rather than
directly attack the tumor itself. To support their rapid growth, tumors are
dependent upon newly formed blood vessels to provide nutrients and to transport
cancerous cells to distant sites. In this respect, the blood vessel network
feeding a tumor functions much like the roots of a plant--when taken away, or
weakened significantly, the plant starves and dies. To date, preclinical studies
have shown our antiangiogenic drug candidates to be effective in starving
cancerous tumors in mice.
ANGIOGENESIS
Within the human body, a network of arteries, capillaries and veins,
known as the vasculature, functions to transport blood throughout the tissues.
The basic network of the vasculature is developed through angiogenesis, a
fundamental process by which new blood vessels are formed.
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Mounting evidence indicates that the abnormal growth of new blood
vessels plays a key role in many diseases such as cancer, arthritis, blindness
caused by diabetes or macular degeneration, and more recently, atherosclerotic
disease. Over the last year, the critical role of angiogenesis in these diseases
has been significantly reinforced by an increasing number of scientific
publications reporting a direct link between the abnormal growth of blood
vessels and disease progression. Typically, angiogenesis involves the growth of
tiny blood vessels, called capillaries, which extend from an existing blood
vessel into the body's tissues to provide nutrients and to remove waste
products. In humans, angiogenesis is essential during the first three months of
embryonic development, where cytokines and growth factors, which are normally
suppressed in adults, are activated to stimulate the growth of new blood vessels
required to form organs and limbs in the developing fetus. In addition, during
adulthood, angiogenesis occurs as a normal physiological process in menstrual
cycling, fetal development and wound healing.
Angiogenesis also occurs during disease states, as is the case with
cancer (where the growth of new blood vessels is necessary to sustain tumor
growth), certain types of blindness (where the newly formed blood vessels block
vision) and atherosclerosis (where plaque formation appears to involve
angiogenesis). As described below, we believe that antiangiogenic products,
which inhibit this abnormal growth of blood vessels in these diseases, may have
significant advantages over traditional therapies for these indications.
Angiogenesis in Cancer
Cancer is the second leading cause of death in the United States.
Recently, the American Cancer Society estimated that approximately 1,200,000 new
cases of cancer would be diagnosed annually. Existing cancer treatments include
surgery, radiation therapy and chemotherapy. Surgery is an invasive method of
removing tumors, and some tumors currently are inoperable due to their location,
extent of organ infiltration, or size. Radiation therapy produces ionized
molecules within the body that attack cancer cells but may also damage
surrounding healthy cells. Chemotherapy involves the administration of toxic
substances (cytotoxins) designed to kill cancer cells, and usually produces
severe side effects. Due to its lack of specificity, chemotherapeutics do not
differentiate between rapidly growing healthy cells and cancer cells. In
addition, resistance to chemotherapy occurs over time. We believe that our
antiangiogenic therapeutics, which are intended to inhibit the growth of
tumor-feeding blood vessels, may prove effective in treating certain cancers,
and may also prove to have significant advantages over traditional cancer
therapies. These advantages may include a reduced likelihood of resistance,
fewer side effects and the potential to be administered in combination with
other antiangiogenic and/or traditional therapies.
Cancer includes many different types of uncontrolled cellular growth.
Clusters of cancer cells, referred to as tumors, may destroy surrounding organs,
impair physiological function, and often lead to patient death. In order to
survive, cancer cells require blood vessels to supply the nutrients and oxygen
carried by the body's blood supply. To initiate the growth of these blood
vessels and thus feed the rapidly proliferating cancer cells, the cancerous
tumor stimulates angiogenesis by recruiting the production of a variety of
angiogenic factors including basic Fibroblast Growth Factor (bFGF) and Vascular
Endothelial Growth Factor (VEGF). This series
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of events results in an increased supply of blood from the sprouting of hundreds
of newly formed blood vessels and provides the tumor with the constant supply of
nutrients and growth factors that it needs to grow.
Angiogenesis is also involved in the spread, or metastasis, of tumor
cells. Metastasis is the process by which tumor cells escape from the tumor and
enter the body's circulation where they reach a new site and begin to grow,
thereby affecting other organs in the body. These tumor cells may either be
released by a growing primary tumor or be released into circulation during
surgical removal of the primary tumor.
Although surgeons generally remove significant amounts of healthy
tissue surrounding a tumor, in many cases "seed cancer cells" have already
escaped the primary tumor, circulated through the body and become embedded
elsewhere. As cancer cells metastasize, they require continuous angiogenesis if
these secondary tumors are to grow. It has been observed that in certain cases,
these seed cells, or metastases, do not vascularize or grow while the primary
tumor is in place. However, after the primary tumor is removed, metastatic
tumors often grow rapidly. This observation prompted Drs. Judah Folkman and
Michael O'Reilly of Children's Hospital, Boston, to investigate whether the
primary tumor produces proteins that inhibit angiogenesis. As a result of these
efforts, Angiostatin and Endostatin were discovered at Children's Hospital.
Angiogenesis in Blindness
Angiogenesis within the eye, which is often a condition associated with
diabetes and age-related macular degeneration, is a major cause of blindness.
Both macular degeneration and diabetic retinopathy (a secondary effect of
diabetes) involve the formation of new blood vessels that grow behind, or in
front of, the retina, respectively. These newly formed blood vessels often
hemorrhage or cause the detachment of the retina, which, in both cases,
eventually leads to blindness. It is further estimated that approximately eight
million people in the United States have diabetic retinopathy, and that
twenty-five thousand of these cases result in blindness each year. Prevent
Blindness America(R) estimates that approximately thirteen million people in the
United States suffer from macular degeneration, and that nearly two million of
these people will develop vision impairment, of which one hundred thousand will
develop blindness each year. Current treatments for diabetic retinopathy and, to
a more limited extent, macular degeneration involve laser-based photocoagulation
therapy, which often causes additional damage to the retina and surrounding
cells.
Angiogenesis and Other Disease Indications
Angiogenesis also appears to play a role in a variety of other
diseases, including rheumatoid arthritis, atherosclerosis and psoriasis. We
believe that our antiangiogenic technologies may be applicable to these
diseases. To date, however, we have not conducted clinical research using
antiangiogenic therapy in diseases outside of cancer or macular degeneration. We
may not pursue research outside these two indications or commercialize any
products for other indications.
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STRATEGY
We were founded in 1991 to create a link between scientists and
institutions developing promising technologies and large companies that could
provide the resources necessary to carry these technologies through clinical
trials to the marketplace. Our business objective and strategy is to accelerate
the development of our antiangiogenic agents and future technologies with
clinical and commercial potential by:
- focusing our resources on the clinical development of our current core
technologies;
- broadening our product and technology portfolio through
internal discovery and sponsored research collaborations with academic
institutions, federal agencies and private enterprises;
- developing marketing and sales capabilities; and
- leveraging our resources through strategic partnerships to minimize
clinical trial and manufacturing costs and accelerate effective
product commercialization.
OUR ANTIANGIOGENESIS PROGRAM
We believe that certain drugs, genes or proteins that exhibit
antiangiogenic effects may be used as treatments for diseases involving
angiogenesis. In the case of cancer, we believe that our antiangiogenic drugs
may have significant advantages over traditional cancer therapies, including a
reduced likelihood of resistance, fewer side effects and the ability to be
administered in conjunction with other therapies. Currently, we are primarily
focused on angiogenesis inhibition as a treatment for cancer through the
research, development and preclinical and clinical testing of the following
drugs. In addition, we have preclinical development programs relating to
blindness and cardiovascular disease.
<TABLE>
<CAPTION>
Commercialization
Product Candidate Development Status Rights
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<S> <C> <C>
Endostatin Phase I. Phase II trials EntreMed
planned for 4Q 2000.
Angiostatin Phase I trials planned for EntreMed
April 2000. Patient
recruitment underway.
2-Methoxyestradiol (2ME2) Phase I trials planned for EntreMed
April 2000. Patient
recruitment underway.
Growth Factor Vaccines (bFGF, VEGF) Preclinical EntreMed
Thalidomide analogs Preclinical EntreMed
Metastatin Discovery EntreMed
Prostate Specific Antigen (PSA) Discovery EntreMed
Tissue Factor Pathway Inhibitor (TFPI) Discovery EntreMed
2ME2 analogs Discovery EntreMed
</TABLE>
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<TABLE>
<S> <C> <C>
Thalidomide Phase II/III. FDA approval Celgene
for Erythema Nodosum
Leprosum (ENL).
</TABLE>
Endostatin
In 1996, researchers at Children's Hospital, Boston, isolated and
identified Endostatin. We have since cloned and expressed the gene for
Endostatin. In preclinical studies, Endostatin has been shown to reduce the size
of primary rodent carcinomas, including murine Lewis lung, melanoma and rat
glioma, as well as human prostate, breast and colon cancer grown in
immunodeficient mice. Additional preclinical studies demonstrated that mouse and
human sequences of Endostatin inhibited the growth of metastatic tumors. We
emphasize, however, that mouse versions of Endostatin are not the same as human
versions of this protein.
Our scientists have recently discovered that the mechanism of action of
Endostatin may be to inhibit angiogenesis by binding and interfering with an
endothelial cell motility protein called tropomyosin. We believe that this
discovery is a significant step in understanding Endostatin's mechanism of
action and its effects on the angiogenesis process.
In November 1997, Children's Hospital researchers published results
showing that treatment with mouse Endostatin did not lead to acquired resistance
in preclinical models of lung cancer, fibrosarcoma and melanoma. These studies
also showed that after six, four or two treatment cycles of mouse Endostatin,
respectively, no tumors recurred even though therapy was stopped. We believe
that this distinction may make human Endostatin unique among conventional cancer
drugs, which normally become less effective as drug resistance occurs with each
treatment.
Our scientists initiated the production of recombinant human Endostatin
using the Pichia pastoris yeast expression system, and developed a purification
process. Covance Biotechnology Services Inc. is our contract manufacturer of the
GMP recombinant human Endostatin being used in our clinical studies. Covance's
large-scale GMP production with the Pichia pastoris yeast expression system has
produced enough human recombinant Endostatin to last through our early clinical
trials.
In April 1999, we presented data at the American Association for Cancer
Research, or AACR, in which human Endostatin was seen to inhibit the metastases
of early stage melanoma in mice by 90% and late stage melanoma by 70-90%. In
July 1999, the FDA allowed our IND application for the human testing of
recombinant human Endostatin, and shortly thereafter we began Phase I clinical
trials--taking Endostatin from first publication to clinical trials in less than
three years.
Three separate Phase I trials of Endostatin are presently underway. In
September 1999, the first patients received Endostatin at Dana-Farber/Partners
CancerCare, the joint venture between Dana-Farber Cancer Institute, Brigham and
Women's Hospital, and Massachusetts General Hospital and Beth Israel Deaconess
Medical Center. The two other Phase I studies are being performed in
collaboration with the National Cancer Institute (NCI) and are underway at the
University of Texas M.D. Anderson Medical Center and the University of Wisconsin
Comprehensive Cancer Center. These Phase I studies, designed to test the drug's
safety, are
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conducted by administering increasing doses of Endostatin to cohorts of patients
who have failed conventional therapy and have advanced, progressive cancer.
Testing at the lowest doses have been completed, and tests of higher doses are
underway or will follow shortly. Each dose range is given for twenty-eight days
before the next cohort begins receiving the next higher dosage, and patients are
allowed to stay on protocol to receive their starting dose at their physician's
discretion. As of yet, no serious adverse effects have been reported. We plan to
begin Phase II clinical trials of Endostatin in the fourth quarter of 2000.
In order to meet the increasing requirements for clinical testing and
trials of Endostatin, we are in the process of completing final negotiations
with Chiron Corporation for scale-up manufacturing of recombinant human
Endostatin under GMP. We have completed technology transfer, as shown by
Chiron's fermentation of biologically active Endostatin, and Chiron has begun
scale-up production. Once completed, large-scale fermentation runs for the
production of recombinant human Endostatin are expected to begin shortly
thereafter. Chiron's manufacturing efforts will augment those currently
undertaken by Covance and help to ensure that a sufficient quantity of
Endostatin is available to us for our expanded clinical trials.
Angiostatin
In research we sponsored at Children's Hospital, Boston, Drs. Michael
O'Reilly and Judah Folkman first identified a substance associated with primary
tumors which appeared to prevent vascularization and the growth of metastatic
tumors. Based upon this research and subsequent studies, we believe that primary
tumors secrete an enzyme that cleaves the parent molecule, plasminogen, a known
protein associated with blood clotting, into a smaller, previously undiscovered
protein that keeps other metastatic tumors from developing elsewhere in the
body. The Children's Hospital team isolated and identified this protein in 1995,
which they named Angiostatin. We since have cloned and expressed the gene that
codes Angiostatin, and are now pursuing large-scale recombinant production of
Angiostatin in anticipation of beginning clinical trials. By the end of 1999,
over 175 publications had highlighted the antiangiogenic effects of Angiostatin
in various preclinical experiments, a majority of which were conducted by
researchers independent of us.
In preclinical studies, mouse Angiostatin inhibited the growth of human
breast cancer by 95%, colon cancer by 97%, and prostate cancer by almost 100% in
immunodeficient mice. We believe that Angiostatin regressed cancerous tumors in
mice to a dormant state through the inhibition of angiogenesis. In other
preclinical studies, mice with melanoma were treated with recombinant
Angiostatin produced from the yeast, Pichia pastoris, for a total of eleven days
and then examined for metastases in the lungs. In these experiments, the number
of lung metastases decreased by 60-80% in mice treated with recombinant human
Angiostatin. In addition, we conducted subacute (twenty-eight day) safety
studies in monkeys using doses of recombinant human Angiostatin that were
multiples of anticipated human doses, with no adverse effects observed. We also
have contracted with Covance for the large-scale GMP production of recombinant
human Angiostatin using the Pichia pastoris yeast expression system and
purification process that we developed. Covance has completed scale-up
production of Angiostatin under GMP, and we have vialed a sufficient quantity in
preparation for our upcoming Phase I clinical studies.
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In December 1999, we submitted an IND application for Phase I clinical
trials with Angiostatin, and on January 31, 2000, the FDA allowed clinical
studies in cancer patients. As our first Phase I clinical trial sites for
Angiostatin, we have selected the Thomas Jefferson University Hospital in
Philadelphia, Pennsylvania. As with the Phase I clinical trial of Endostatin,
the Phase I trial of Angiostatin will use a dose escalation method to determine
its safety in cancer patients. Patient recruitment is underway, and we expect
trials to begin in April 2000.
Further Phase I and Phase II studies will be based upon pharmacology
and biologic data obtained in the initial Phase I studies. They will include
dose scheduling, routes of administration and combination studies with currently
used chemotherapeutic agents and radiotherapy.
Combination studies using Endostatin and Angiostatin in mice. In
addition to the stand alone preclinical results of Endostatin and Angiostatin,
researchers from Children's Hospital and elsewhere have presented data from
other studies that show potentially synergistic effects when mouse Endostatin
and mouse Angiostatin are combined to treat tumors. The results of these studies
demonstrated the complete eradication of lung tumors in mice, and the tumors did
not recur several months after treatment stopped. We believe that there may be
benefits in using these two proteins in combination with each other or in
combination with conventional chemotherapy and radiation.
Gene expression of Endostatin and Angiostatin. Several investigators
have reported that the genes that code Endostatin and Angiostatin, when
introduced into mice, effectively produce sufficient quantities of these
antiangiogenic proteins to decrease tumor growth. We have entered into a
research collaboration with Cell Genesys, Inc. to evaluate gene transfer viral
vectors and are continuing to evaluate the best strategies for a gene therapy
using our antiangiogenic proteins.
2-Methoxyestradiol (2ME2)
2ME2 is an orally active, naturally occurring antiangiogenic and
antiproliferative agent discovered by Dr. Robert D'Amato while working in Dr.
Judah Folkman's laboratory at Children's Hospital, Boston. We licensed this
natural estrogen metabolite from Children's Hospital in January 1997 as part of
our sponsored research agreement with them.
In preclinical studies of 2ME2, researchers at Children's Hospital have
demonstrated its dual mechanism of action-- antiangiogenic by inhibiting
endothelial cells and antiproliferative by directly killing cancer cells. The
antiangiogenic activity of 2ME2 appears to prevent the growth of new blood
vessels by inhibiting angiogenic factors such as bFGF and VEGF. The
antiproliferative activity of the drug has been extensively studied by our
scientists and involves the induction of apoptosis, or programmed cell death.
Other preclinical studies have demonstrated that breast cancer cells
are extremely sensitive to 2ME2, even those cells that already have developed
resistance to established drugs like Tamoxifen and Taxol. Moreover, 2ME2 has
been shown to inhibit the growth of human breast tumor cells in vivo and to
produce a sharp decrease in the microvessel density associated with tumors while
exhibiting minimal toxicity.
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We signed a collaborative agreement with the NCI for the preclinical
and clinical development of 2ME2 in August 1997. We expanded this relationship
in April 1999 when we signed a four-year Cooperative Research and Development
Agreement with the NCI for collaborative studies in preclinical pharmacology and
toxicology in anticipation of our clinical trials. Our scientists have invented
a synthetic process to yield an ultrapure form of 2ME2. A clinical grade GMP
form of that product, manufactured under contract by Tetrionics, Inc. has
completed preclinical safety studies without remarkable side effects.
Preparations for clinical trials of 2ME2 are already completed or well under
way, including encapsulation of the drug and the selection of study sites. We
have selected Indiana University Cancer Center to conduct the first Phase I
clinical trials of 2ME2 in cancer patients. On February 14, 2000, we received
FDA allowance to test 2ME2 in cancer patients. Patient recruitment is underway,
and we expect to begin Phase I clinical trials in April 2000.
Thalidomide
Thalidomide originally was introduced in the 1950s as a sedative and,
because of its then perceived safety, became the third largest prescription drug
in Europe. Although the drug never was approved for use in the United States, it
was widely used in other countries until it was found to cause birth defects in
children born to expectant mothers who took thalidomide for morning sickness.
This discovery resulted in the withdrawal of thalidomide as a drug in the early
1960s. Drs. Robert D'Amato and Judah Folkman at Children's Hospital later
reasoned that thalidomide caused these birth defects by blocking the growth of
new blood vessels in human embryos. The two researchers further hypothesized
that thalidomide could be safely used to block angiogenesis in adults and
potentially improve the treatment of cancer and blindness.
In April 1996, in collaboration with the NCI, we initiated Phase II
clinical trials of thalidomide in patients with brain tumors, breast cancer,
prostate cancer, and Kaposi's sarcoma, and shortly thereafter, initiated Phase
II trials of thalidomide in patients with blindness due to macular degeneration.
Patients with recurring brain cancer that fails to respond to
chemotherapy or radiation usually live about three to six months after receiving
such failed treatment methods. However, in thalidomide trials conducted with Dr.
Howard Fine at the Dana-Farber Cancer Institute, a fifty percent response rate
was observed by either failure of their cancer to progress or tumor shrinkage
during the two month clinical trial, and eleven of the thirty-one patients were
still alive and receiving the drug after approximately one year. We received
orphan drug designation from the FDA for the use of thalidomide in brain cancer
in March 1998.
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In addition, patients with late stage prostate cancer also have shown a
positive response to thalidomide. In Phase II trials conducted by us along with
Dr. William D. Figg at the NCI, over half the patients showed significant
declines in the Prostate Specific Antigen, or PSA, marker and in many the
disease had stabilized. In other Phase II clinical trials conducted by Dr.
Robert Yarchuan at the NCI, patients with Kaposi's sarcoma demonstrated a sixty
percent response rate to thalidomide, and results from a separate trial
conducted in the United Kingdom showed a forty-five percent therapeutic effect.
We received orphan drug designation from the FDA for the use of thalidomide in
Kaposi's sarcoma in August 1998.
In July 1998, Celgene Corporation received approval from the FDA for
the use of thalidomide in erythema nodosum leprosum, an inflammatory skin
condition of patients with leprosy. Later that year, we signed a collaborative
sublicensing agreement for thalidomide with Celgene. Under the terms of that
agreement, Celgene acquired exclusive worldwide rights to our patents and
technology for thalidomide, as well as to the orphan drug designations we
already received for its use in brain cancer and Kaposi's sarcoma. In exchange
for those rights, Celgene is required to pay us a royalty on all sales of
thalidomide (THALOMID(R)), regardless of indication, and also has assumed
responsibility for all clinical trials of thalidomide. Ongoing clinical trials
of thalidomide are further investigating its effect on a variety of cancers
(brain cancer, multiple myeloma, prostate cancer, breast cancer, non-small cell
lung cancer, head and neck cancer) and chronic inflammatory diseases.
In the fourth quarter of 1999, clinical trial results for THALOMID(R)
were featured at major medical meetings and in prestigious peer-review journals.
These results validated the potential use of THALOMID(R) in the treatment of
multiple myeloma and its potential use in the treatment of a broad range of
cancer and immunological diseases.
Preclinical and Discovery Program
We continue to develop a leading role in the field of angiogenesis
research. Our scientists are exploring the complex events associated with
angiogenesis at both the cellular and molecular levels. This research, as well
as research performed through our collaborations with investigators at
prestigious institutions, has resulted in the identification of a number of new
molecules that are currently under evaluation as potential product candidates.
These include small molecular weight inhibitors of angiogenesis such as analogs
of thalidomide and 2ME2. In addition, other proteins such as Metastatin and PSA
have demonstrated potent antiangiogenic activity. Our scientists also are
working with Tissue Factor Pathway Inhibitor, or TFPI, a natural inhibitor of
clotting that also has antitumor activity. We have identified a mechanism
underlying these effects and will seek additional compounds with similar
activity. Research efforts with vaccines directed against peptides of angiogenic
growth factors bFGF and VEGF also have shown inhibition of metastatic disease in
animal models.
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COLLABORATIVE RELATIONSHIPS
A key strength of our business strategy is the ongoing relationships we
have developed with, among others, the following institutions, agencies, and
corporations:
Children's Hospital, Boston
Through our sponsored research agreement with Children's Hospital,
Boston, an affiliate of Harvard Medical School, we have sustained a strong,
valuable scientific collaboration with Dr. Judah Folkman, a pioneer in the field
of angiogenesis. We believe this relationship has reinforced our present
leadership position in the antiangiogenesis field. Through our licensing
agreement with Children's Hospital, we obtained exclusive worldwide rights to
novel angiogenesis inhibitors discovered in Dr. Folkman's Surgical Research
Laboratory, including Endostatin, Angiostatin, 2ME2 and thalidomide. In January
2000, we extended our relationship with Children's Hospital by entering into a
two-year sponsored research collaboration with Dr. Karen Moulton, also of Dr.
Folkman's Surgical Research Laboratory. Dr. Moulton will study the relationship
between angiogenesis inhibitors, such as Endostatin, and the reduction of
coronary artery plaques. Based on Dr. Moulton's early work in this area, it is
hypothesized that coronary artery plaques may also be angiogenesis-dependent.
When ruptured, these plaques can trigger heart attack, stroke or hemorrhage. We
believe that our antiangiogenic product candidates may play an important role in
the future treatment and prevention of heart disease, in addition to their
effects in treating cancer.
National Cancer Institute
We also have a relationship with the National Cancer Institute of the
National Institutes of Health, or NIH. In 1997, the NCI signed a collaborative
research and development agreement with us to assist us with clinical trials of
thalidomide. This agreement was transferred to Celgene Corporation along with
four Phase II clinical trials. Subsequently, the NCI signed additional
agreements with us for the collaborative preclinical and clinical development of
Endostatin and 2ME2, and a letter of intent for the development of Angiostatin.
Celgene Corporation
We licensed our rights to thalidomide as an angiogenesis inhibitor to
Celgene, along with four Phase II clinical trials underway at the NCI and two
orphan drug designations (primary brain cancer and Kaposi's sarcoma). Effective
as of the date of that transaction, December 10, 1998, we began receiving
royalty payments from Celgene on all worldwide sales of thalidomide, regardless
of indication. Thalidomide is currently marketed by Celgene under the trade name
THALOMID(R) for the treatment of erythema nodosum leprosum (ENL) and is being
studied in a broad range of cancers in both Phase II and III trials.
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CONTRACT MANUFACTURING
We currently outsource manufacturing for all of our products to United
States suppliers. We expect to continue to outsource manufacturing in the near
term. We believe our current suppliers will be able to manufacture our products
efficiently in sufficient quantities and on a timely basis, while maintaining
product quality. We seek to maintain quality control over manufacturing through
ongoing inspections, rigorous review, control over documented operating
procedures and thorough analytical testing by our own and outside laboratories.
We believe that our current strategy of outsourcing manufacturing is
cost-effective since we avoid the high fixed costs of plant, equipment and large
manufacturing staffs and conserve our resources.
Covance Biotechnology Services, Inc.
In November 1998 and March 1999, we entered into manufacturing
agreements with Covance under which Covance assumed responsibility for the
scale-up production of recombinant human Endostatin and Angiostatin under GMP
conditions and the maximization of product yields necessary to begin clinical
trials and testing.
Chiron Corporation
We are in the process of completing final negotiations with Chiron
Corporation for the scale-up contract manufacturing of GMP recombinant human
Endostatin. We have completed technology transfer, as shown by Chiron's
fermentation of biologically active Endostatin, and Chiron has begun scale-up
for production. Once completed, large-scale fermentation runs for the production
of recombinant human Endostatin are expected to begin shortly thereafter.
Chiron's manufacturing efforts will augment those currently undertaken by
Covance and help to ensure that a sufficient quantity of Endostatin is available
to us for our expanded clinical trials.
Tetrionics, Inc.
We also have a production agreement with Tetrionics, Inc., Madison,
Wisconsin, for the GMP production of 2ME2. This product was encapsulated for
oral use at the University of Iowa.
MARKETING AND SALES
We continue to explore opportunities for corporate alliances and
partners to help us develop, commercialize and market our products, although we
are prepared to develop and commercialize each product candidate independently,
if necessary. Our strategy is to enter into collaborative arrangements with
pharmaceutical and other companies for the development, manufacturing, marketing
and sales of our products that will require broad marketing capabilities and
overseas marketing. These collaborators are generally expected to be responsible
for funding or reimbursing all or a portion of the development costs, including
the costs of clinical testing necessary to obtain regulatory clearances and for
commercial scale manufacturing, in exchange for exclusive or semi-exclusive
rights to market specific products in particular geographic territories.
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We licensed our rights for the development and commercialization of thalidomide
to Celgene in December 1998.
We presently have all rights to Endostatin, Angiostatin, 2ME2 and
thalidomide analogs. Additionally, we have entered into an agreement with the
NCI for the preclinical and clinical development of Endostatin and 2ME2, and a
letter of intent for the development of Angiostatin. This agreement provides
useful support for these programs while preserving our opportunities for
commercialization, either alone or with a corporate partner. We may, in the
future, consider manufacturing or marketing certain products directly and
co-promoting certain products if we believe it is appropriate under the
circumstances.
OTHER TECHNOLOGIES
In addition to our core antiangiogenic technologies, we are developing
blood cell permeation technology to add drugs and genes to blood cells. We also
are conducting research into an antimalaria vaccine.
Cell Permeation Technology
We formed a subsidiary, TheraMed, Inc., to more aggressively pursue the
research, development and commercialization of our blood cell permeation
technology. This technology allows us to deliver drugs, genes or other
therapeutic agents that otherwise would not readily permeate the cell membrane
into blood cells while retaining the blood cell's natural functions.
Human blood is made up of cellular components and plasma. The cellular
components are red blood cells, white blood cells and platelets. Red blood cells
transport oxygen to the body's tissues and organs. White blood cells are a
heterogeneous group and include cells that support the immune function by
migrating to sites of infection and cancer and propagate into mature cell lines.
The platelets, with specialized markers on their membranes, are attracted to
sites of hemorrhage, infection, inflammation and metastasis, where they
participate in complex biological functions.
The oxygen transport function is principally carried out by hemoglobin
in the red blood cells. Hemoglobin is a protein-iron based molecule that carries
oxygen from the lungs to the tissues. The body's tissues require oxygen in order
to function properly, and several diseases such as heart attacks, strokes, and
peripheral vascular disease are a direct result of inadequate oxygen supply to
the tissues. In human blood, each hemoglobin molecule carries four molecules of
oxygen. However, when oxygenated blood reaches the tissues, hemoglobin typically
releases only one of these four molecules of oxygen. Extensive evidence
indicates that a naturally occurring plant chemical called inositol
hexaphosphate, or IHP, enhances the oxygen releasing capabilities of human
hemoglobin by allowing the release to oxygen-starved peripheral tissue of two to
three oxygen molecules instead of only one. In this way, the efficiency of
hemoglobin could be increased and diseased tissues that result from oxygen
depletion could receive additional oxygen therapeutically.
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IHP cannot be administered as a drug since it cannot get into red blood
cells and bind to hemoglobin by itself. Previous techniques to introduce IHP
into red blood cells have resulted in damage to the cells. However, using
TheraMed's blood cell permeation technology, the red blood cell membrane can be
made permeable to IHP, allowing IHP to bind with hemoglobin and potentially
enhance red blood cell's oxygen delivery to tissues.
TheraMed has designed a series of prototype instruments capable of
inserting drugs into blood cells without damaging the cells. The original
concept was licensed from investigators at the Centers for Blood Research
Laboratories, or CBRL, at Harvard University. The problem of the impermeable red
blood cell membrane is overcome by passing an electric charge across the red
blood cell membrane, rendering the membrane permeable to IHP using TheraMed's
flow electroporation technology. IHP then passes through the membrane and
combines with hemoglobin. The IHP-treated blood could then be infused into the
patient or stored for later infusion. Published studies show that IHP-treated
red blood cells have a biological life span equivalent to that shown by normal
cells. No apparent toxicity has been demonstrated with IHP-treated red blood
cells in animals.
Perhaps an even more valuable use of TheraMed's cell permeation
technology is the possible insertion of drugs into platelets, or genes into
white blood cells, for targeted drug delivery. Platelets migrate to sites of
internal bleeding, neoplasia and inflammation. TheraMed is seeking to use this
natural function to deliver compounds such as a thrombolytic, antiproliferative,
or pharmaceutical, at levels that are therapeutically beneficial while
minimizing toxicity. The function of white blood cells as a group is to protect
against systemic disease by recruiting and producing cytokines and therapeutic
proteins. TheraMed is inserting genes into white blood cells to produce a
protein or enzyme on a sustained basis. For example, TheraMed is pursuing gene
based therapies in order to produce Endostatin and Angiostatin through sustained
release from white blood cells or stem cells.
Malaria Vaccine
We have been developing a vaccine against the Erythrocyte Binding
Antigen 175 (EBA175), a protein that is expressed by the malaria parasite to
enable its invasion of the red blood cell. Dr. Kim Lee Sim, our Vice President
for Preclinical Development, first discovered EBA175 and its role in malaria
infection while working at the NIH. In 1998, we obtained an exclusive, worldwide
license for this technology from the NIH. We receive financial support for
development of this vaccine through the SBIR grant program, which provides
substantially all of the funding for this program. At present, a naked DNA
vaccine and a protein boost vaccine are being tested in monkeys in Peru and
Panama in collaboration with the United States Navy.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
Our success will depend in part on our ability to obtain patent
protection for our products, both in the United States and abroad. The patent
position of biotechnology and pharmaceutical companies, in general, is highly
uncertain and involves complex legal and factual questions.
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To date, we own or have licensed on an exclusive basis a total of
sixty-two pending patent applications in the United States for our products and
product candidates. We also have nineteen issued patents in the United States
and thirteen issued patents in foreign countries. We have a total of one hundred
fifty one patent applications pending in the United States and other countries.
We have exclusively licensed from Children's Hospital, Boston, eighteen
pending United States patent applications and one issued patent covering
Endostatin, fragments of Endostatin, nucleic acid coding for Endostatin, the use
of Endostatin as a therapeutic agent, and the use of Endostatin as a diagnostic
agent. The patent applications also cover the combination of Endostatin and
other chemotherapeutic agents, such as Angiostatin, as a therapeutic
composition. We have a United States patent application directed to the
production of Endostatin.
We have licensed exclusively from Children's Hospital, Boston, seven
pending United States patent applications and nine issued patents covering
Angiostatin, nucleic acid coding for Angiostatin, the use of Angiostatin as a
therapeutic agent and the use of Angiostatin as a diagnostic agent. We also have
two United States patent applications directed to peptides and proteins that
bind specifically to Angiostatin. We have a United States patent application
directed to the production of Angiostatin.
In addition, we have exclusively licensed technology from Children's
Hospital, Boston, which covers the use of steroid-derived small molecular weight
compounds such as 2ME2 that are antimitotic agents and antiangiogenic compounds.
A patent application has been filed covering purified 2ME2 as a composition of
matter. There are five pending United States patent applications and three
issued United States patents covering this technology. Patent applications also
cover estrogen-related compounds with anti-fungal activity and antiplaque
activities in atherosclerosis.
We also have an exclusive, worldwide license from Children's Hospital,
Boston, which includes six pending United States patent applications and three
issued patents covering the thalidomide molecule and thalidomide analogs as
antiangiogenic agents for the treatment of a wide variety of diseases that are
caused by abnormal angiogenesis. These patent applications also include
composition of matter coverage for certain thalidomide analogs. Composition of
matter patent protection is not available for the molecule thalidomide. We are
aware of several other issued patents covering certain non-antiangiogenic uses
of thalidomide. Although we believe that the claims in such patents will not
interfere with our proposed uses of thalidomide, there can be no assurance that
the holders of such patents will not be able to exclude us from using
thalidomide for other non-antiangiogenic uses of thalidomide. We have entered
into a license agreement with Celgene under which we licensed to Celgene the use
of thalidomide for treatment of antiangiogenic-mediated diseases.
We have five United States patent applications pending and two issued
patents covering our cell permeation technology. One of these patents has been
licensed from the CBRL. These patent applications and patents cover the overall
electroporation device, the electroporation chamber in the device and the
treatment of a wide variety of diseases using cells that have been treated in
the electroporation device.
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Patent applications corresponding to the above described United States
patent applications have been filed in Europe, Japan, Canada and other selected
countries.
GOVERNMENT REGULATION
Our development, manufacture, and potential sale of therapeutics are
subject to extensive regulation by United States and foreign governmental
authorities.
Regulation of Pharmaceutical Products
Our products currently being developed may be regulated by the FDA as
drugs or biologics or, in some cases, as medical devices. New drugs and medical
devices are subject to regulation under the Federal Food, Drug, and Cosmetic
Act, and biological products, in addition to being subject to certain provisions
of that Act, are regulated under the Public Health Service Act. We believe that
drug products developed by us or our collaborators will be regulated either as
biological products or as new drugs. Both statutes and the regulations
promulgated thereunder govern, among other things, the testing, manufacturing,
safety, efficacy, labeling, storage, record keeping, advertising and other
promotional practices involving biologics or new drugs, as the case may be. FDA
approval or other clearances must be obtained before clinical testing, and
before manufacturing and marketing of biologics, drugs and devices.
Obtaining FDA approval has historically been a costly and
time-consuming process. Generally, in order to gain FDA premarket approval, a
developer first must conduct preclinical studies in the laboratory and in animal
model systems to gain preliminary information on an agent's effectiveness and to
identify any safety problems. The results of these studies are submitted as a
part of an investigational new drug, or IND, application, which the FDA must
review before human clinical trials of an investigational drug can start. The
IND application includes a detailed description of the clinical investigations
to be undertaken.
In order to commercialize any products, we or our collaborators must
sponsor and file an IND and be responsible for initiating and overseeing the
clinical studies to demonstrate the safety, effectiveness, and potency that are
necessary to obtain FDA approval of any such products. For INDs sponsored by us
or our collaborators, we or our collaborators will be required to select
qualified investigators (usually physicians within medical institutions) to
supervise the administration of the products, and ensure that the investigations
are conducted and monitored in accordance with FDA regulations, including the
general investigational plan and protocols contained in the IND. Clinical trials
are normally done in three phases, although the phases may overlap. Phase I
trials are concerned primarily with the safety and preliminary effectiveness of
the drug, involve fewer than 100 subjects, and may take from six months to over
one year to complete. Phase II trials normally involve a few hundred patients
and are designed primarily to demonstrate effectiveness in treating or
diagnosing the disease or condition for which the drug is intended, although
short-term side effects and risks in people whose health is impaired may also be
examined. Phase III trials are expanded clinical trials with larger numbers of
patients which are intended to evaluate the overall benefit-risk relationship of
the drug and to gather additional information for proper dosage and labeling of
the drug. Clinical trials generally take two to five
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years to complete, but may take longer. The FDA receives reports on the progress
of each phase of clinical testing, and it may require the modification,
suspension, or termination of clinical trials if it concludes that an
unwarranted risk is presented to patients, or, in Phase II and III, if it
concludes that the study protocols are deficient in design to meet their stated
objectives.
If clinical trials of a new product are completed successfully, the
sponsor of the product may seek FDA marketing approval. If the product is
regulated as a biologic, the FDA will require the submission and approval of a
Biologics License Application (BLA) before commercial marketing of the biologic.
If the product is classified as a new drug, an applicant must file a New Drug
Application (NDA) with the FDA and receive approval before commercial marketing
of the drug. The NDA or BLA must include detailed information about the drug and
its manufacture and the results of product development, preclinical studies and
clinical trials. The testing and approval processes require substantial time and
effort and there can be no assurance that any approval will be granted on a
timely basis, if at all. NDAs and BLAs submitted to the FDA can take up to two
to five years to receive approval. If questions arise during the FDA review
process, approval can take more than five years. Notwithstanding the submission
of relevant data, the FDA may ultimately decide that the NDA or BLA does not
satisfy its regulatory criteria for approval and deny approval or require
additional clinical studies. In addition, the FDA may condition marketing
approval on the conduct of specific post-marketing studies to further evaluate
safety and effectiveness. Even if FDA regulatory clearances are obtained, a
marketed product is subject to continual review, and later discovery of
previously unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market as well as possible civil or criminal
sanctions.
Thalidomide is regulated by the FDA's Center for Drug Evaluation and
Research. Although only recently approved for sale in the United States for
limited indications, thalidomide has been used as an investigational agent to
treat thousands of patients for leprosy and other diseases. Pursuant to our
agreement with Celgene discussed above, all future clinical trials with
thalidomide will be the responsibility of Celgene.
Analogs of thalidomide and 2ME2 may be regulated as new chemical
entities by the FDA's Center for Drug Evaluation and Research. Generally, as new
chemical entities are discovered, formal IND-directed toxicology studies will be
required prior to human testing. The remainder of the developmental and
regulatory requirements will be similar to that of any new drug.
Angiostatin and Endostatin, each a naturally occurring substance, are
considered biologics and will be regulated by the FDA's Center for Biologics
Evaluation and Research. As genetically engineered and endogenous proteins,
Angiostatin and Endostatin will face unique and specific regulation hurdles,
such as those related to the manufacture of the products and the behavior of the
products in the body. The regulatory requirements for recombinant proteins have
been developed for other endogenous molecules and Angiostatin and Endostatin are
expected to follow these established guidelines. Successful preclinical studies
and Phase I, II and III clinical trials will be necessary to form the basis for
a BLA. We have assumed primary responsibility, in collaboration with the NCI,
for conducting these studies and trials.
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The cell permeation technology, and specifically IHP-treated red blood
cells, will be regulated by the FDA's Center for Biologics Evaluation and
Research. In 1997, the FDA responded to a letter from us requesting a product
jurisdiction determination, designating the Center for Biologics Evaluation and
Research as the agency with primary jurisdiction for the premarket review and
regulation of the product. The product will be reviewed as a medical device
under the Premarket Application (PMA) provisions of the Federal Food, Drug and
Cosmetic Act. Historically, the FDA's Office of Blood Research and Review has
had the most expertise and experience in regulating blood apheresis equipment
and disposables associated with the processing of human blood. Further
development for TheraMed's products is expected to follow a similar path to that
of any therapeutic biologic, with successful completion of Phase I, Phase II and
Phase III trials required to precede the filing of a PMA. As the cell permeation
technology requires the use of red blood cells produced from humans, we will be
required to comply with, or to contract with suppliers that comply with,
stringent regulation of blood component collection. That regulation is designed
to protect both donors and recipients of blood products and involves significant
record-keeping and other burdens.
Regulation of Devices
Any additional device products which we may develop are likely to be
regulated by the FDA as medical devices rather than drugs. In addition, the
device used to insert drugs and genes in blood cells will be regulated as a
medical device. The nature of the FDA requirements applicable to such products
depends on their classification by the FDA. A device developed by us would be
automatically classified as a Class III device, requiring premarket approval,
unless the device was substantially equivalent to an existing device that has
been classified in Class I or Class II or to a pre-1976 device that has not yet
been classified or we could convince the FDA to reclassify the device as Class I
or Class II. If we were unable to demonstrate such substantial equivalence and
unable to obtain reclassification, we would be required to undertake the costly
and time-consuming process, comparable to that for new drugs, of conducting
preclinical studies, obtaining an investigational device exemption to conduct
clinical tests, filing a premarket approval application, and obtaining FDA
approval.
If the device were a Class I product, the "general controls" of the
Federal Food, Drug, and Cosmetic Act, chiefly adulteration, misbranding, and GMP
requirements, would nevertheless apply. If substantial equivalence to a Class II
device could be shown, the general controls plus "special controls" such as
performance standards, guidelines for safety and effectiveness, and post-market
surveillance would apply. While demonstrating substantial equivalence to a Class
I or Class II product is not as costly or time-consuming as the premarket
approval process for Class III devices, it can in some cases also involve
conducting clinical tests to demonstrate that any differences between the new
device and devices already on the market do not affect safety or effectiveness.
If substantial equivalence to a pre-1976 device that has not yet been classified
has been shown, it is possible that the FDA would subsequently classify the
device as a Class III device and call for the filing of premarket approval
applications at that time. If the FDA took that step, then filing an application
acceptable to the FDA would be a prerequisite to remaining on the market.
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It is likely that the review process for additional devices that we may
develop will occur in the Center for Biologics Evaluation and Research. It is
possible, however, that the Center would consult with relevant officials in the
FDA's Center for Devices and Radiological Health and Center for Drug Evaluation
and Research. Such a consultation might further delay approval of the device and
thus of this technology.
Other
In addition to the foregoing, our business is and will be subject to
regulation under various state and federal environmental laws, including the
Occupational Safety and Health Act, the Resource Conservation and Recovery Act
and the Toxic Substance Control Act. These and other laws govern our use,
handling and disposal of various biological, chemical and radioactive substances
used in and wastes generated by our operations. We cannot predict whether new
regulatory restrictions on the marketing of biotechnology products will be
imposed by state or federal regulators and agencies.
COMPETITION
Competition in the pharmaceutical, biotechnology and biopharmaceutical
industries is intense and based significantly on scientific and technological
factors, the availability of patent and other protection for technology and
products, the ability and length of time required to obtain governmental
approval for testing, manufacturing and marketing and the ability to
commercialize products in a timely fashion. Moreover, the biopharmaceutical
industry is characterized by rapidly evolving technology that could result in
the technological obsolescence of any products that we develop. We compete with
many specialized biopharmaceutical firms, as well as a growing number of large
pharmaceutical companies that are applying biotechnology to their operations.
Many biopharmaceutical companies have focused their development efforts in the
human therapeutics area, and many major pharmaceutical companies have developed
or acquired internal biotechnology capabilities or made commercial arrangements
with other biopharmaceutical companies. These companies, as well as academic
institutions, governmental agencies and private research organizations, also
compete with us in recruiting and retaining highly qualified scientific
personnel and consultants.
Our competition will be determined in part by the potential indications
for which our compounds may be developed and ultimately approved by regulatory
authorities. We may rely on third parties to commercialize our products, and
accordingly, the success of these products will depend in significant part on
these third parties' efforts and ability to compete in these markets. The
success of any collaboration will depend in part upon our collaborative
partners' own competitive, marketing and strategic considerations, including the
relative advantages of alternative products being developed and marketed by our
collaborative partners and our competitors.
Many other companies and research institutions are investigating the
role of angiogenesis generally and specifically as it may be useful in
developing therapeutics to treat various diseases associated with abnormal blood
vessel growth. In studies available to date, these angiogenic inhibitors have
shown varying effectiveness in inhibiting angiogenesis and differing degrees of
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bioavailability and toxicity. Significant further preclinical and clinical
development of these products is needed prior to an assessment of the more
significant competitive product candidates in the antiangiogenic disease
indications targeted by us.
We are aware of other companies developing thalidomide and certain of
its chemical analogs for various disease indications, including our
collaborative partner, Celgene, for the treatment of ENL, AIDS-related cachexia
(or wasting) and mouth ulcers. Celgene has received approval from the FDA for
the use of thalidomide in ENL. In 1997, two patents licensed to us were issued
to Children's Hospital by the United States Patent and Trademark Office covering
the use of thalidomide to treat angiogenic-mediated diseases including cancer,
macular degeneration and rheumatoid arthritis. These patents have, in turn, been
sublicensed by us to Celgene. Although we believe that these patent rights would
preclude any company, other than Celgene, from marketing thalidomide for
antiangiogenic indications, there can be no assurance that any patent will issue
or afford meaningful protection. If a competitor of Celgene or us receives
approval to market thalidomide for a particular disease indication, "off-label"
use of thalidomide could adversely affect our business and operations. Although
the FDA does not permit a manufacturer or distributor to market or promote an
approved drug for an unapproved off-label use or dosage level, under its
"practice of medicine" policy, the FDA generally does not prohibit a physician
from prescribing an approved drug product for an unapproved use or dosage. In
addition, pharmaceutical companies may provide certain information concerning
off-label uses of their drug in compliance with statutory provisions or as
permitted by court orders in a pending court challenge to the FDA's authority to
regulate the dissemination of such information.
Although one of our focuses is on blood cell permeation research, a
number of companies utilize or are developing cell permeation or drug delivery
technologies and competition for the development of gene and drug delivery
products is intense. We also anticipate that IHP-treated blood will compete for
use in blood transfusions with readily available products, including whole human
blood or packed red blood cells, and products under development, such as blood
substitutes or allosteric effectors of hemoglobin function.
Many of our existing or potential competitors have substantially
greater financial, technical and human resources than us and may be better
equipped to develop, manufacture and market products. In addition, many of these
competitors have extensive experience in preclinical testing and human clinical
trials and in obtaining regulatory approvals. The existence of competitive
products, including products or treatments of which we are not aware, or
products or treatments that may be developed in the future, may adversely affect
the marketability of products which we may develop.
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EMPLOYEES
As of March 15, 2000, we had 88 full-time employees, of which 57 were
employed in research and development positions, 25 were employed in general and
administrative positions, and 6 were employed by our subsidiary, TheraMed. We
intend to hire additional personnel in addition to utilizing part-time or
temporary consultants on an as-needed basis. None of our employees is
represented by a labor union and we believe our relations with our employees are
satisfactory.
RISK FACTORS
The risks and uncertainties described below are not the only ones facing us.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business operations. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially adversely affected.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE FUTURE LOSSES
To date, we have been engaged primarily in research and development
activities. Although we have received license fees and research and development
funding from our former collaboration with Bristol-Myers Squibb Company, limited
revenues from Celgene as royalties on the sale of THALOMID(R), and certain
research grants, we have not derived significant revenues from operations.
At December 31, 1999, we had an accumulated deficit of approximately
$82,193,000. Significant losses have continued since December 31, 1999. We also
will be required to conduct substantial research and development and clinical
testing activities for all of our proposed products. We expect that these
activities will result in operating losses for the foreseeable future,
particularly due to the extended time period before we expect to commercialize
any products, if ever. In addition, to the extent we rely upon others for
development and commercialization of our products, our ability to achieve
profitability will depend upon the success of these other parties. To support
our research and development of certain product candidates, we also rely to a
significant extent on grants and cooperative agreements from governmental and
other organizations as a source of revenues and clinical support. If our grant
revenue or cooperative agreements were to be reduced to any substantial extent,
it may impair our ability to continue our research and development efforts. We
cannot assure you that we will be able to generate revenues from operations or
achieve profitability on a sustained basis, if at all.
DEVELOPMENT OF OUR PRODUCTS IS AT AN EARLY STAGE AND IS UNCERTAIN
Our proposed products and research programs are in the early stage of
development and require significant, time-consuming and costly research and
development, testing and regulatory clearances. In developing our products, we
are subject to risks of failure that are inherent in the development of products
and therapeutic procedures based on innovative technologies. For example, it is
possible that any or all of these proposed products or procedures will be
ineffective
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or toxic, or otherwise will fail to receive necessary FDA clearances. There is a
risk that the proposed products or procedures will be uneconomical to
manufacture or market or will not achieve broad market acceptance. There also is
a risk that third parties may hold proprietary rights that preclude us from
marketing our proposed products or that others will market a superior or
equivalent product. The failure of our research and development activities to
result in any commercially viable products would materially adversely affect our
business.
Angiostatin and Endostatin, 2-Methoxyestradiol (2ME2) and thalidomide
analogs are at the preclinical and early clinical stages of development. Until
very recently, these product candidates had only been tested on animals and not
on humans. Although these product candidates have demonstrated some success in
preclinical studies in combating tumors in mice, there is absolutely no
assurance that the agents will prove to be similarly effective in combating
tumors in humans during clinical trials and testing. Mice are not people, and
although the scientific community considers the study of mice useful, we cannot
say whether agents that are successful in treating tumors in mice will be
non-toxic to humans, let alone beneficial. In the cancer context, testing on
mice may occur under different conditions than testing in people, including the
manner in which tumors are introduced into mice, the genetic make-up of
laboratory mice populations (homogeneity as opposed to diversity), tumor type or
location or other unidentified factors. There are many regulatory steps that
must be taken before any of these product candidates will be eligible for FDA
approval and subsequent sale, including the completion of preclinical (animal)
and clinical (human) trials. We do not expect that these product candidates will
be commercially available for several years, if ever.
WE MUST SUBJECT POTENTIAL PRODUCTS TO CLINICAL TRIALS, THE RESULTS OF WHICH ARE
UNCERTAIN
Before obtaining regulatory approvals for the commercial sale of our
products, we or our collaborative partners will be required to demonstrate
through preclinical studies (animal testing) and clinical trials (human testing)
that our proposed products are safe and effective for use in each target
indication. The majority of our product candidates, including Angiostatin, 2ME2
and thalidomide analogs, have only been subjected to preclinical studies on mice
and monkeys and have not yet been tested on humans. The results from these
preclinical studies on animals may not be predictive of results that will be
obtained in clinical trials and large-scale testing on humans.
Our product candidate Endostatin recently entered Phase I clinical
trials on humans, and patient recruitment is underway for Phase I clinical
trials of Angiostatin and 2ME2, which are expected to begin in April 2000.
Thalidomide, which we licensed to Celgene, is currently being tested in Phase II
and III clinical trials on humans for a variety of types of cancer. In the
future, we will be required to conduct clinical trials on humans for thalidomide
analogs and other new molecules developed by our scientists. We have only
limited experience in conducting clinical trials on humans and intend to rely on
pharmaceutical companies, the National Cancer Institute, and contract research
organizations with which we collaborate for clinical development and regulatory
approval of our product candidates. We cannot guarantee that the clinical trials
conducted by our partners or us will demonstrate sufficient safety and efficacy
to obtain the required regulatory approvals or will result in marketable
products.
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The results of initial preclinical studies and clinical trials of
products under development are not necessarily indicative of results that will
be obtained from subsequent or more extensive preclinical studies and clinical
testing. In advanced clinical development, numerous factors may be involved that
may lead to different results in larger, later-stage trials from those obtained
in earlier-stage trials. Early stage trials usually involve a small number of
patients and thus may not accurately predict the actual results regarding safety
and efficacy that may be demonstrated with a large number of patients in a
later-stage trial. Also, differences in the clinical trial design between an
early-stage and late-stage trial may cause different results regarding the
safety and efficacy of a product to be obtained. In addition, many early stage
trials are unblinded and based on qualitative evaluations by clinicians involved
in the performance of the trial whereas later-stage trials generally are
required to be blinded in order to provide more objective data for assessing the
safety and efficacy of the product. The failure to adequately demonstrate the
safety and efficacy of a product under development could delay or prevent
regulatory clearance of the potential product and would have a significant
adverse effect on us.
Clinical trials involving cancer patients are often conducted with
terminally ill patients having the most advanced stages of a disease. During the
course of treatment, these patients can die or suffer other adverse events due
to the advanced stage of their disease despite the efficacy of the agents being
tested. These deaths and/or adverse events, though unrelated to the agent being
tested, can nevertheless adversely affect clinical trial results. Various
companies in the pharmaceutical industry, including biotechnology companies,
have suffered significant setbacks in advanced clinical trials, even after
attaining promising results in earlier trials. Clinical trials for the product
candidates being developed by us and our collaborators may be delayed by many
factors, including that potential candidates for testing are limited in number.
Any delays in, or termination of, the clinical trials of any of our product
candidates, or the failure of any clinical trials to meet applicable regulatory
standards, could have a material adverse effect on our business.
In addition, we hope eventually to market our products outside of the
United States. This will entail foreign regulatory approvals from governments in
other countries that may have different requirements from the regulatory process
in the United States, subjecting our products to additional clinical trials and
approvals, as well as licensing, manufacturing and labeling standards, even
though the products are fully approved for manufacture, marketing and
distribution in the United States. In order to meet any additional requirements
that might be imposed by foreign governments, we may incur additional costs that
will inhibit our profitability. If the relevant approvals cannot be obtained or
will be too expensive to obtain, foreign distribution may not be feasible, which
could have a material adverse impact on our business.
WE ARE UNCERTAIN WHETHER ADDITIONAL FUNDING WILL BE AVAILABLE FOR OUR FUTURE
CAPITAL NEEDS AND COMMITMENTS
We will require substantial funds in addition to our existing working
capital to develop our product candidates and otherwise to meet our business
objectives. We have never generated enough cash during any period since our
inception to cover our expenses and have spent, and expect to continue to spend,
substantial funds to continue our research and development
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programs. Any one of the following factors, among others, could cause us to
require additional funds or otherwise cause our cash requirements in the future
to materially increase:
- results of research and development activities;
- progress of our preclinical studies or clinical trials;
- changes in or terminations of our relationships with strategic
partners;
- changes in the focus, direction, or costs of our research and
development programs;
- competitive and technological advances;
- establishment of marketing and sales capabilities;
- the regulatory approval process; or
- product launch.
Also, we are a party to sponsored research agreements pursuant to which
we have agreed to fund an aggregate of approximately $2,853,000 through 2001
(including $2,250,000 to Children's Hospital), and materials production costs of
up to $6,000,000 for clinical trials. In addition, under the terms of certain
license agreements, we must be diligent in bringing potential products to market
and must make future milestone payments of up to $3,535,000 and additional
payments upon attainment of regulatory milestones. If we fail to comply with the
milestones or fail to make any required sponsored research or milestone payment,
we could face the termination of the relevant sponsored research or license
agreement, which could have a material adverse effect on our business.
We may seek additional funding through collaborative arrangements and
public or private financing, including equity financing. We cannot guarantee
that collaborative arrangements or additional financing will be available on
acceptable terms to us or at all. If we issue more common stock to raise funds
in the future, your ownership in us may be diluted. If adequate funds are not
available, we may be required to take one or more of the following actions:
- delay, reduce the scope of, or eliminate one or more of our research
and development programs;
- forfeit our rights to future technologies;
- obtain funds through arrangements with collaborative partners or
others that may require us to relinquish rights to certain of our
technologies, product candidates or products that we would otherwise
seek to develop or commercialize on our own; or
- license the rights to such products on terms that are not favorable to
us.
WE MAY NEED NEW COLLABORATIVE PARTNERS TO DEVELOP AND COMMERCIALIZE PRODUCTS
We plan to develop and commercialize our product portfolio with or
without corporate alliances and copartners. Nonetheless, we intend to explore
opportunities for new corporate alliances and partners to help us develop,
commercialize and market our products. We expect to grant to our partners
certain rights to commercialize any products developed under these agreements,
and we may rely on our partners to conduct research and development efforts and
clinical trials on, obtain regulatory approvals for, and manufacture and market
any products licensed to them. Each individual partner will seek to control the
amount and timing of resources devoted to these activities generally. Our
revenues will be obtained from strategic partners as
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research and development payments and upon achievement of certain milestones.
Since we generally expect to obtain a royalty for sales or a percentage of
profits of products licensed to third parties, our revenues may be less than if
we retained all commercialization rights and marketed products directly. In
addition, there is a risk that our corporate partners will pursue alternative
technologies or develop competitive products as a means for developing
treatments for the diseases targeted by our programs.
We also may elect to collaborate with another partner to replace
Bristol-Myers Squibb. Even if we find such a partner to assist us with the
research, development and eventual commercialization of Angiostatin, our work on
the product may not be successful. We will depend, in part, on our partner's own
competitive, marketing and strategic considerations, including the relative
advantages of other products being developed and marketed.
We cannot guarantee that we will be successful in establishing any
additional collaborative arrangements, that products will be successfully
commercialized under any collaborative arrangement or that we will derive any
revenues from our arrangements. Our strategy also involves entering into
multiple, concurrent strategic alliances to pursue commercialization of our core
technologies. There is a risk that we will not be able to manage simultaneous
programs successfully. With respect to existing and potential future strategic
alliances and collaborative arrangements, we will depend on the expertise and
dedication of sufficient resources by these outside parties to develop,
manufacture, or market products. If a strategic alliance or collaborative
partner fails to develop or commercialize a product to which it has rights, our
business could be materially and adversely affected.
WE HAVE NO CURRENT MARKETING CAPACITY
To the extent that we undertake to market our products, or are unable
to enter into co-promotion agreements or to arrange for third-party distribution
of our products, additional expenditures and management resources will be
required to develop an effective sales force. There can be no assurance that we
will be able to establish a sales force or to enter into co-promotion or
distribution agreements on favorable terms or on a timely basis. Other companies
offering similar or substitute products may have well-established sales forces
or agreements in place that will allow them to market their products more
successfully. Failure to establish sufficient marketing capabilities may have a
material adverse impact on our business.
WE HAVE NO CURRENT MANUFACTURING CAPACITY
We do not expect to manufacture or market products in the near term,
but we may try to do so in certain cases. We do not currently have the capacity
to manufacture or market products or any experience in these activities. If we
elect to perform these functions, we will be required to either develop these
capacities, or contract with others to perform some or all of these tasks. We
may be dependent to a significant extent on corporate partners, licensees, or
other entities for manufacturing and marketing of products. If we engage
directly in manufacturing or marketing, we will require substantial additional
funds and personnel and will be required to comply with extensive regulations.
We cannot guarantee that we will be able to develop or contract for these
capacities when required in connection with our business.
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The manufacture of pharmaceutical products can be an expensive, time
consuming, and complex process. Manufacturers often encounter difficulties in
scaling-up production of new products, including problems involving production
yields, quality control and assurance, and shortages of personnel. Delays in
formulation and scale-up to commercial quantities could result in additional
expense, delays in our clinical trials, regulatory submissions, and
commercialization. The manufacturing processes for several of the small
molecules and proteins we are developing as product candidates have not yet been
tested at commercial levels, and we cannot guarantee that it will be possible to
manufacture these materials in a cost-effective manner.
In addition, we will depend on all such third-party manufacturers to
perform their obligations effectively and on a timely basis. There can be no
assurance that such parties will perform such obligations and any such
non-performance may delay clinical development or submission of products for
regulatory approval, or otherwise impair our competitive position, which would
have a material adverse affect on our business. Any manufacturer of our product
candidates will be subject to applicable Good Manufacturing Practices (GMP)
prescribed by the FDA or other rules and regulations prescribed by foreign
regulatory authorities. We cannot guarantee that we or any of our collaborators
will be able to enter into or maintain relationships either domestically or
abroad with manufacturers whose facilities and procedures comply or will
continue to comply with GMP and who are able to produce our small molecules and
proteins. Should manufacturing agreements be entered into, our collaborators and
we will be dependent upon such manufacturers for continued compliance with GMP.
Failure by a manufacturer of our products to comply with GMP could result in
significant time delays or our inability to commercialize or continue to market
a product. Changes in our manufacturers could require new product testing and
facility compliance inspections. In the United States, failure to comply with
GMP or other applicable legal requirements can lead to federal seizure of
violative products, injunctive actions brought by the federal government, and
potential criminal and civil liability on the part of a company and its officers
and employees. Because of these and other factors, we may not be able to replace
our manufacturing capacity quickly or efficiently, in the event that our current
or future manufacturers are unable to manufacture our products at one of more of
their facilities. For certain of our potential products, we will need to
substantially increase the capacity of our production facilities (or those of
our manufacturers) in order to conduct human clinical trials and to produce such
products for commercial sale at an acceptable cost.
WE CANNOT GUARANTEE THAT IT WILL BE COMMERCIALLY FEASIBLE TO MANUFACTURE
ENDOSTATIN AND ANGIOSTATIN
We have entered into agreements with Covance Biotechnology Services
Inc. under which Covance is responsible for producing sufficient amounts of the
Endostatin and Angiostatin for preclinical toxicology studies and for scale-up
production of these proteins under GMP conditions for clinical trials. We also
have entered into a letter of understanding with Chiron Corporation for the
large-scale production of GMP Endostatin. We have spent significant time and
funds to transfer the technology underlying the production of the Endostatin and
Angiostatin to Covance and Chiron. As such, we are reliant on Covance and Chiron
for the production of sufficient quantities of the Endostatin and Angiostatin to
complete our clinical studies, and if they fail to produce such quantities, then
we would have to delay our clinical studies. If we are required to change to a
new manufacturer, and if any suitable manufacturer can be found, significant
additional time and funds would be required for technology transfer and testing.
Indeed, the
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production of protein-based therapeutics using recombinant DNA techniques and
fermentation is a difficult, expensive process. There is, therefore, no
assurance that it will be possible to manufacture commercial quantities of
Endostatin and Angiostatin in a cost-effective manner.
WE DEPEND ON CELGENE TO COMMERCIALIZE THALIDOMIDE
We have sublicensed to Celgene Corporation all of our rights to
commercialize and sell thalidomide worldwide. We have received and will continue
to receive royalties on all sales of thalidomide (THALOMID(R)) by Celgene. The
success of our relationship with Celgene and the marketing of thalidomide will
depend, in part, on Celgene's own competitive, marketing, and strategic
considerations, including the relative advantages of alternative products being
developed and marketed by its competitors. In addition, if Celgene is not
successful in marketing thalidomide, we would be materially adversely affected.
Thalidomide is currently in Phase II/III human clinical trials for a
variety of cancer indications. Based upon our efforts, thalidomide has received
orphan drug designation from the FDA as a treatment for Kaposi's sarcoma, a form
of skin cancer most frequently associated with AIDS, and for primary brain
malignancies. Celgene, to whom we have licensed the rights to commercialize
thalidomide, has received approval from the FDA to market thalidomide for the
treatment of erythema nodosum leprosum, an inflammatory skin condition of some
leprosy patients. The FDA, however, has not yet approved the marketing and sale
of thalidomide for cancer. Celgene still must pass significant regulatory
hurdles before thalidomide will be commercially available for approved use for
treatment of cancer, if ever.
THERE ARE RISKS RELATED TO THE HISTORY OF THALIDOMIDE
Thalidomide has caused serious birth defects in children whose mothers
used it during pregnancy. Therefore, physicians prescribing the drug to women of
childbearing age must take strict precautions, and there can be no assurance
that such precautions will be observed in all cases or, if observed, will be
effective. Use of thalidomide has also been associated, in a limited number of
cases, with other side effects, including nerve damage. We believe that the
characteristics of thalidomide that may have affected fetal development and
caused birth defects by blocking new blood vessel growth are the same
characteristics that may make thalidomide useful in the prevention and treatment
of angiogenic disorders such as cancer. However, we cannot guarantee that
clinical trials with the drug will demonstrate its safety and efficacy or that
the drug will not be associated with other characteristics that prevent or limit
its commercial use.
Even if thalidomide is demonstrated to be safe and effective for use in
treating angiogenic-mediated disease, we may face difficulties in gaining public
acceptance of the drug based on its history of causing birth defects. This may
adversely affect the marketing efforts of our collaborator Celgene Corporation.
In addition, although Celgene has agreed to indemnify us from any liability that
may arise from its sales of thalidomide, we cannot guarantee that we will be
protected from such liability and the possible related losses.
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WE CANNOT GUARANTEE THAT OUR PRODUCTS WILL ACHIEVE MARKET ACCEPTANCE
Our success will be dependent on market acceptance of our products in
the United States and, later, in international markets. Since we have not
received the necessary approvals to sell our products in the United States or
elsewhere, we cannot predict whether any of our products will achieve market
acceptance, either in the United States or abroad. A number of factors may limit
the market acceptance of our products, including the timing of regulatory
approval and market entry relative to competitive products, the availability of
alternative therapies or treatments, the price of our products relative to any
alternatives, the availability of third-party reimbursement to pay for them, and
the extent of the marketing efforts by competitors. Other risk factors
identified in this section also may affect market acceptance.
WE DEPEND ON PATENTS AND OTHER PROPRIETARY RIGHTS, SOME OF WHICH ARE UNCERTAIN
Our success will depend in part on our ability to obtain patents for
our products, both in the United States and abroad. The patent position of
biotechnology and pharmaceutical companies in general is highly uncertain and
involves complex legal and factual questions. Risks related to patenting our
products include the following:
- our failure to obtain additional patents;
- challenge, invalidation, or circumvention of patents already issued to
us;
- failure of the rights granted under our patents to provide
sufficient protection;
- independent development of similar products by third parties; or
- ability our third parties to design around patents issued to us
or our collaborators.
For several of the products that we are developing, including
thalidomide and 2ME2, composition of matter patents are not available because
the compounds are in the public domain. In these cases, only patents covering
the "use" of the product are available. In general, patents covering a new use
for a known compound can be more difficult to enforce against infringers of the
use claims in the patent. We have secured use patents covering the use of
thalidomide for the treatment of angiogenic diseases. We are aware of at least
two other issued patents covering certain non-antiangiogenic uses of
thalidomide. Although we believe that the claims in such patents will not
interfere with our proposed use of thalidomide, we cannot guarantee that the
holders of such patents will not be able to exclude us from marketing
thalidomide for other uses. We have also secured use patents covering 2ME2.
The enactment of the legislation implementing the General Agreement on
Tariffs and Trade caused certain changes to United States patent laws that
became effective on June 8, 1995. Most notably, the term of patent protection
for patent applications filed on or after June 8, 1995 is no longer a period of
seventeen years from the date of grant. The new term of a United States patent
will commence on the date of issuance and terminate twenty years from the
earliest effective filing date of the application. Since the time from filing to
issuance of biotechnology patents is often more than three years, a twenty-year
term from the effective date of filing may result in a term of patent protection
that is substantially shorter than seventeen years. This may adversely impact
our patent position. Often, the duration and level of the royalties we are
entitled
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to receive from a collaborative partner is based on the existence of a valid
patent. Thus, the shorter period of patent protection may adversely affect our
future operating results and financial condition.
Our potential products may conflict with patents that have been or may
be granted to competitors, universities or others. As the biotechnology industry
expands and more patents are issued, the risk increases that our potential
products may give rise to claims that they infringe the patents of others. Such
other persons could bring legal actions against us claiming damages and seeking
to enjoin clinical testing, manufacturing and marketing of the affected
products. Any such litigation could result in substantial cost to us and
diversion of effort by our management and technical personnel. If any these
actions are successful, in addition to any potential liability for damages, we
could be required to obtain a license in order to continue to manufacture or
market the affected products. We cannot guarantee that we would prevail in any
action or that any license required under any needed patent would be made
available on acceptable terms, if at all. Failure to obtain needed patents,
licenses, or proprietary information held by others may have a material adverse
effect on our business.
We are a party to sponsored research agreements and license agreements
that require us to make milestone payments upon attainment of certain regulatory
milestones. Failure to meet such milestones could result in the loss of certain
rights to compounds covered under such license agreements.
We also rely on trade secret protection for our confidential and
proprietary information. However, trade secrets are difficult to protect and we
cannot guarantee that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
our trade secrets or disclose our technology, or that we can meaningfully
protect our rights to unpatented trade secrets. We require our employees,
consultants, and advisors to execute a confidentiality agreement when beginning
an employment or a consulting relationship with us. The agreements generally
provide that all trade secrets and inventions conceived by the individual and
all confidential information developed or made known to the individual during
the term of the relationship automatically become our exclusive property.
Employees and consultants must keep such information confidential and may not
disclose such information to third parties except in specified circumstances. We
cannot guarantee, however, that these agreements will provide meaningful
protection for our proprietary information in the event of unauthorized use or
disclosure of such information.
To the extent that consultants, key employees, or other third parties
apply technological information independently developed by them or by others to
our proposed projects, disputes may arise as to the proprietary rights to such
information which may not be resolved in our favor. Certain of our consultants
are employed by or have consulting agreements with others and any inventions
discovered by them generally will not become our property.
THE EXPIRATION OF OUR RELATIONSHIP WITH CHILDREN'S HOSPITAL, BOSTON, COULD
ADVERSELY IMPACT OUR ABILITY TO ACQUIRE FUTURE PRODUCT CANDIDATES AND COULD
SUBJECT US TO INCREASED COMPETITION
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We have relationships with collaborators at academic and other
institutions who conduct research either on our behalf or whose research we have
the right to license and use. Our primary research collaboration has been with
Children's Hospital, Boston. Pursuant to our agreement with Children's Hospital,
Boston, we agreed to provide funding for some of their antiangiogenesis research
projects and granted them options to acquire an ownership interest in us. In
return, they gave us the right to fund additional research projects and obtain
licenses to any discoveries arising from that research. Children's Hospital,
Boston, originally discovered Endostatin, Angiostatin, 2ME2, and the
antiangiogenic properties of thalidomide and certain thalidomide analogs. To
date, we have received licenses from Children's Hospital, Boston, for these
products.
Researchers at Children's Hospital, Boston, also may be working on
other products that may be used to treat cancer in a variety of ways, including
by antiangiogenesis. Although we believe that, pursuant to our agreement, we are
entitled to license and use a wide variety of products related to
antiangiogenesis, Children's Hospital, Boston, may take a different position.
Children's Hospital, Boston, has licensed, and may in the future license,
products to our existing and potential competitors.
Early last year, we extended our agreement with Children's Hospital,
Boston for another year. However, while this agreement has been renewed before,
we do not know whether this agreement will be renewed again this year. Because
Children's Hospital, Boston, has, in the past, been an important source of
product candidates for us, the expiration of this collaboration may adversely
impact our ability to acquire future product candidates. We cannot be sure that
we will be able to negotiate research collaborations with new institutions or
that any new collaboration will be successful. The expiration of the
collaboration with Children's Hospital, Boston, may subject us to increased
competition. It also is possible that, after the expiration of our agreement,
Children's Hospital, Boston, may develop other products that have antiangiogenic
qualities similar to those contained in the products that we currently license
and could license those products to our competitors.
OUR POTENTIAL PRODUCTS ARE SUBJECT TO GOVERNMENT REGULATORY REQUIREMENTS AND A
LENGTHY APPROVAL PROCESS
Our research, development, preclinical and clinical trials,
manufacturing, and marketing of most of our product candidates are subject to an
extensive regulatory approval process by the FDA and other regulatory agencies
in the United States and abroad. The process of obtaining FDA and other required
regulatory approvals for drug and biologic products, including required
preclinical and clinical testing, is lengthy, expensive and uncertain. Even
after spending time and money, we may not receive regulatory approvals for
clinical testing or for the manufacturing or marketing of any products. Our
collaborators or we may encounter significant delays or excessive costs in the
effort to secure necessary approvals or licenses. Even if we obtain regulatory
clearance for a product, that product will be subject to continual review. Later
discovery of previously unknown defects or failure to comply with the applicable
regulatory requirements may result in restrictions on a product's marketing or
withdrawal of the product from the market, as well as possible civil or criminal
penalties.
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WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY
The pharmaceutical and biotechnology industries are intensely
competitive and we expect competition from other companies and other research
and academic institutions to increase. In addition to competing with
universities and other research institutions to develop products, technologies,
and processes, we may compete with other companies to acquire the rights to
products, technologies, and processes developed by universities and other
research institutions. Many of these companies have substantially greater
financial and research and development capabilities than we have and have
substantially greater experience in undertaking preclinical and clinical testing
of products, obtaining regulatory approvals and manufacturing and marketing
pharmaceutical products. We are aware of a number of other companies and
academic institutions that are pursuing angiogenesis research and are testing
other angiogenesis inhibitors.
These other companies and academic institutions may be larger than we
are and may have significantly greater financial resources, or be supported by
large entities with greater financial resources than are currently available to
us. They may also have established marketing and distribution channels. The drug
industry is characterized by intense price competition, and we anticipate that
we will face this and other forms of competition. There can be no assurance that
developments by others will not render our products or technologies obsolete or
noncompetitive or that we will be able to keep pace with technological
developments. Competitors may develop products that use an entirely different
approach or means of accomplishing the desired therapeutic effect that our
products seek to achieve and may be more effective or less costly, or both. In
addition, other competitors may have significantly greater experience than we do
in undertaking preclinical testing and human clinical trials and obtaining
regulatory approvals of pharmaceutical products. Accordingly, our competitors
may succeed in commercializing products more rapidly than we do. Were these
competitors to develop their products more rapidly and complete the regulatory
process sooner, it could have a material adverse effect on our business.
If other companies were to get FDA approval to market thalidomide for
other disease indications, "off-label" use of thalidomide could adversely affect
our business and operations. We are aware of other companies engaged in the
development of thalidomide for various disease indications. Although the FDA
does not permit a manufacturer or distributor to market or promote an approved
drug for an unapproved off-label use or dosage level, under its "practice of
medicine" policy, the FDA generally does not prohibit a physician from
prescribing an approved drug product for an unapproved use or dosage. In
addition, the FDA has from time to time proposed to liberalize its restrictions
on the dissemination of off-label information.
The pharmaceutical and biotechnology industries are rapidly evolving.
We may not be able to develop products that are more effective or achieve
greater market acceptance than our competitors' products. Our competitors may
succeed in developing products and technologies that are more effective than
those being developed by us or that render our products and technologies less
competitive or obsolete. One competitor in particular is working on the
development for clinical trials of an antiangiogenic developed by the same
researcher at Children's Hospital, Boston, who developed Angiostatin and
Endostatin. While we do not know the potential effectiveness of this product in
comparison to Angiostatin, Endostatin or our other products, it is possible that
this product will be more effective than our products, will be easier to
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manufacture, will come to market before any of our products or will achieve
market acceptance over our products.
LOSS OF KEY PERSONNEL AND CONSULTANTS COULD ADVERSELY AFFECT OUR BUSINESS
We are dependent on certain of our executive officers and scientific
personnel, including John W. Holaday, Ph.D., our co-founder, Chairman, President
and Chief Executive Officer. We have a three-year employment agreement with Dr.
Holaday through December 31, 2001. Competition for qualified employees among
pharmaceutical and biotechnology companies is intense, and the loss of certain
of our personnel, or an inability to attract, retain, and motivate additional
highly skilled scientific, technical, and management personnel, could materially
adversely affect our business and prospects. We cannot guarantee that we will be
able to retain our existing personnel or attract and retain additional qualified
employees.
We may also be dependent, in part, upon the continued contributions of
the lead investigators of our sponsored research programs. Our scientific
consultants and collaborators may have commitments to or consulting or advisory
agreements with other entities that may affect their ability to contribute to
us or may be competitive with us. Inventions or processes discovered by them
will not necessarily become our property, but may remain the property of these
persons or of these persons' full-time employers.
POTENTIAL PRODUCTS MAY SUBJECT US TO PRODUCT LIABILITY FOR WHICH INSURANCE MAY
NOT BE AVAILABLE
The use of our potential products in clinical trials and the marketing
of any pharmaceutical products may expose us to product liability claims. We
have obtained a level of liability insurance coverage that we believe is
appropriate for our current stage of development. However, there is a risk that
our present insurance coverage is not adequate. Such existing coverage will not
be adequate as we further develop products, and there is a risk that in the
future adequate insurance coverage and indemnification by collaborative partners
will not be available in sufficient amounts or at a reasonable cost. A
successful product liability claim could have a material adverse effect on our
business and financial condition.
THE MARKETABILITY OF OUR POTENTIAL PHARMACEUTICAL PRODUCTS MAY DEPEND ON
REIMBURSEMENT AND REFORM MEASURES IN THE HEALTH CARE INDUSTRY
Our success may depend, in part, on the extent to which reimbursement
for the costs of therapeutic products and related treatments will be available
from third-party payors such as government health administration authorities,
private health insurers, managed care programs, and other organizations. Over
the past decade, the cost of health care has risen significantly, and there have
been numerous proposals by legislators, regulators, and third-party health care
payors to curb these costs. Some of these proposals have involved limitations on
the amount of reimbursement for certain products. We cannot guarantee that
similar federal or state health care legislation will not be adopted in the
future or that any products sought to be commercialized by us or our
collaborators will be considered cost-effective or that adequate third-party
insurance coverage will be available for us to establish and maintain price
levels sufficient for realization of an appropriate return on our investment in
product development. Moreover, the existence or
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threat of cost control measures could have an adverse effect on the willingness
or ability of our corporate collaborators to pursue research and development
programs related to our product candidates.
WE ARE SUBJECT TO RISK DUE TO OUR USE OF HAZARDOUS MATERIALS
Our research and development involves the controlled use of hazardous
biological, chemical, and radioactive materials. We are subject to federal,
state, and local laws and regulations governing the use, manufacture, storage,
handling, and disposal of such materials and certain waste products. Although we
believe that our safety procedures for handling and disposing of such materials
comply with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, we could be held liable for any
damages that result and any such liability could have a material adverse effect
on us.
THE PRICE OF OUR STOCK IS HIGHLY VOLATILE
The market price of our common stock, like that of the common stock of many
other biopharmaceutical companies, has at times been, and again may be, highly
volatile. Factors that may have a significant impact on the market price of our
common stock include:
- the results of preclinical studies and clinical trials by us or our
competitors;
- FDA actions with respect to our product candidates;
- other evidence of the safety or efficacy of our product candidates or
those of our competitors;
- announcements of technological innovations or new commercial products
by us or our competitors;
- changes in reimbursement policies;
- health care legislation;
- developments in patent or other proprietary
rights;
- developments in our relationships with collaborative partners;
- public concern as to the safety and efficacy of drugs we develop;
- fluctuations in our operating results;
- actions by traders and short sellers;
- articles in the public press;
- general market conditions; and
- sales of substantial numbers of shares of common stock.
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PROVISIONS OF OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
AND DELAWARE LAW COULD DETER TAKEOVER ATTEMPTS
Any of the following provisions could discourage, hinder or preclude an
unsolicited acquisition of us and could make it less likely that security
holders receive a premium for their securities as a result of any such attempt:
- Without shareholder approval, our Board of Directors may issue up to
5,000,000 shares of preferred stock with voting rights equal to the
common stock and conversion, liquidation, or dissolution rights and
preferences that may be superior to the common stock. The rights of the
holders of any such preferred stock may adversely affect the rights of
holders of common stock. The issuance of preferred stock or of rights
to purchase preferred stock could be used to discourage an unsolicited
acquisition proposal.
- In addition, our Board of Directors is divided into three classes, the
members of each of which will serve for a staggered three-year term.
Because shareholders only may elect one-third of the Directors each
year, it is more difficult for a third party to gain control of our
Board of Directors.
Furthermore, we are subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which prohibits us from engaging in a
"business combination" with an "interested stockholder," unless the business
combination is approved in a prescribed manner.
RISKS RELATED TO POTENTIAL YEAR 2000 PROBLEMS MIGHT ADVERSELY AFFECT OUR
BUSINESS
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a result,
those computer programs having time-sensitive software would recognize a date
using "00" as the year 1900 rather than the year 2000.
Even though the date is now past January 1, 2000 and we have not
experienced any immediate adverse impact on our operations from the transition
to the Year 2000, we cannot provide complete assurance that our operations have
not been affected in a manner that is not yet apparent or that will arise in the
future. In addition, certain computer programs may not have been programmed to
process certain future dates, and thus any negative consequential effects remain
unknown. As a result, we will continue to monitor our Year 2000 compliance and
the Year 2000 compliance of our suppliers and customers. However, we anticipate
no Year 2000 problems that are reasonably likely to have a material adverse
effect on our operations.
ITEM 2. PROPERTIES
We currently lease approximately 46,000 square feet of
laboratory and office space (approximately 32,000 square feet of which is
laboratory space) in Rockville, Maryland. The lease expires in October 2008. We
believe that our existing facilities will be adequate to accommodate the
implementation of our current business plan.
35
<PAGE> 36
ITEM 3. LEGAL PROCEEDINGS
We are a defendant in a lawsuit initiated in August 1995 in the United
States District Court for the Eastern District of Tennessee by Bolling, McCool &
Twist (BMT), a consulting firm. In the suit, BMT asserts that we breached an
agreement between BMT and us by failing to pay BMT certain fees it asserts are
owed under the agreement. More specifically, BMT has asserted a claim for the
payment of services rendered in the approximate amount of $50,000 and seeks a
success fee in an unspecified amount in connection with the Bristol-Myers Squibb
Company Collaboration (BMS Collaboration). The judge in the case bifurcated the
proceeding into two phases: an adjudication of whether we breached our agreement
with BMT and then a damage phase. After a trial on the merits, the jury found in
favor of BMT on the breach of contract claim. A trial to determine damages had
been scheduled for April 14, 1998. However, on April 6, 1998, the court issued
an Order pursuant to which damages were limited to those arising during the term
of the Agreement, which terminated on November 1, 1995. On May 6, 1999, the
court confirmed its decision by granting our motion for summary judgment and
limiting our damages to approximately $50,000 plus interest. Thus, this
litigation at the trial level has been concluded. BMT has filed an appeal and we
have cross-appealed. We cannot predict the outcome of such appeal. However, we
intend to continue to contest any further action vigorously and believe that
this proceeding will not have a material adverse effect on us or on our
financial condition, although there can be no assurance that this will be the
case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
36
<PAGE> 37
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Common Stock trades on the Nasdaq National Market under the symbol
"ENMD". The table below sets forth the high and low closing prices of our Common
Stock as reported by the Nasdaq National Market for the periods indicated.
<TABLE>
<CAPTION>
COMMON STOCK
PRICE RANGE
---------------
1998 HIGH LOW
---- ---- ---
<S> <C> <C>
First Quarter (January 1, 1998 - March 31, 1998) $15.125 $9.875
Second Quarter (April 1, 1998 - June 30, 1998) 51.8125 11.75
Third Quarter (July 1, 1998 - September 30, 1998) 32.5625 16.9375
Fourth Quarter (October 1, 1998 - December 31, 1998) 34.75 21.00
1999
----
First Quarter (January 1, 1999 - March 31, 1999) $33.00 $12.875
Second Quarter (April 1, 1999 - June 30, 1999) 28.125 20.00
Third Quarter (July 1, 1999 - September 30, 1999) 25.25 20.25
Fourth Quarter (October 1, 1999 - December 31, 1999) 31.6875 22.00
2000
----
First Quarter (January 1, 2000 - March 22, 1999) $98.50 $27.00
</TABLE>
At March 22, 2000, there were approximately 797 shareholders of record,
and as of that date, we estimate there were approximately 26,624 beneficial
owners holding stock in nominee or "street" name.
We have not paid any cash dividends and do not anticipate paying any
cash dividends in the foreseeable future.
37
<PAGE> 38
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
STATEMENTS OF OPERATIONS DATA: 1999 1998 1997 1996 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Collaborative research
and development $ 3,099,166 $ 4,473,131 $ 4,342,369 $ 4,425,000 $ 347,501
License fees 403,333 200,000 200,000 200,000 16,667
Grant revenues 339,087 472,677 215,119 - 347,001
Royalty revenues 1,123,111 - - - -
Other 52,853 15,675 - - -
Total revenues 5,017,550 5,161,483 4,757,488 4,625,000 711,169
Expenses:
Research and development 35,529,435 15,084,993 8,998,705 7,553,793 5,939,512
General and administrative 8,028,922 5,760,215 4,915,724 3,435,501 2,458,976
Interest expense 22,270 - 1,418 27,267 65,754
Interest income (1,677,361) (2,169,955) (2,621,630) (1,621,729) (44,854)
Net loss (basic and diluted) $ (36,885,716) $(13,513,770) $ (6,536,729) $ (4,769,832) $ (7,708,219)
Net loss per share (basic and
diluted) $ (2.67) $ (1.07) $ (0.54) $ (0.50) $ (1.41)
Weighted average number of
shares outstanding 13,801,220 12,681,824 12,158,372 9,532,671 5,485,763
Pro forma net loss per share(1) $ (0.46) $ (1.03)
Pro forma weighted average
number of shares
outstanding (1) 10,422,781 7,485,763
BALANCE SHEET DATA:
Cash and cash equivalents
and short-term investments $ 26,027,235 $ 35,171,060 $45,245,071 $52,720,829 $ 6,885,099
Working capital 19,242,907 29,269,715 41,454,371 49,049,124 5,689,810
Total assets 31,843,625 39,574,003 47,838,663 54,146,339 10,146,383
Deferred revenue, less
current portion - - 1,341,666 2,236,666 2,741,666
Accumulated deficit (82,193,018) (45,307,302) (31,793,532) (25,256,803) (20,486,971)
Total stockholders' equity 21,984,801 33,188,064 41,953,094 47,694,191 3,601,260
</TABLE>
- ----------------
(1) Pro forma net loss per share and weighted average shares outstanding for the
years ended December 31, 1995 and 1996 give effect to the automatic conversion
of 3,000,000 outstanding shares of Preferred
38
<PAGE> 39
stock into 2,000,000 shares of Common Stock on June 19, 1996, the effective date
of our initial public offering.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
report. See "Risk Factors".
OVERVIEW
Since our inception in September 1991, we have devoted
substantially all of our efforts and resources to sponsoring and conducting
research and development on our own behalf and through collaborations. Through
December 31, 1999, with the exception of license fees, research and development
funding, royalty payments, and certain research grants, we have not generated
any revenue from operations. We anticipate our primary revenue sources for the
next several years to include royalty payments, research grants and
collaboration payments from collaborators under arrangements entered into in the
future. The timing and amounts of such revenues, if any, will likely fluctuate
and depend upon the achievement of specified research and development
milestones, and results of operations for any period may be unrelated to the
results of operations for any other period.
RESULTS OF OPERATIONS
Years Ended December 31, 1999, 1998 and 1997
Revenues under collaborative research and development agreements were
approximately $3,099,000, $4,473,000 and $4,342,000 and license fees were
approximately $403,000, $200,000, and $200,000 in the years ended December 31,
1999, 1998, and 1997, respectively. These revenues in 1999 consisted of
recognizing the balance of the Bristol-Myers Squibb Company, or BMS,
collaborative research and development fees, license fees and related deferred
revenue, which declined in comparison to prior periods due to the modification
of the research agreement in February 1999 whereby we assumed all responsibility
for preclinical and clinical work on the Angiostatin protein effective August
1999. Deferred revenue from the collaborative research and development fees
related to the amortization over an initial five year term of a one-time payment
of $2,500,000 ($958,000, $500,000 and $500,000 recognized in 1999, 1998 and
1997, respectively) from BMS received in December 1995 and the amortization of
semi-annual payments of $1,835,000 ($2,141,000, $3,670,000 and $3,670,000
recognized in 1999, 1998 and 1997, respectively) under the BMS collaboration
agreement, both of which were fully amortized in August 1999. The license fee
represented the amortization over five years of a one-time $1,000,000 license
fee received in December 1995 under the BMS collaboration agreement, a portion
of which was paid to Children's Hospital, Boston, which also was fully amortized
in August 1999. In 1998 and 1997, we also recognized revenues of $303,000 and
$172,000, respectively, as reimbursement for clinical studies called for under
the original BMS collaboration agreement. Included in grant revenues are funds
received from a Small Business Innovative
39
<PAGE> 40
Research, or SBIR, program of the National Institutes of Health of approximately
$264,000, $455,000 and $215,000 in 1999, 1998 and 1997, respectively. In
accordance with our 1998 collaborative sublicensing agreement for thalidomide
with Celgene, we recognized royalty revenues from Celgene's sales of thalidomide
(THALOMID(R)) of approximately $1,123,000 for the year ended December 31, 1999.
Research and development expenses increased approximately 135.5% in
1999 to approximately $35,529,000 from $15,085,000 in 1998, and increased by
approximately 67.6% in 1998 from approximately $8,999,000 in 1997. These
increases resulted primarily from the increased efforts in manufacturing of our
three product candidates, Endostatin, Angiostatin and 2ME2, to support our
clinical trial program, and our internal and sponsored research and product
development programs related to our antiangiogenesis and blood cell permeation
technologies. Research and development expenditures included sponsored research
payments of approximately $4,138,000, $5,677,000, and $3,700,000 and internal
research and development expenses of approximately $31,391,000, $9,408,000, and
$5,300,000 in 1999, 1998 and 1997, respectively. Sponsored research payments to
academic collaborators include payments to Children's Hospital, Boston of
$2,650,000 in 1999, $2,525,000 in 1998 and $2,000,000 in 1997. Overall, research
personnel increased from 45 as of December 31, 1998 to 55 as of December 31,
1999. Research and development expenses are expected to continue to increase as
we continue to expand our research and development efforts.
General and administrative expenses increased by 39.4% in 1999 to
approximately $8,029,000 from $5,760,000 in 1998 and increased by 17.2% in 1998
from $4,916,000 in 1997. The increases resulted primarily from increases in
administrative costs associated with adding administrative staff to support the
research and collaborative efforts we are conducting, investigating potential
strategic relationships and obtaining professional services. Investment income
fell approximately 22.7% in 1999 to approximately $1,677,000 from approximately
$2,170,000 in 1998 and fell by 17.2% in 1998 from approximately $2,622,000 in
1997. This decrease in investment income was due to the reduction of our cash,
cash equivalents and short-term investments used to fund our operations.
LIQUIDITY AND CAPITAL RESOURCES
We anticipate incurring substantial additional losses over at least the
next several years due to, among other factors, the need to expend substantial
amounts on our ongoing and planned clinical trials, additional research and
development activities, and related business development and general corporate
expenses. From inception through December 31, 1999, we have financed our
operations from (i) the net proceeds of private placements of equity securities
which raised approximately $17,000,000, (ii) payments from Bristol-Myers Squibb,
including $9,700,000 received in December 1995 (of which $6,500,000 was an
equity investment), $11,535,000 received in 1996 (of which $5,000,000 was an
equity investment), $3,670,000 in each of the years 1997 and 1998, $611,667 in
1999, (iii) various grants from the World Health Organization and SBIR grants
totaling approximately $1,371,000, (iv) our June 1996 Initial Public Offering
("IPO") which raised net proceeds of approximately $43,541,000, (v) proceeds of
approximately $654,000 under capital leases, (vi) a private offering completed
on July 27, 1999 of 1,478,118 shares of our common stock, Series 1 Warrants to
purchase a total of 739,059 shares of common
40
<PAGE> 41
stock at an exercise price of $33.02 and Series 2 Warrants to purchase a total
of 739,059 shares of common stock at an exercise price of $25.45, resulting in
gross proceeds to us, prior to the deduction of fees and commissions, of
approximately $30,100,000 (net proceeds of $28,400,000), to be used for
continued clinical development of our products, working capital and general
corporate purposes, at the discretion of our management, before redeemable
warrants issued in connection with the private offering which have resulted in
additional proceeds to us of approximately $12,000,000 through March 15, 2000,
and (vii) proceeds of $3,000,000 from a borrowing in December 1999 secured by
substantially all of our furniture and equipment.
In connection with the private offering completed on July 27, 1999
described above, the Series 2 Warrants are terminable by us at any time after
April 22, 2000 if our common stock trades at a per share price greater than
$38.18 for ten consecutive trading days and such Warrants are not exercised
within a specified period after our delivery of a written notice. The Series 1
Warrants are terminable by us at any time after January 27, 2002 if our common
stock trades at a per share price greater than $61.91 for ten consecutive
trading days and such Warrants are not exercised within a specified period after
our delivery of a written notice. If the Series 2 Warrants were fully exercised,
they would result in us receiving $18,800,000 in aggregate exercise proceeds. If
the Series 1 Warrants were fully exercised, they would result in us receiving
$24,400,000 in aggregate exercise proceeds.
In December 1999, we exercised our option to repurchase 291,667 of our
common shares from BMS for $13.143 a share or a total repurchase price of
$3,833,379 which is reflected as treasury stock in our financial statements
as of December 31, 1999. BMS's remaining 583,332 shares held in connection with
the collaborative research and development agreement are subject to certain
restrictions, including future repurchase rights which expire in December 2000
and 2001.
At December 31, 1999, we had cash and cash equivalents of approximately
$26,027,000 with working capital of approximately $19,243,000, primarily
representing the net proceeds of our private placements of equity securities and
our initial public offering, payments from BMS which include equity investments,
royalties received from Celgene and various grants.
Our cash resources have been used to finance research and development,
including sponsored research, capital expenditures, including leasehold
improvements to our new facility, and general and administrative expenses. Over
the next several years, we expect to incur substantial additional research and
development costs, including costs related to early-stage research, preclinical
and clinical trials, product manufacturing, increased administrative expenses to
support our research and development operations and increased capital
expenditures for expanded research capacity, various equipment needs and
facility improvements.
We are a party to sponsored research agreements requiring us to fund an
aggregate of approximately $2,853,000 through 2001 (including $2,250,000 to
Children's Hospital, Boston); a materials production agreement of an estimated
$6,000,000 for clinical trials; license agreements requiring future milestone
payments of up to $3,535,000; and additional payments upon attainment of
regulatory milestones.
41
<PAGE> 42
On February 9, 1999, the original BMS collaboration was modified such
that the final payment of $611,667 under the agreement was paid on June 5, 1999.
As amended, BMS has no further funding obligation to us after August 9, 1999.
We believe that our existing resources will be sufficient to meet our
planned expenditures over the next twelve months, although there can be no
assurance we will not require additional funds. Our working capital requirements
will depend upon numerous factors including:
- the progress of our research and development programs;
- preclinical testing and clinical trials;
- achievement of regulatory milestones;
- our potential corporate partners fulfilling their obligations to us;
- the timing and cost of seeking regulatory approvals;
- the level of resources that we devote to the development of
manufacturing, marketing and sales capabilities, if any;
- technological advances;
- the status of competing products; and
- our ability to maintain existing and establish new collaborative
arrangements with other companies to provide us with funding to
support these activities.
We will require substantial funds in addition to the present existing
working capital to develop our product candidates and to meet our business
objectives.
INFLATION
Management does not believe that inflation has a material impact on our
results of operations.
ITEM 7(a) QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary objective of our investment activities is to preserve our capital
until it is required to fund operations while at the same time maximizing the
income we receive from our investments without significantly increasing risk.
Our investment income is sensitive to changes in the general level of U.S.
interest rates. In this regard, changes in the U.S. interest rates affect the
interest earned on our cash and cash equivalents. Due to the short term nature
of our cash and cash equivalent holdings, however, a 10% movement in market
interest rates would not have a material impact on the total fair value of our
portfolio as of December 31, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this
report. See Index to Consolidated Financial Statements.
42
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
The information called for by Item 10: Directors and Executive Officers
of the Registrant; Item 11: Executive Compensation; Item 12: Security Ownership
of Certain Beneficial Owners and Management; and Item 13: Certain Relationships
and Related Transactions will be included in and is incorporated by reference
from our definitive proxy statement to be filed pursuant to Regulation 14A of
the Securities Exchange Act of 1934 within 120 days after the close of our
fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS - See index to Consolidated Financial Statements.
2. Schedules
All financial statement schedules are omitted because they are not
applicable, not required under the instructions or all the information required
is set forth in the financial statements or notes thereto.
3. Exhibits
<TABLE>
<CAPTION>
<S> <C>
3.1(1) Amended and Restated Certificate of Incorporation of EntreMed, Inc.
3.1(a) (3) Amendment to the Certificate of Incorporation
3.1(b) (4) Certificate of Amendment to Amended and Restated Certificate of Incorporation of
EntreMed, Inc.
3.2(1) Form of Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of EntreMed, Inc.
3.3(1) By-laws of EntreMed, Inc.
4.1(8) Form of Series 1 Warrant
4.2(8) Form of Series 2 Warrant
10.1(1) Research Collaboration and License Agreement, dated December 7, 1995, between EntreMed,
Inc. and Bristol-Myers Squibb Company ("BMS")
</TABLE>
43
<PAGE> 44
<TABLE>
<S> <C>
10.2(1) Restricted Stock Purchase Agreement, dated December 7, 1995, between EntreMed, Inc. and
BMS
10.3(1) Registration Rights Agreement, dated December 7, 1995, between EntreMed, Inc. and BMS
10.4(1) Research Agreement, dated September 29, 1993, between EntreMed, Inc. and Children's
Hospital
10.5(1) Amendment to Research Agreement, dated August 23, 1995, between EntreMed, Inc. and
Children's Hospital
10.6(1) License Agreement, dated May 26, 1994, between Children's Medical Center Corporation
("CMCC") and EntreMed, Inc.
10.7(1) Amendment to License Agreement, dated August 23, 1995, between CMCC and EntreMed, Inc.
10.8(1) License Agreement, dated May 26, 1994, between CMCC and EntreMed, Inc.
10.9(1) Amendment to License Agreement, dated August 23, 1995, between CMCC and EntreMed, Inc.
10.10(1) Licensing Agreement, dated November 5, 1992, between EntreMed, Inc. and CBRL
10.11(1) 1992 Stock Incentive Plan*
10.12(1) Amended and Restated 1996 Stock Option Plan*
10.13(1) Form of Stock Option Agreement*
10.14(2) License Agreement between Children's Hospital Medical Center Corporation and EntreMed,
Inc. signed December 5, 1996 regarding Endostatin protein, An Inhibitor of Angiogenesis
10.15(2) License Agreement between Children's Hospital Medical Center Corporation and EntreMed,
Inc. signed December 20, 1996 regarding Estrogenic Compounds as Anti-Mitotic Agents
10.16(3) Agreement between Bristol-Myers Squibb and EntreMed, Inc. signed August 5, 1997
regarding Termination of Collaborative Research and License Agreement with Respect to
Thalidomide Products
10.17(3) Amendment to the 1996 Stock Option Plan*
</TABLE>
44
<PAGE> 45
<TABLE>
<S> <C>
10.18(5) License Agreement between Celgene Corporation and EntreMed, Inc. signed December 9, 1998
regarding thalidomide intellectual property
10.19(5) Contract Manufacturing Agreement between Covance Biotechnology Services, Inc. and
EntreMed, Inc. signed October 16, 1998 regarding Endostatin protein
10.20(5) Employment Agreement dated as of January 1, 1999, between EntreMed, Inc. and John W.
Holaday, Ph.D. *
10.21 (5) Lease Agreement between EntreMed, Inc. and Red Gate III Limited Partnership, dated June
10, 1998*
10.22(6) 1999 Long-Term Incentive Plan*
10.23(6) Amendment to Research Agreement, dated June 24, 1999, between EntreMed, Inc. and
Children's Hospital
10.24(7) Bioprocessing Services Agreement between Covance Biotechnology Services, Inc. and
EntreMed, Inc., signed July 7,1999 regarding Angiostatin protein
10.25(7) Letter of Intent between Covance Biotechnology Services, Inc. and EntreMed, Inc., dated
August 30, 1999 regarding Endostatin protein
10.26(8) Form of Securities Purchase Agreement, dated as of July 22, 1999, by and among EntreMed,
Inc. and the purchasers in the offering
10.27(8) Form of Registration Rights Agreement, dated as of July 27, 1999, by and among EntreMed,
Inc. and the purchasers in the offering
10.28 Research Agreement, dated October 1, 1999, between EntreMed, Inc. and Children's Hospital
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* Compensatory Plan, Contract or Arrangement.
(1) Incorporated by reference to our Registration Statement on
Form S-1 (File No. 333-3536) declared effective by the Securities and
Exchange Commission on June 11, 1996.
(2) Incorporated by reference to our Form 10-K for the year ended
December 31, 1996 previously filed with the Securities and Exchange
Commission.
45
<PAGE> 46
(3) Incorporated by reference to our Form 10-K for the year ended
December 31, 1997 previously filed with the Securities and Exchange
Commission.
(4) Incorporated by reference to our Form 10-Q for the quarter ended
September 30, 1998 previously filed with the Securities and Exchange
Commission.
(5) Incorporated by reference to our Form 10-K for the year ended December
31, 1998 previously filed with the Securities and Exchange Commission.
(6) Incorporated by reference to our Form 10-Q for the quarter ended June
30, 1999 previously filed with the Securities and Exchange Commission.
(7) Incorporated by reference our Form 10-Q for the quarter ended September
30, 1999 previously filed with the Securities and Exchange Commission.
(8) Incorporated by reference our Form 8-K dated July 27,1999 previously
filed with the Securities and Exchange Commission.
(b) No reports on Form 8-K were filed during the last quarter of 1999.
46
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ENTREMED, INC.
By: /s/ John W. Holaday, Ph.D.
--------------------------------------------
John W. Holaday, Ph.D., Chairman of the
Board, President and Chief Executive Officer
March 30, 2000
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby
appoint John W. Holaday, Ph.D. as attorney-in-fact with full power of
substitution to execute in the name and on behalf of the registrant and each
such person, individually and in each capacity stated below, one or more
amendments to the annual report, which amendments may make such changes in the
report at the attorney-in-fact acting in the premises deems appropriate and to
file any such amendment to the report with the Securities and Exchange
Commission.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ John W. Holaday, Ph.D. Chairman of the Board and 3/30/00
- --------------------------- Chief Executive Officer
John W. Holaday, Ph.D. (principal executive officer)
/s/ R. Nelson Campbell Chief Financial Officer 3/30/00
- ---------------------- (principal financial and
R. Nelson Campbell accounting officer)
/s/ Donald S. Brooks Director 3/30/00
- --------------------
Donald S. Brooks
Director 3/30/00
- ---------------------
Jerry Finkelstein
</TABLE>
II-1
<PAGE> 48
<TABLE>
<S> <C> <C>
/s/ Lee F. Meier Director 3/30/00
- ----------------
Lee F. Meier
/s/ Mark C. M. Randall Director 3/30/00
- ----------------------
Mark C. M. Randall
Director 3/30/00
- ---------------------
Wendell M. Starke
</TABLE>
II-2
<PAGE> 49
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1999
ENTREMED, INC.
ROCKVILLE, MARYLAND
<PAGE> 50
FORM 10-K - ITEM 14(a)(1) AND (2)
ENTREMED, INC. AND SUBSIDIARIES
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of EntreMed, Inc. and
subsidiaries are included in Item 8:
<TABLE>
<S> <C>
Report of Independent Auditors........................................................................F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998..........................................F-2
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997............F-3
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997..F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997............F-5
Notes to Consolidated Financial Statements............................................................F-6
</TABLE>
The following consolidated financial statement schedules of EntreMed, Inc. and
subsidiaries are included in Item 14(d):
None
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
<PAGE> 51
Consolidated Financial Statements
EntreMed, Inc.
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
<PAGE> 52
Report of Independent Auditors
Board of Directors
EntreMed, Inc.
We have audited the accompanying consolidated balance sheets of EntreMed, Inc.
as of December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
EntreMed, Inc. at December 31, 1999 and 1998 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
Atlanta, Georgia ERNST & YOUNG LLP
February 11, 2000
F-1
<PAGE> 53
EntreMed, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
--------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 26,027,235 $ 30,818,689
Short-term investments - 4,352,371
Accounts receivable 618,598 112,383
Interest receivable 105,482 186,927
Prepaid expenses and other 336,443 170,877
--------------------------------------------
Total current assets 27,087,758 35,641,247
Furniture and equipment, net 4,013,785 2,979,237
Other assets 742,082 953,519
--------------------------------------------
Total assets $ 31,843,625 $ 39,574,003
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,887,693 $ 2,093,017
Accrued liabilities 1,756,538 1,332,682
Deferred revenue (Note 5) 75,000 2,945,833
Notes payable 1,125,620 -
--------------------------------------------
Total current liabilities 7,844,851 6,371,532
Note payable, less current portion 1,995,327 -
Minority interest 18,646 14,407
Stockholders' equity:
Convertible preferred stock, $1.00 par and $1.50 liquidation
value:
5,000,000 shares authorized, none issued and outstanding at
December 31, 1999 and 1998, respectively - -
Common stock, $.01 par value:
35,000,000 shares authorized, 14,755,998 and 13,123,031
shares issued and outstanding at December 31, 1999 and 1998,
respectively 147,560 131,230
Treasury stock, at cost: 291,667 and 0 shares held at December
31, 1999 and 1998, respectively (3,833,379) -
Additional paid-in capital 107,863,638 78,364,136
Accumulated deficit (82,193,018) (45,307,302)
--------------------------------------------
Total stockholders' equity 21,984,801 33,188,064
--------------------------------------------
Total liabilities and stockholders' equity $ 31,843,625 $ 39,574,003
============================================
</TABLE>
See accompanying notes.
F-2
<PAGE> 54
EntreMed, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
--------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Collaborative research and development
(Note 5) $ 3,099,166 $ 4,473,131 $ 4,342,369
Licensing (Note 5) 403,333 200,000 200,000
Grants 339,087 472,677 215,119
Royalties 1,123,111 - -
Other 52,853 15,675 -
--------------------------------------------------------
5,017,550 5,161,483 4,757,488
Costs and expenses:
Research and development 35,529,435 15,084,993 8,998,705
General and administrative 8,028,922 5,760,215 4,915,724
--------------------------------------------------------
43,558,357 20,845,208 13,914,429
Interest expense (22,270) - (1,418)
Investment income 1,677,361 2,169,955 2,621,630
--------------------------------------------------------
Net loss $(36,885,716) $(13,513,770) $ (6,536,729)
========================================================
Net loss per share (basic and diluted) $ (2.67) $ (1.07) $ (0.54)
========================================================
Weighted average number of shares outstanding
(basic and diluted) 13,801,220 12,681,824 12,158,372
========================================================
</TABLE>
See accompanying notes.
F-3
<PAGE> 55
EntreMed, Inc.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------- TREASURY
SHARES AMOUNT STOCK
------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996 12,009,598 $120,096 $ -
Issuance of common stock for options and warrants
exercised 244,170 2,442 -
Warrants issued for consulting services - - -
Net loss - - -
------------------------------------------------------------
Balance at December 31, 1997 12,253,768 122,538 -
Issuance of common stock for options and warrants
exercised 869,263 8,692 -
Net loss - - -
------------------------------------------------------------
Balance at December 31, 1998 13,123,031 131,230 -
Issuance of common stock for options exercised 154,849 1,549 -
Sale of common stock at $20.362 per share, net of
offering costs of approximately $1,675,143 1,478,118 14,781 -
Purchase of treasury shares at $13.143 per share (291,667) - (3,833,379)
Net loss - - -
------------------------------------------------------------
Balance at December 31, 1999 14,464,331 $ 147,560 $ (3,833,379)
============================================================
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 72,830,898 $(25,256,803) $ 47,694,191
Issuance of common stock for options and warrants
exercised 502,190 - 504,632
Warrants issued for consulting services 291,000 - 291,000
Net loss - (6,536,729) (6,536,729)
------------------------------------------------------------
Balance at December 31, 1997 73,624,088 (31,793,532) 41,953,094
Issuance of common stock for options and warrants
exercised 4,740,048 - 4,748,740
Net loss - (13,513,770) (13,513,770)
------------------------------------------------------------
Balance at December 31, 1998 78,364,136 (45,307,302) 33,188,064
Issuance of common stock for options exercised 1,091,987 - 1,093,536
Sale of common stock at $20.362 per share, net of
offering costs of approximately $1,675,143 28,407,515 - 28,422,296
Purchase of treasury shares at $13.143 per share - - (3,833,379)
Net loss - (36,885,716) (36,885,716)
------------------------------------------------------------
Balance at December 31, 1999 $107,863,638 $(82,193,018) $ 21,984,801
============================================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 56
EntreMed, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(36,863,446) $(13,513,770) $ (6,536,729)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 902,131 740,847 336,668
Loss on equity investment 232,000 100,000 -
Stock and warrants issued for compensation and
consulting expense - - 291,000
Minority interest 4,239 (48,093) 18,358
Changes in assets and liabilities:
Accounts receivable (506,215) (28,232) (84,151)
Interest receivable 81,445 333,530 (118,784)
Prepaid expenses and other 29,653 (234,193) 9,075
Accounts payable 2,794,676 998,059 82,898
Accrued liabilities 401,586 66,777 308,187
Deferred revenue (Note 5) (2,870,833) (928,130) (871,870)
-----------------------------------------------
Net cash used by operating activities (35,794,764) (12,513,205) (6,565,348)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments - (12,257,054) (32,014,130)
Maturities of short-term investments 4,352,371 34,917,263 24,671,173
Other investments - (500,000) (300,000)
Purchases of furniture and equipment (1,936,679) (1,809,546) (1,010,890)
-----------------------------------------------
Net cash provided (used) by investing activities 2,415,692 20,350,663 (8,653,847)
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of common stock 29,515,832 4,748,740 504,632
Proceeds from note payable 3,000,000 - -
Purchase of treasury stock (3,833,379) - -
Payment on note payable (94,835)
Payment of lease obligation - - (104,152)
-----------------------------------------------
Net cash provided by financing activities 28,587,618 4,748,740 400,480
-----------------------------------------------
Net increase (decrease) in cash and cash equivalents (4,791,454) 12,586,198 (14,818,715)
Cash and cash equivalents at beginning of year 30,818,689 18,232,491 33,051,206
-----------------------------------------------
Cash and cash equivalents at end of year $ 26,027,235 $ 30,818,689 $ 18,232,491
===============================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ - $ - $ 1,418
===============================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 57
EntreMed, Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 1999, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
EntreMed, Inc. (the "Company") operates in a single segment and is engaged
primarily in the research and development of biopharmaceutical products that
address the role of blood and blood vessels in the prevention and treatment of a
broad range of diseases. The Company's core technologies include (i) an
antiangiogenesis program focused on the development of proprietary products
intended to inhibit the abnormal growth the new blood vessels associated with
cancer and certain causes of blindness and (ii) a blood cell permeation device
designed to enhance the ability of red blood cells to deliver oxygen to organs
and tissues and which may also be used to deliver drugs, genes or other
therapeutic agents that otherwise would not readily diffuse through blood cell
membranes.
The Company's strategy is to accelerate development of its antiangiogenesis and
cell permeation technologies as well as other promising technologies which the
Company perceives to have clinical and commercial potential. The principal
elements of the Company's strategy are (i) to focus its resources on current
core technologies, (ii) to deepen its product and technology portfolio through
sponsored research collaborations with academic institutions, government
organizations and private enterprises, (iii) to augment product development with
its in-house research and development capabilities and (iv) to leverage its
resources through corporate partnerships in order to minimize the cost to the
Company of late-stage clinical trials and to accelerate effective product
commercialization. All of the Company's product candidates are in the
development stage and require further research, development, testing and
regulatory clearances.
The Company was organized in September 1991 as a Delaware Corporation and from
inception through December 1995 was in the development stage. In December 1995,
the Company and Bristol-Myers Squibb Company ("Bristol-Myers Squibb") entered
into a collaboration to develop and commercialize certain antiangiogenesis
therapeutics (see Note 5). The Company received 68%, 92% and 95% of its revenues
from Bristol-Myers Squibb in 1999, 1998 and 1997, respectively.
F-6
<PAGE> 58
EntreMed, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
The accompanying consolidated financial statements include the accounts of the
Company's 85% owned subsidiary, Cytokine Sciences, Inc. Cytokine was formed in
June 1996 for the purpose of acquiring the assets of Innovative Therapeutics,
Inc. in July 1996 in exchange for 15% of the common stock of Cytokine valued at
approximately $44,000. All intercompany balances and transactions have been
eliminated in consolidation. Minority interest expense (income) of $4,239,
$(48,093) and $18,358 is included in general and administrative expenses for the
years ended December 31, 1999, 1998 and 1997, respectively.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of independent proprietary research
and development costs, the costs associated with work performed under
collaborative research agreements and the Company's sponsored funding of
research programs performed by others. Research and development costs are
expensed as incurred.
PATENT COSTS
Costs incurred in filing, defending and maintaining patents are expensed as
incurred. Such costs aggregated approximately $1,068,000, $778,000 and $409,000
in 1999, 1998 and 1997, respectively.
INVESTMENTS
The Company invests in various debt securities. These investments are accounted
for in accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, which requires
certain debt securities to be reported at amortized cost, certain debt and
equity securities to be reported at market with current recognition of
unrealized gains and losses, and certain debt and equity securities to be
reported at market with unrealized gains and losses as a separate component of
stockholders' equity.
F-7
<PAGE> 59
EntreMed, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
Management determines the appropriate classification of investments as
held-to-maturity or available-for-sale at the time of purchase and re-evaluates
such designation as of each balance sheet date. The Company has classified all
investments as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported in
stockholders' equity. The amortized cost of debt securities in this category is
adjusted for the amortization of premiums and accretion of discounts to
maturity. Such amortization is included as investment income. Realized gains and
losses and declines in value judged to be other-than-temporary on the
available-for-sale securities are included in investment income. The cost of
securities sold is based on the specific identification method. Interest and
dividends on securities classified as available-for-sale are included in
investment income.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost and are depreciated over their
expected useful lives. Depreciation is provided on a straight-line basis.
Amortization associated with capitalized leases is included in depreciation
expense. Substantially all of the Company's furniture and equipment serves as
collateral for a note (see Note 7). Furniture and equipment are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------------------------------------
<S> <C> <C>
Furniture and equipment $ 6,335,897 $ 4,432,566
Less: accumulated depreciation (2,322,112) (1,453,329)
------------------------------------------
$ 4,013,785 $ 2,979,237
==========================================
</TABLE>
CASH EQUIVALENTS
Cash equivalents include cash and short-term investments with original
maturities of less than 90 days.
F-8
<PAGE> 60
EntreMed, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
REVENUE RECOGNITION
Revenue from the collaborative research and development agreement with
Bristol-Myers Squibb is recorded when earned as defined under the terms of the
agreement. Nonrefundable fees received upon contract signing are recorded as
deferred revenue and recognized over the term of the agreement mentioned in Note
5. Revenues related to grants received for specific project proposals are
recognized in revenue as earned in accordance with specified provisions,
including performance requirements, in the contracts. Other periodic research
funding payments received which are related to future performance are deferred
and recognized as income when earned.
NET LOSS PER SHARE
Net loss per share (basic and diluted) was computed by dividing net loss by the
weighted average number of shares of common stock outstanding. Common stock
equivalents were anti-dilutive and therefore were not included in the
computation of weighted average shares used in computing diluted loss per share.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 consolidated
financial statements in order to conform to the 1999 presentation.
F-9
<PAGE> 61
EntreMed, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130"). SFAS 130 establishes new standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. These new standards require that all items
recognized as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company has not presented a statement of comprehensive income as
there are no additional components of comprehensive income to be presented.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123") sets forth accounting and reporting standards for
stock-based employee compensation plans (see Note 9). As permitted by SFAS 123,
the Company continues to account for stock option grants in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Under APB No. 25, no compensation expense is recognized for
stock or stock options issued to employees at fair market value. Accordingly,
adoption of SFAS 123 has not affected the Company's results of operations or
financial position.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results inevitably will differ from those estimates, and such differences
may be material to the financial statements.
F-10
<PAGE> 62
EntreMed, Inc.
Notes to Consolidated Financial Statements
2. RELATED PARTY TRANSACTIONS
The Company receives legal services from two law firms in which two of the
Company's directors are partners. The cost of these services were negotiated on
an arm's length basis and amounted to $338,000, $363,000 and $559,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
As of December 31, 1999 and 1998, the Company maintained approximately 84% and
51%, respectively, of its cash, cash equivalents and short-term investments
under the management of a registered investment advisory firm for which a
Company director served as chairman of the board. Such assets under management
are maintained by a high quality, third party financial institution custodian.
The Company has an agreement with one of its directors under which the director
provides consulting services. During 1997, the Company paid $180,000 under this
agreement.
3. INVESTMENTS
As of December 31, 1999, the Company did not hold any short-term investments.
All of the Company's investments as of December 31, 1998 are classified as
available-for-sale and are summarized as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
-------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED FAIR
AMORTIZED COST GAINS LOSSES VALUE
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $2,847,036 $ - $ - $2,847,036
U.S. corporate securities 1,505,335 - - 1,505,335
-------------------------------------------------------------------
Total securities $4,352,371 $ - $ - $4,352,371
===================================================================
</TABLE>
The Company had no realized gains or losses from the sale of short-term
investments for the years ended December 31, 1999, 1998 and 1997. All U.S.
Treasury and U.S. corporate securities have maturity dates of less than one year
as of December 31, 1998.
F-11
<PAGE> 63
EntreMed, Inc.
Notes to Consolidated Financial Statements
4. SPONSORED RESEARCH PROGRAM AGREEMENTS
The Company has entered into several agreements to sponsor external research
programs. The Company's primary external research program agreement was entered
into in September 1993 with the Children's Hospital, in Boston, Massachusetts,
an entity affiliated with Harvard Medical School ("Children's Hospital,
Boston"). Under this sponsored research agreement the Company agreed to pay
Children's Hospital, Boston $11,000,000 over a six year period to support
research on the role of angiogenesis in pathological conditions. In accordance
with the terms of this sponsored research agreement, the total $11,000,000 was
fully paid in March 1999.
In June 1999, the Company signed a new agreement with Children's Hospital,
Boston. Under this sponsored research agreement, the Company agreed to pay
Children's Hospital, Boston $1,400,000 to continue the research on the role of
angiogenesis in pathological conditions. In accordance with the terms of this
sponsored research agreement, $700,000 has been paid as of December 31, 1999,
and the remaining $700,000 is due on March 29, 2000. This sponsored research
agreement gives the Company an option to negotiate a worldwide, royalty-bearing
license for technology resulting from the research at Children's Hospital,
Boston in areas covered by the agreement. Amounts due under the sponsored
research agreement with Children's Hospital, Boston, which is cancelable by the
Company at any time or by Children's Hospital, Boston upon one year prior
written notice, are paid in advance every six months and are expensed as
incurred as research and development costs. See also Note 12.
As of December 31, 1999, the Company's total commitments for external research
programs are as follows:
<TABLE>
<S> <C>
2000 $2,428,772
2001 682,624
---------------
Total commitments $3,111,396
===============
</TABLE>
F-12
<PAGE> 64
EntreMed, Inc.
Notes to Consolidated Financial Statements
5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT
In December 1995, the Company and Bristol-Myers Squibb entered into a
collaboration to develop and commercialize certain antiangiogenic therapeutics
("Original BMS Collaboration"). The Original BMS Collaboration provided for
Bristol-Myers Squibb to fund the Company's research, provided for milestone
payments to the Company, and provided for the payments to the Company of
royalties on net sales of any products developed under the Original BMS
Collaboration. In return, the Company granted Bristol-Myers Squibb exclusive
worldwide rights held by the Company, to antiangiogenic applications of
thalidomide, thalidomide analogs and the Angiostatin protein and a five-year
right of first refusal to negotiate for commercial rights with respect to the
development of any technology licensed, or to be licensed, by the Company from
Children's Hospital, Boston, in the field of antiangiogenic therapeutics. In
August 1997, the Company reacquired the commercial rights to thalidomide in
exchange for renewing Bristol-Myers Squibb's warrant to purchase an additional
$10,000,000 of the Company's common stock as described below. In October 1998,
Bristol-Myers Squibb relinquished the rights to thalidomide analogs. In February
1999, the Company assumed all responsibility for preclinical and clinical work
on the Angiostatin protein.
Bristol-Myers Squibb was obligated under the Original BMS Collaboration to fund
$18.35 million over five years for costs to be incurred by the Company related
to specified research and development. The Company was eligible to receive an
additional $32 million if the Company attained certain late-stage clinical
development and regulatory filing milestones under the Original BMS
Collaboration, a portion of which could be credited against royalties. In
addition to this funding, Bristol-Myers Squibb reimbursed the Company $730,000
for clinical studies and ophthalmological trials. Bristol-Myers Squibb could
terminate the Original BMS Collaboration for any reason with six months notice
and on February 9, 1999, the Original BMS Collaboration was modified such that
the final payment under the agreement was due on June 5, 1999 (see below). As
amended, Bristol-Myers Squibb has no further funding obligation to the Company
after August 9, 1999.
F-13
<PAGE> 65
EntreMed, Inc.
Notes to Consolidated Financial Statements
5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT (CONTINUED)
The Company also received a nonrefundable, non-creditable licensing fee of $1
million in 1995 under the Original BMS Collaboration and an additional $2.5
million on March 31, 1996 in recognition of certain research and development
efforts of the Company. These amounts were recorded as deferred revenue and were
being recognized over five years, the initial term of the Original BMS
Collaboration agreement. On June 9, 1999, the due date of the final payment
under the Original BMS Collaboration, the remaining unamortized balance of such
deferred revenue was recognized as revenue.
Concurrent with the signing of the Original BMS Collaboration, the Company
issued Bristol-Myers Squibb 541,666 shares of common stock for aggregate cash
proceeds of $6,500,000. Bristol-Myers Squibb also purchased 333,333 shares of
additional common stock of the Company at the initial public offering price of
$15 per share, or a total of $5,000,000, at the time the Company completed its
initial public offering in June 1996 and was granted the right to purchase an
additional $10,000,000 of the Company's common stock at $22.50 per share, or
444,444 shares from the Company at any time up to June 19, 1997. This warrant
was renewed and expired without exercise in November 1997.
During 1999, 1998 and 1997, the Company recognized approximately $3,482,000,
$4,673,000, and $4,542,000 in revenue, respectively, and incurred costs of
approximately $3,482,000, $5,800,000 and $5,200,000 related to the Original BMS
Collaboration.
On February 9, 1999, as noted above, the Company and Bristol-Myers Squibb agreed
to modify the Original BMS Collaboration as follows:
- - The Company will assume all responsibility for preclinical, pharmaceutical
development and clinical work on the Angiostatin protein. Bristol-Myers
Squibb has agreed to provide the Company with advice on structuring its
clinical program but otherwise will have no direct involvement with the
development of the Angiostatin protein.
F-14
<PAGE> 66
EntreMed, Inc.
Notes to Consolidated Financial Statements
5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT (CONTINUED)
- - Upon completion of Phase II clinical trials of Angiostatin, except as
described below, Bristol-Myers Squibb will have the option to review all of
the Company's data and exercise an option to reacquire further development
and marketing rights to the product. If Bristol-Myers Squibb elects to do
so, it will pay the Company a $1 million option exercise fee and the
financial terms applicable to commercialization will remain the same as
those in the existing research agreement, except that the Company's
worldwide royalty will be substantially increased and will not be subject
to any offsetting credits.
- - If a third party wishes to license Angiostatin protein and fund and
conduct development of Angiostatin protein and commercialize it upon FDA
approval on terms satisfactory to the Company, or the Company decides to
proceed with the development and commercialization of Angiostatin protein
without a corporate partner (in either case prior to the completion of
Phase II clinical trials and Bristol-Myers Squibb's exercise of its
option), Bristol-Myers Squibb's option will be terminated effective with
the signing of the Company's collaboration with such third party or its
giving of written notice to Bristol-Myers Squibb that it intends to proceed
without a corporate partner.
- - Bristol-Myers Squibb's current rights of first offer/refusal with respect
to products or technology arising out of the Company's agreement with
Children's Hospital, Boston have terminated, including those rights with
respect to Endostatin protein.
- - Bristol-Myers Squibb is licensed, on a royalty free basis, to conduct
further internal research with regard to the Angiostatin protein and will
exchange with the Company any data it obtains on Angiostatin protein per
se. This license will continue for a minimum of one year and thereafter
until the termination of Bristol-Myers Squibb's option as described above.
- - Bristol-Myers Squibb will retain its equity interest in the Company but
has agreed to certain restrictions on its ability to sell its interest.
These restrictions will prevent Bristol-Myers Squibb from selling its full
interest in the Company until at least December 1, 2001, without the
Company's consent. See also Note 9.
F-15
<PAGE> 67
EntreMed, Inc.
Notes to Consolidated Financial Statements
5. COLLABORATIVE RESEARCH AND DEVELOPMENT AGREEMENT (CONTINUED)
- - The semi-annual research support payment made on June 5, 1999 to the
Company from Bristol-Myers Squibb was prorated to cover the period from
June 5 to August 9, 1999 and was the final research payment under the
agreement. All patent and related costs incurred by the Company prior to
August 9, 1999 were reimbursed to the Company by Bristol-Myers Squibb.
6. LICENSE AGREEMENTS
On December 9, 1998, the Company entered into a license agreement with Celgene
Corporation ("Celgene") whereby the Company granted Celgene an exclusive license
to certain of the Company's thalidomide patents. In exchange for this license,
Celgene agreed to pay royalties to the Company on sales of any product which
contains thalidomide. The royalties vary based on the volume of Celgene's sales.
Celgene also assumed certain milestone payment obligations to Children's
Hospital, Boston related to the license of thalidomide.
On July 1, 1999, the Company entered into two license agreements with
Calbiochem-Novabiochem Corp ("Calbiochem") whereby the Company granted
non-exclusive rights and licenses to sell Endostatin protein and Angiostatin
protein for non-commercial research purposes for two years. In exchange for
these licenses, Calbiochem agreed to pay a total of $20,000 in nonrefundable,
non-creditable fees and royalties based on net sales of the licensed products.
7. NOTES PAYABLE
In July 1999, the Company entered into a note payable with a financing company
for approximately $216,000 related to insurance premiums. The note bears
interest at a rate of 6.26% per annum and is due in full in January 2000.
In December 1999, the Company entered into a $3,000,000 note payable with a
financing company secured by substantially all of the Company's furniture and
equipment. The term of the note is three years and bears interest at a rate of
5.06% per annum. Maturities under this note are as follows: $909,838 in 2000,
$997,245 in 2001 and $998,082 in 2002.
F-16
<PAGE> 68
EntreMed, Inc.
Notes to Consolidated Financial Statements
8. INCOME TAXES
The Company has net operating loss carryforwards for income tax purposes of
approximately $94,350,000 at December 31, 1999 ($53,149,000 as of December 31,
1998) that expire in years 2007 through 2019. The Company also has research and
development tax credit carryforwards of approximately $4,002,000 as of December
31, 1999 that expire in years 2008 through 2014. These net operating loss
carryforwards include approximately $14,007,000 and $12,300,000 as of December
31, 1999 and 1998, respectively, related to exercises of stock options for which
the income tax benefit, if realized, would increase additional paid-in capital.
The utilization of the net operating loss and research and development
carryforwards may be limited in future years due to changes in ownership of the
Company pursuant to Internal Revenue Code Section 382. For financial reporting
purposes, a valuation allowance has been recognized to reduce the net deferred
tax assets to zero due to uncertainties with respect to the Company's ability to
generate taxable income in the future sufficient to realize the benefit of
deferred income tax assets.
Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred income tax assets and liabilities as of December 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------
<S> <C> <C>
Deferred income tax assets (liabilities):
Net operating loss carryforwards $ 35,853,000 $ 20,196,000
Research and development credit carryforward 4,002,000 2,379,000
Deferred revenues 29,000 1,119,000
Equity investment 126,000 38,000
Other 396,000 373,000
Depreciation 73,000 96,000
Valuation allowance for deferred income tax assets (40,479,000) (24,201,000)
------------------------------------------
Net deferred income tax assets $ - $ -
==========================================
</TABLE>
F-17
<PAGE> 69
EntreMed, Inc.
Notes to Consolidated Financial Statements
8. INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes to the federal statutory rate
is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------------
<S> <C> <C> <C>
Tax benefit at statutory rate $(14,017,000) $(5,135,000) $(2,484,000)
Tax credits (1,623,000) (660,000) (389,000)
Other 23,000 18,000 12,000
Valuation allowance 15,617,000 5,777,000 2,861,000
---------------------------------------------------------
$ - $ - $ -
=========================================================
</TABLE>
9. STOCKHOLDERS' EQUITY
On July 27, 1999, the Company completed a private offering of 1,478,118 shares
of its common stock, Series 1 Warrants to purchase a total of 739,059 shares of
common stock at an exercise price of $33.02 and Series 2 Warrants to purchase a
total of 739,059 shares of common stock at an exercise price of $25.45,
resulting in gross proceeds, prior to the deduction of fees and commissions, of
approximately $30.1 million (net proceeds of $28.4 million). All such warrants
remained outstanding at December 31, 1999.
In December 1999, the Company exercised its option to repurchase 291,667 of its
common shares from Bristol-Myers Squibb for $13.143 a share or at a total
repurchase price of $3,833,379. As described in Note 5, Bristol-Myers Squibb's
remaining shares held in connection with the collaborative research and
development agreement are subject to certain restrictions, including future
repurchase rights by the Company which terminate in December 2000 and 2001.
F-18
<PAGE> 70
EntreMed, Inc.
Notes to Consolidated Financial Statements
10. STOCK OPTIONS AND WARRANTS
In 1992, 1996 and 1999, the Company adopted incentive and nonqualified stock
option plans whereby 3,733,333 shares of the Company's common stock were
reserved for grants to various executive, scientific and administrative
personnel of the Company as well as outside directors and consultants, of which
26,828 shares remain available for grant as of December 31, 1999. These options
vest over periods varying from immediately to four years and generally expire 10
years from the date of grant.
Pro forma information regarding net income and loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method subsequent to December 31,
1994. Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect is not fully reflected prior to 1999.
The fair values for these options were estimated at the dates of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rates of
6.0%, 5.38% and 5.97%; no dividend yields; volatility factors of the expected
market price of the Company's common stock of 1.04, 1.04 and 0.80; and a
weighted-average expected life of an option of 6 years, 6 years and 7 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-19
<PAGE> 71
EntreMed, Inc.
Notes to Consolidated Financial Statements
10. STOCK OPTIONS AND WARRANTS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair values of the options
and warrants granted to employees, directors and consultants are amortized to
expense over the vesting period. The weighted average fair value per option
granted in 1999, 1998 and 1997 was $18.60, $14.47 and $7.90, respectively. The
weighted average fair value per warrant granted to employees during 1997 was
$13.00. The Company's pro forma information follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- ---------------------- ----------------------------
<S> <C> <C> <C>
Pro forma net loss $ (45,705,251) $(19,986,293) $(9,493,464)
$ (3.31) $ (1.58) $ (0.78)
Pro forma loss per share
</TABLE>
A summary of the Company's stock options and warrants granted to employees,
directors and consultants and related information for the years ended December
31 follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF OPTIONS EXERCISE PRICE
---------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1997 2,579,944 $ 6.68
Exercised (235,836) $ 1.93
Granted 761,575 $ 10.31
Canceled (5,734) $ 14.00
---------------------
Outstanding at December 31, 1997 3,099,949 $ 7.92
Exercised (697,828) $ 5.20
Granted 325,250 $ 17.82
Canceled (76,682) $ 7.79
---------------------
Outstanding at December 31, 1998 2,650,689 $ 9.85
Exercised (80,849) $ 9.56
Granted 1,176,406 $ 22.10
Canceled (46,240) $ 18.76
---------------------
Outstanding at December 31, 1999 3,700,006 $ 13.64
=====================
Exercisable at December 31, 1999 2,758,683 $ 11.47
=====================
</TABLE>
F-20
<PAGE> 72
EntreMed, Inc.
Notes to Consolidated Financial Statements
10. STOCK OPTIONS AND WARRANTS (CONTINUED)
The following summarizes information about stock options and warrants granted to
employees outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- ----------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/99 LIFE IN YEARS PRICE AT 12/31/99 PRICE
- --------------------- --------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
$1.50 355,040 2.6 $1.50 355,040 $1.50
$6.50 - $9.50 665,164 5.6 $6.38 663,289 $6.37
$10.00 - $14.00 1,280,425 7.6 $11.67 1,077,546 $11.88
$15.00 - $19.13 458,071 8.2 $17.48 233,703 $16.39
$20.75 - $31.94 941,306 9.6 $24.16 429,105 $23.91
----------------- ------------------
3,700,006 7.4 $13.64 2,758,683 $11.47
================= ==================
</TABLE>
The Company also granted 50,000 and 83,334 options to purchase common stock at
$6.38 and $6.00 per share during 1995 and 1993, respectively, to Children's
Hospital, Boston in connection with a sponsored research agreement (see Note 4).
These options are not covered by the incentive and nonqualified stock option
plan and are included in the table below.
F-21
<PAGE> 73
EntreMed, Inc.
Notes to Consolidated Financial Statements
10. STOCK OPTIONS AND WARRANTS (CONTINUED)
In addition, the Company has granted warrants to consultants and certain third
parties. Warrants granted generally expire after 10 years from the date of
grant. Stock warrant activity to non-employees is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
--------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1997 277,336 $ 6.47
Granted 100,000 $ 13.00
Exercised (8,334) $ 6.00
---------------------
Outstanding at December 31, 1997 369,002 $ 8.23
Exercised (171,435) $ 8.15
---------------------
Outstanding at December 31, 1998 197,567 $ 8.30
Granted 1,544,425 $ 28.85
Exercised (74,000) $ 7.34
---------------------
Outstanding at December 31, 1999 1,667,992 $ 27.37
=====================
Exercisable at December 31, 1999 1,667,992 $ 27.37
=====================
</TABLE>
The Company also granted warrants to Bristol-Myers Squibb in connection with the
Original BMS Collaboration described in Note 5 which expired in November 1997.
11. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments, accounts receivable, accounts payable and notes payable.
As of December 31, 1999 and 1998, the Company maintained approximately 84% and
51%, respectively, of its cash, cash equivalents and short-term investments
(short-duration, high quality debt securities) under the management of a
registered investment advisory firm for which a Company director served as
chairman of the board. Such assets under management are maintained by a high
credit quality, third party financial institution custodian.
F-22
<PAGE> 74
EntreMed, Inc.
Notes to Consolidated Financial Statements
11. FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts reported in the balance sheet for cash and cash
equivalents, short-term investments, accounts receivable, accounts payable and
notes payable approximate their fair values.
12. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit initiated in August 1995 in the United
States District Court for the Eastern District of Tennessee by Bolling, McCool &
Twist ("BMT"), a consulting firm. In the suit, BMT asserts that the Company
breached an agreement between BMT and the Company by failing to pay BMT certain
fees it asserts are owed under the agreement. More specifically, BMT has
asserted a claim for the payment of services rendered in the approximate amount
of $50,000 and seeks a success fee in an unspecified amount in connection with
the Original BMS Collaboration. The judge in the case bifurcated the proceeding
into two phases: an adjudication of whether the Company breached its agreement
with BMT and then a damage phase. After a trial on the merits, the jury found in
favor of BMT on the breach of contract claim. A trial to determine damages had
been scheduled for April 14, 1998. However, on April 6, 1998, the court issued
an Order pursuant to which damages were limited to those arising during the term
of the agreement, which terminated on November 1, 1995. On May 6, 1999, the
court confirmed its decision by granting the Company's motion for summary
judgment and limiting the Company's damages to approximately $50,000 plus
interest. Thus, this litigation at the trial level has been concluded. BMT has
filed an appeal and the Company has cross-appealed. The Company cannot predict
the outcome of such appeal. However, the Company intends to continue to contest
any further action vigorously and believes that this proceeding will not have a
material adverse effect on the Company or on its financial condition, although
there can be no assurance that this will be the case.
F-23
<PAGE> 75
EntreMed, Inc.
Notes to Consolidated Financial Statements
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In May 1994, the Company entered into two license agreements, whereby the
Company acquired the exclusive, worldwide, royalty-bearing licenses to make,
use, and sell Angiostatin, thalidomide and thalidomide analogs, all inhibitors
of angiogenesis developed by Children's Hospital, Boston. In consideration for
receiving the rights, the Company must pay a royalty on any sublicensing fees,
as defined in the agreements, to Children's Hospital, Boston. The Company is
also required to pay certain amounts upon the attainment of certain milestones.
The milestone payments aggregate $2,650,000, of which $815,000 has been paid to
date, and are based upon license fees and achievement of regulatory approvals.
In addition, in 1996, the Company entered into two license agreements with
Children's Hospital, Boston for the exclusive, worldwide, royalty-bearing
licenses to make, use and sell Endostatin and 2-Methoxyestradiol, both
inhibitors of angiogenesis. In consideration for receiving the rights, the
Company must pay a royalty on any sublicensing fees, as defined in the
agreements, to Children's Hospital, Boston. Each agreement obligates the Company
to pay up to $1,000,000 "upon the attainment of certain milestones." As of
December 31, 1999, the Company has paid $200,000 under these agreements.
These license agreements require the Company to pay Children's Hospital, Boston
a specified percentage of the royalty income received on the first $100 million
in net sales of the licensed products, and an increased percentage thereafter,
with a minimum payment based on a percentage of net sales of the licensed
products by any sublicensees.
The Company has also entered into an agreement with a bioprocessing services
firm for the production of materials to be used in the Company's research
activities, including its clinical trials. As of December 31, 1999, the Company
is committed to materials production costs due in the year 2000 of an estimated
$6,000,000.
F-24
<PAGE> 76
EntreMed, Inc.
Notes to Consolidated Financial Statements
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases its primary facilities through 2010. The lease agreement
provides for escalation of the lease payments over the term of the lease,
however, rent expense is recognized under the straight-line method.
Additionally, the Company leases office equipment under an operating lease. The
future minimum payments under its facilities and equipment leases as of December
31, 1999 are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 852,700
2001 841,200
2002 855,300
2003 881,000
2004 907,400
Thereafter 3,739,000
------------------
Total minimum payments $8,076,600
==================
</TABLE>
Rental expense for the years ended December 31, 1999, 1998 and 1997 was
$751,000, $253,000 and $241,000, respectively.
13. EMPLOYEE RETIREMENT PLAN
The Company sponsors the EntreMed, Inc. 401(k) and Trust. The plan covers
substantially all employees and enables participants to contribute a portion of
salary and wages on a tax-deferred basis. Contributions to the plan by the
Company are discretionary. No employer contributions were made in 1999, 1998 or
1997.
F-25
<PAGE> 77
EntreMed, Inc.
Notes to Consolidated Financial Statements
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended December 31, 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Revenues $ 1,444,039 $ 1,329,031 $ 1,786,317 $ 458,163
Research and development costs 7,107,455 7,619,140 6,959,576 13,843,264
General and administrative expenses 1,895,838 2,003,069 2,223,748 1,906,267
Net loss (7,148,840) (8,008,305) (6,895,717) (14,832,854)
Net loss per share $ (0.55) $ (0.61) $ (0.48) $ (1.01)
1998
Revenues $ 1,154,971 $ 1,165,485 $ 1,343,437 $ 1,497,590
Research and development costs 3,499,431 2,345,299 4,481,485 4,758,778
General and administrative expenses 1,305,890 1,221,010 1,380,387 1,852,928
Net loss (3,112,126) (1,812,631) (3,959,309) (4,629,704)
Net loss per share $ (0.25) $ (0.15) $ (0.31) $ (0.35)
</TABLE>
F-26
<PAGE> 1
Exhibit 10.28
RESEARCH AGREEMENT
CHILDREN'S HOSPITAL RESEARCH AGREEMENT
This Agreement ("Agreement") entered into this 1st day of October,
1999 (the "Effective Date"), by and between Children's Hospital, 300 Longwood
Avenue, Boston, Massachusetts 02115-5737 ("Hospital"), and EntreMed, Inc., 9640
Medical Center Drive, Rockville, Maryland 20850 ("EntreMed").
WHEREAS, Hospital owns certain inventions that may be useful in the
treatment of diseases in humans or animals and is interested in having a
corporate sponsor and licensee to clinically develop these inventions;
WHEREAS, EntreMed is interested in funding and/or implementing the
clinical development of certain of the inventions in return for options for
licensing certain of the inventions;
WHEREAS, the research program contemplated by this Agreement is of
mutual interest and benefit to Hospital and to EntreMed and may further the
practice of medicine and the research agenda of the Hospital in the manner
consistent with its status as a non-profit, tax-exempt, teaching Hospital.
NOW, THEREFORE, the parties agree as follows:
1. SCOPE OF WORK
(a) Hospital agrees to use reasonable efforts to perform the
Research and Clinical Development Program entitled
"Angiogenesis Research Program" ("Program") in
accordance with Exhibit A, attached hereto and made a
part of this Agreement, as the same may be amended by
the parties from time to time.
(b) Any alteration in or amendment to the Program must be
approved in writing by both Hospital and EntreMed prior
to such alteration or amendment being effective.
2. PERIOD OF PERFORMANCE
(a) The Program shall be conducted during the period
beginning on the Effective Date, through September 29,
2002, and will be subject to renewal only by written
mutual agreement of EntreMed and Hospital.
3. PRINCIPAL INVESTIGATOR
<PAGE> 2
(a) The Principal Investigator for the Program will
be Robert D'Amato, M.D., Ph.D. ("Principal
Investigator") of the Department of Surgery. In
the event the Principal Investigator becomes
unable to complete the Program for any reason,
EntreMed and Hospital may mutually agree upon a
substitute Principal Investigator, in which event
this Agreement shall continue in full force and
effect. If EntreMed and Hospital cannot agree on
a substitute, either party may immediately
thereafter terminate this Agreement, subject to
the requirements of Section 11(f) of this
Agreement.
4. RESEARCH PROGRAM SUPPORT
(a) Primary Program Support. EntreMed agrees to pay Hospital
two million dollars (2,000,000.00) to fund the Program
in accordance with the conditions and terms of this
Agreement.
(b) Payments. On October 1, 1999, EntreMed will pay
Hospital the sum of six hundred fifty thousand
four hundred ninety-one dollars ($650,491) and
thereafter will make payments of six hundred
sixty-six thousand eight hundred eighty-five dollars
($666,885) on October 1, 2000 and six hundred
eighty-two thousand six hundred twenty four
dollars ($682,624) on October 1, 2001, in
accordance with the conditions and terms set
forth herein.
(c) Payments. Payments of all sums due hereunder shall be
made by check payable as follows:
Children's Hospital
Research Finance Office
300 Longwood Avenue
Boston, MA 02115-5737
(d) Late Payments. Late payments shall bear interest
from the due date until payment at a rate of the
lower of one and one-half percent (1 1/2%) per
month, or the maximum amount permitted by law.
The payment of such interest shall not foreclose
Hospital from exercising any other rights it may
have as a consequence of the lateness of any
payment, including without limitation termination
under Article 11(d).
5. EQUIPMENT
(a) Equipment purchased as part of the Program shall be
owned by the Hospital, shall be physically located at
the Hospital, and shall remain as property of the
Hospital following completion of the Program.
<PAGE> 3
6. PUBLICATIONS
(a) EntreMed acknowledges that Hospital is an academic
medical center and that Dr. D'Amato and his
collaborators shall be free to publish results of
their studies without restraint. Notwithstanding
this, Hospital agrees to send EntreMed copies of any
manuscripts resulting from the Program and submitted
for consideration for publication or any abstracts
that are submitted to a conference no later than the
same day the manuscript or abstract is submitted.
Hospital agrees to use reasonable efforts to notify
EntreMed at least one month in advance of any
instances where the results of the Program will be
presented at a conference by invitation and without
abstract. EntreMed will notify Hospital if any action
is necessary to secure patent protection for the
technology and Hospital agrees to take such action,
subject to the terms and conditions hereof. If
EntreMed so elects, Hospital agrees to include in any
publication of the results of the Program
acknowledgment of EntreMed's financial and technical
support.
7. INTELLECTUAL PROPERTY
(a) Any invention conceived or first reduced to
practice by Hospital or Hospital personnel in the
performance of the Program shall be owned by
Hospital ("Invention"). Any invention conceived
or first reduced to practice by EntreMed or
EntreMed personnel at EntreMed's facilities
during the term of this Agreement shall be owned
by EntreMed. Any invention conceived or first
reduced to practice jointly by Hospital or
Hospital personnel and EntreMed or EntreMed
personnel shall be jointly owned by Hospital and
EntreMed; for jointly-owned inventions, Hospital
agrees to offer an option to license the
Hospital's interest in the invention according to
Section 7(c).
(b) Hospital agrees to notify EntreMed as soon as
possible when a new, potentially patentable
Invention has been identified and disclosed to
the Technology Transfer Office. EntreMed will
immediately order a patentability/6 and
infringement search and, if the Invention is
patentable, will be responsible, at EntreMed's
expense, for filing and prosecuting patent
applications on behalf of Hospital in Hospital's
name covering the new Inventions, with
appropriate and timely review and approval by
Hospital. EntreMed shall solicit Hospital's
comments prior to any significant actions
required during filing and prosecution and
provide Hospital with drafts of proposed actions
and responses sufficiently in advance to allow
time for comment and with file copies after the
action is completed. If EntreMed decides not to
file a patent application, EntreMed will notify
Hospital within [ninety] [90] days of receiving
disclosure of the new Invention; and if EntreMed
decides not to maintain prosecution of any patent
application, EntreMed will notify Hospital in a
timely fashion. Hospital may elect to file or
maintain prosecution of such patent rights at its
own expense; and Hospital shall be entitled to
dispose of such patent
<PAGE> 4
rights without limitation, and EntreMed shall have no
further option, license or other rights thereto.
(c) For inventions for which EntreMed shall elect to
file and maintain prosecution of a patent
application, Hospital grants to EntreMed an
exclusive nine-month option to decide whether or
not to negotiate an exclusive license. Such
option period shall begin at the date of filing
of a provisional patent application or a
non-provisional patent application. At the end of
the nine-month option period after filing of a
provisional patent application, EntreMed may
request an additional six-month option period.
In consideration for granting the additional
six-month period, EntreMed will agree to file a
non-provisional patent application at EntreMed's
expense. If EntreMed chooses to license such
patent rights during either option period,
EntreMed shall have an additional three-month
period in which to negotiate and enter into a
license on the terms and conditions of the model
license agreement (Exhibit B). During this
three-month period, EntreMed will provide a development
plan to Hospital which will include a time frame
for implementation of the development plan. This
development plan will be updated semiannually.
If EntreMed chooses not to license each patent
rights, Hospital shall have the right to license
to a third party; and EntreMed shall have no
further option, license or other rights thereto.
(d) Any license granted pursuant to this Agreement shall
conform to the terms and conditions of the License
attached as Exhibit B.
(e) Any license granted pursuant to this Article
shall be subject to a reservation of the
unrestricted right of Hospital and inventors
(while employed by Hospital or other non-profit
institution) to use subject matter claimed in the
licensed patent(s) or patent application(s) for
research purposes only at no cost to Hospital and
the right to license to non-profit institutions
for research purposes only.
(f) EntreMed shall retain all invention disclosures
submitted by Hospital in confidence and use its best
efforts to prevent their disclosure to third parties.
EntreMed shall be relieved of this obligation only when
this information becomes publicly available through no
fault of EntreMed.
8. INDEMNIFICATION
(a) EntreMed shall indemnify, defend and hold
harmless Hospital and its board members,
officers, medical staff, employees, and agents
from and against any and all liability, damage,
loss or expense (including reasonable attorneys'
fees and expenses of litigation) incurred by or
imposed upon it or any one of them in connection
with any claims, suits, actions, demands or
judgments arising out of, resulting from or
related to performance under this Agreement,
regardless of the theory of liability (including,
but not
<PAGE> 5
limited to, actions in the form of tort, warranty, or
strict liability), to the extent that such liability,
loss, damage or expense is the result of the acts or
omissions of EntreMed or any of its board members,
officers, agents, servants, and employees.
(b) EntreMed agrees, at its own expense, to provide
attorneys reasonably acceptable to the Hospital
to defend against any actions brought or filed
against any party indemnified hereunder with
respect to the subject of indemnity contained
herein, whether or not such actions are
rightfully brought. Hospital shall promptly
notify EntreMed if any such action shall be
brought or filed or claim made.
(c) This Article 8 shall survive expiration or termination
of this Agreement.
9. BIOLOGICAL MATERIALS TRANSFER
(a) Unique clones, chemicals, proteins or reagents
developed or discovered under the Program by
Hospital may be shared with scientists at
non-profit academic or governmental institutions upon
execution of Hospital's Materials Transfer
Agreement for commercially significant
materials. Requests for such materials that
originate from commercially entities will be
discussed with EntreMed, and Hospital will
consider the potential effect of such transfers
on the Program before deciding whether to
transfer such materials.
10. TIMELY PRE-CLINICAL AND CLINICAL DEVELOPMENT
(a) As a condition to obtaining a license to the
patent rights to Inventions under Section 7,
EntreMed agrees to support clinical development,
clinical trial and regulatory management of
licensed products. If EntreMed decides to
sublicense the licensed product and patent
rights, in whole or for a field of use, the
sublicenses must be acceptable to Hospital in
that such sublicensee can provide the resources
required to bring the Invention to the
marketplace. Such acceptance of a sublicensee by
Hospital will not be unreasonably withheld.
(b) EntreMed agrees to notify Hospital in a timely
way of its decision to discontinue preclinical or
clinical development of any licensed product and
its reasons for doing so. The license(s) held by
EntreMed to Patent Rights (as defined in the
license agreement for such licensed product) for
that Licensed Product (as defined in the license
agreement for such licensed product) will be
terminated upon notice from Hospital.
11. TERM AND TERMINATION
(a) The term of this Agreement begins on the Effective Date
and terminates on September 30, 2002, unless sooner
terminated as provided below.
<PAGE> 6
(b) Performance under this Agreement may be
terminated by EntreMed at any time with or
without cause, and by Hospital without cause,
upon one (1) year prior written notice to the
other party. If Hospital terminates this
Agreement under this Article 11(b), all options
and rights to Inventions and patent rights
granted in this Agreement to EntreMed shall
remain in effect under Article 7 and all licenses
granted prior to the effective date of
termination shall remain in effect subject to the
terms of the applicable license agreement entered
into between EntreMed and Hospital. EntreMed
shall continue to fund the Program for the
shorter of either one year following notice of
termination or the remainder of the term set
forth in Article 11(a).
(c) In the event of termination by EntreMed under
Article 11(b), all options and rights to
Inventions and patent rights granted in Article 7
shall immediately terminate this Agreement and
coincidentally with EntreMed's notice of
termination. Any license agreement granted to
EntreMed under Article 7 prior to such notice of
termination, shall survive, subject to the terms
of said license agreement.
(d) In the event of EntreMed's material breach of this
Agreement, including without limitation, failure to meet
its payment obligation under Article 4, Hospital shall
have the right to give notice of breach, and EntreMed
shall have ninety (90) days to cure such breach.
(e) In the event of termination by Hospital under
Article 11(b), and upon sending its notice of
termination, Hospital agrees to promptly take all
responsible steps to reduce the costs to
EntreMed, and Hospital shall return at
termination any unexpended funds to EntreMed less
any non-refundable costs including noncancelable
obligations Hospital has incurred in the
performance of the Program prior to the date of
notice of such termination. In no event shall
such deduction exceed the total support specified
in Article 4.
(f) In the event of termination under Article 3 and
upon the terminating party sending its notice of
termination, Hospital agrees to promptly take all
responsible steps to reduce the costs to
EntreMed, and Hospital shall return at
termination any unexpended funds to EntreMed less
any non-refundable costs including, but not
limited to non-cancelable obligations Hospital
has incurred in the performance of the Program
prior to the date of notice of such termination.
In no event shall such deduction exceed the total
support specified in Article 4. EntreMed agrees
to fund salaries of essential personnel for a
period of nine months from notice of
termination. All options and rights to
Inventions and patent rights granted in Article 7
to EntreMed shall remain in effect and all
licenses granted prior to the effective date of
termination shall remain in effect subject to the
terms of the applicable license agreement entered
into between EntreMed and Hospital.
<PAGE> 7
(g) The following provisions shall survive any expiration or
termination of this Agreement: 4(a) as to the Option,
5(a), 7(a), 8, 11(b), 11(c), 11(f), 11(g), 12(a), 15
(except (b) and (g)) and 16.
12. COMMUNICATIONS
(a) Notice. All medical/scientific and other communications,
reports, and notices shall be delivered by hand or sent
by first class mail postage prepaid and addressed as
follows:
If to EntreMed:
President
EntreMed, Inc.
9640 Medical Center Drive
Rockville, MD 20850
With a copy to:
James Dean Johnson, Ph.D.
Jones & Askew
2400 Monarch Tower
2434 Peachtree Road
Atlanta, GA 30326
If to Hospital:
For all medical/scientific communications:
Robert D'Amato, M.D., Ph.D.
Department of Surgery
Children's Hospital
300 Longwood Avenue
Boston, MA 02115-5737
With a copy to:
Director
Technology Transfer Office
Children's Hospital
300 Longwood Avenue
Boson, MA 02115-5737
<PAGE> 8
For all other communications, reports, and notices:
Director
Technology Transfer Office
Children's Hospital
300 Longwood Avenue
Boston, MA 02115-5737
(b) For the purpose of facilitating EntreMed's
understanding of the research activities
conducted by Hospital pursuant to the Program,
Hospital will permit duly authorized employees or
representatives of EntreMed to visit its
facilities where the research is conducted, or
attend restricted-access Hospital seminars on or
off site, at reasonable times and with prior
reasonable notice and approval by the Principal
Investigator. All such visits, seminars or other
communications, including without limitation,
informal conversations, email and the like
concerning research activities, will be subject
to the Mutual Nondisclosure Agreement between the
parties of even date as this Agreement.
(c) All communications regarding the business terms in this
Agreement shall be exclusively between EntreMed and the
Technology Transfer Office.
13. USE OF NAMES
(a) Each party agrees not to use or cite in any
manner the name of the other, its employees or
Principal Investigator in any commercial or
non-commercial advertising, article, press release or
in any other forms of writing or publication
medium, or orally to the extent practical,
without the prior written permission of the party
or individual whose name is to be used except as
required by law. Hospital agrees to respond to
any submission by EntreMed in a timely manner,
and EntreMed agrees to submit such writings, and
summarized oral comments to the extent practical,
for approval at least ten (10) days prior to
submission for public release. EntreMed agrees
that any such writings or publications or oral
comments or presentations, and any references in
its other communications to the public or third
parties, will accurately reflect the contractual
relationship between the parties and will not
misrepresent or mislead others as to the nature
of the relationship. The parties agree to meet
within thirty (30) days after the Effective Date
to establish a set of rules to assist them in
complying with this Article 13(a).
(b) EntreMed agrees not to disclose any of Hospital's
confidential or proprietary information in
Invention disclosures or reports, data concerning
scientific discoveries, data from evaluations,
research results and the like in any commercial
or non-commercial advertising, article, press
release or in any other forms of writing or
publication medium or to any third party without
the prior written permission of Hospital.
<PAGE> 9
14. REPRESENTATIONS AND WARRANTIES. HOSPITAL REPRESENTS
AND WARRANTS TO ENTREMED AS FOLLOWS:
(a) The execution and delivery of this Agreement by
Hospital have been duly and validly authorized
and this Agreement constitutes a legal, valid and
binding obligation of Hospital, enforceable in
accordance with its terms. The execution,
delivery and performance of this Agreement does
not conflict with or violate any charter document
or, to Hospital's knowledge, any contract binding
upon Hospital.
(b) Hospital has not received notice of any assertion that
any of the patents or subject Inventions infringe upon
any third party's know-how, patent or other intellectual
property rights.
(c) Hospital is and will be, during the term of this
Agreement and thereafter, the owner of all rights in and
to the inventions conceived or first reduced to practice
by Hospital or its employees or independent contractors
as a part of any of the projects which are included in
the Program.
EntreMed represents and warrants to Hospital as follows:
(a) The execution and delivery of this Agreement by
EntreMed have been duly and validly authorized
and this Agreement constitutes a legal, valid and
binding obligation of EntreMed enforceable in
accordance with its terms. The execution,
delivery and performance of this Agreement does
not conflict with or violate any charter document
or, to EntreMed's knowledge, any contract binding
upon EntreMed.
15. GENERAL PROVISIONS
(a) All rights and remedies hereunder will be cumulative and
not alternative, and this Agreement shall be construed
and governed by the laws of the Commonwealth of
Massachusetts.
(b) Neither party may assign, transfer or delegate
its rights, duties or obligations hereunder
without the prior written consent of the other,
and any assignment, transfer or delegation in
violation of this provision shall be void.
Subject to the terms of this provision, this
Agreement shall be binding upon and inure to the
benefit of the parties hereto and their
respective successors and assigns.
Notwithstanding anything herein to the contrary,
in the event EntreMed merges with another entity,
is acquired by another entity, or sells all or
substantially all of its assets to another
entity, EntreMed may assign its rights and
obligations hereunder to, in the event of a
merger or acquisition, the surviving entity, and
in the event of a sale, the acquiring entity,
without Hospital's consent so long as: (i)
EntreMed is not then in breach of this Agreement;
(ii) the proposed assignee has a net worth at
least equivalent to the net worth EntreMed had as
of the date
<PAGE> 10
of this Agreement; (iii) the proposed assignee has
available resources and sufficient scientific business
and other expertise to satisfy EntreMed's obligations
hereunder; (iv) EntreMed provides written notice of the
assignment to Hospital, together with documentation
sufficient to demonstrate the requirements set forth in
subparagraphs (i) through (iii) above, at least twenty
(20) days prior to the effective date of the proposed
assignment; and (v) Hospital receives from the proposed
assignee, in writing, at least twenty (20) days prior to
the effective date of the assignment: (aa) reaffirmation
of the terms of this Agreement; (bb) an agreement to be
bound by the terms of this Agreement; and (cc) an
agreement to perform the obligations of EntreMed under
this Agreement.
(c) This Agreement may be amended only by written agreement
signed by both parties.
(d) It is expressly agreed by the parties hereto that the
Hospital and EntreMed are independent contractors and
nothing in this Agreement is intended to create an
employer relationship, joint venture, or partnership
between the parties. Neither party has the authority to
bind the other.
(e) This Agreement and its Exhibits constitute the
entire agreement between the parties with respect to the
subject matter hereof and supersedes all proposals,
negotiations and other communications between the
parties, whether written or oral, with respect to the
subject matter hereof.
(f) If any provisions of this Agreement shall be held to be
invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions
of this Agreement shall not be impaired thereby.
(g) The use of vertebrate animals in the conduct of
work under this Agreement shall comply with
applicable portions of the Animal Welfare Act
(P.L. 89-544 as amended) and will follow the
guidelines prescribed in DHEW, NIH Publication
No. 78-23, "Guide for the Care and Use of
Laboratory Animals," as amended, and in any
applicable state or local regulations.
(h) EXCEPT AS PROVIDED IN ARTICLE 14, AND TO THE
EXTENT PERMITTED BY APPLICABLE LAW, HOSPITAL
MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, TITLE OR NONINFRINGEMENT, WITH RESPECT
TO ANY PATENT, TRADEMARK, COPYRIGHT, SOFTWARE,
TRADE SECRET, TANGIBLE RESEARCH PROPERTY,
INVENTION, RESEARCH RESULTS, INFORMATION OR DATA
PROVIDED OR UNDER OPTION TO ENTREMED HEREUNDER
AND HEREBY DISCLAIMS THE SAME, AND HOSPITAL SHALL
NOT BE LIABLE
<PAGE> 11
FOR ANY DIRECT, CONSEQUENTIAL OR OTHER DAMAGES SUFFERED
BY ENTREMED OR ANY LICENSEE OR OTHERS RESULTING FROM USE
OF THE SAME OR ANY RESULTING PRODUCT OR PROCESS.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
Children's Hospital EntreMed, Inc.
By: /s/ William New By: /s/ John W. Holaday, Ph.D.
------------------------- --------------------------
Vice President
Research Administration President and CEO
- -------------------------------
Title
10/19/99 9/22/99
- ------------------------------- ------------------------------
Date Date
/s/ Robert D'Amato 10/22/99
- ------------------------------- ------------------------------
Robert D'Amato, M.D., Ph.D. Date
Principal Investigator
<PAGE> 12
Overview of EntreMed funded projects in D'Amato Laboratory
Continuing collaborative projects:
1. Thalidomide and analogs
Testing of analogs and isomers with the phthalimide skeleton
2. Methoxyestradiol and analogs
Testing of analogs with substitutions at 2 position on A ring
3. Epoxide angiogenesis inhibitors such as arglabin
Testing of thalidomide and arglabin analogs with epoxides
New projects:
4. Purification of potent secreted angiogenesis inhibitors from human
tumors
A. MG63 osteosarcoma
B. A375 melanoma
C. ST2 gastric carcinoma
5. Testing of angiogenesis inhibitors on the RPE/VEGF transgenic mouse
(Inducible choroidal neovascularization as a model of macular
degeneration)
Treatment with angiogenesis inhibitors-angiostatin/
endostatin
6. Female reproductive system
Endometriosis model-Uterine explants in mice
Treatment with angiogenesis
inhibitors-angiostation/endostatin
7. Testing of novel inhibitors including new EntreMed compounds and
gene therapy.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement, as amended (Form S-3 No. 333-80193) and related
prospectus of EntreMed, Inc. for the registration of 953,751 shares of Common
Stock and the Registration Statement, as amended (Form S-3 No. 333-84907) and
related prospectus of EntreMed, Inc. for the registration of 3,022,543 shares of
Common Stock and the Registration Statement (Form S-3 No. 333-94665) and related
prospectus of EntreMed, Inc. for the registration of 3,000,000 shares of Common
Stock and to the incorporation by reference therein of our report dated February
11, 2000, with respect to the consolidated financial statements of EntreMed,
Inc. included in this Annual Report (Form 10-K) for the year ended December 31,
1999, filed with the Securities and Exchange Commission.
We also consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-26057) and related prospectus pertaining to the EntreMed, Inc.
1992 Stock Incentive Plan and in the Registration Statement (Form S-8 No.
333-67063) and related prospectus pertaining to the EntreMed, Inc. 1992 Stock
Incentive Plan and the EntreMed, Inc. Amended and Restated 1996 Stock Option
Plan of our report dated February 11, 2000, with respect to the consolidated
financial statements of EntreMed, Inc. included in this Annual Report (Form
10-K) for the year ended December 31, 1999.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
March 28, 2000
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