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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
COMMISSION FILE NUMBER 0-6533
BOSTON LIFE SCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 87-0277826
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
31 NEWBURY STREET, SUITE 300 BOSTON,
MASSACHUSETTS 02116
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 425-0200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
WARRANTS TO PURCHASE COMMON STOCK, PAR VALUE $.01 PER SHARE
SERIES A PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (((S)) 229.405 of this chapter) 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/A or any amendment to this Form 10-K/A. [X]
Based on the last sales price of the Registrant's Common Stock as reported
on the Nasdaq Small Cap Market on March 24, 1998, the aggregate market value
of the 12,969,718 outstanding shares of voting stock held by nonaffiliates of
the Registrant was $25,128,829.
As of March 24, 1998, there were 13,024,489 shares of the Registrant's
Common Stock issued and outstanding, and Warrants to purchase 5,716,502 shares
of Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the following document are
incorporated by reference in this report on Form 10-K/A: The Company's
Definitive Proxy Statement for the Company's Annual Meeting of Stockholders to
be held on June 12, 1998 (Part III).
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PART I
ITEM 1. BUSINESS.
FORWARD-LOOKING STATEMENTS
The description of the business of Boston Life Sciences, Inc. ("BLSI" or the
"Company") that follows contains certain forward-looking statements on the
Company's prospects for its pharmaceutical development activities and results
of operations based on current management expectations. For a description of
meaningful factors which could cause future results to differ materially from
such expectations, see "Business--Products under FDA Review", "Business--
Products in Clinical Trials", "Business--Preclinical Development Programs",
"Business--Licensing Agreements", "Business--Patents", "Business--Corporate
Alliances", "Business--Obtaining FDA and Other Governmental Approvals", and
"Other Business Risks" in Part I and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part II of this Annual
Report on Form 10-K/A for the fiscal year ended December 31, 1997.
OVERVIEW
BLSI is a development stage biotechnology company engaged in the research
and development of novel therapeutic and diagnostic products to treat chronic
debilitating diseases such as cancer, central nervous system (CNS) disorders
and autoimmune diseases. The Company was incorporated in Delaware in 1972
under the name Greenwich Pharmaceuticals Incorporated ("Greenwich"). Effective
June 15, 1995, Greenwich merged with a privately-held company named Boston
Life Sciences, Inc. (the "Merger"). Greenwich survived the Merger and changed
its name to Boston Life Sciences, Inc. On June 6, 1997, the Company's
stockholders approved a one-for-ten reverse split of the common stock
effective as of June 9, 1997. The Company's principal executive offices are
located at 31 Newbury Street, Suite 300, Boston, Massachusetts, and its
telephone number is (617) 425-0200.
In general, the Company's corporate strategy is to seek to (i) fund the
early development of its compounds in preclinical development and (ii) enter
into corporate partnering arrangements with established pharmaceutical or
biotechnology companies to support the continued development of its compounds
and the marketing of any products as and to the extent they receive government
approval. Additionally, since the Company does not currently own any
laboratory or manufacturing facilities, it contracts for such services and
intends to continue to do so.
The Company currently is developing six technologies in its product
portfolio. Therafectin, a potential treatment for rheumatoid arthritis, was
acquired as a result of the Merger. The balance of the Company's technologies
currently under development were invented or discovered by researchers working
at Harvard University and its affiliated hospitals ("Harvard and its
Affiliates") and have been licensed to BLSI.
PRODUCTS UNDER FDA REVIEW
1. Therafectin (R) (AMIPRILOSE HCL)
Therafectin is a synthetic molecule developed for the treatment of
Rheumatoid Arthritis which affects approximately 2.5 million individuals in
the U.S. It has been estimated that the total U.S. market for Rheumatoid
Arthritis drug sales is approximately $2.0 billion per year. Therafectin has
undergone extensive preclinical and clinical testing in which the molecule has
been demonstrated to be safe and well-tolerated. A New Drug Application
("NDA") was initially filed with the Food and Drug Administration ("FDA") in
1993 by Greenwich.
The Company's latest 20 week, double-blind, placebo-controlled Phase III
trial included approximately 220 patients, and was conducted at 25 centers
across the United States. The trial was designed to closely resemble
Greenwich's 200 patient Phase III RA-9 trial which demonstrated with
statistical significance that Therafectin was more effective than placebo. The
trial was completed in August 1997, and on September 30, 1997, the Company
announced preliminary results. The primary efficacy variable (similar to the
Greenwich RA-9 trial)
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was "Therapeutic Success", defined as a return to baseline or better in the
number of painful joints, swollen joints, and global assessments at the final
visit. The secondary efficacy variables were the number of painful joints, the
number of swollen joints, the patient's global assessment, and the physician's
global assessment (among others). The results were analyzed on an Intent to
Treat (ITT), Last Observation Brought Forward (LOBF) basis.
The preliminary analysis of the results did not demonstrate a statistically
significant difference between Therafectin and placebo in the percentage of
patients achieving "Therapeutic Success". These results indicated that 40% of
patients receiving Therafectin and 33% of patients receiving placebo achieved
"Therapeutic Success". However, in centers that enrolled at least ten patients
(about half of the patient population), 48% of Therafectin patients achieved
"Therapeutic Success" as compared to 29% of placebo patients. Further, among
the secondary efficacy variables, the improvement in the number of swollen
joints in patients receiving Therafectin was highly statistically
significantly better than in those patients receiving placebo (p<0.007).
Further, in a group of patients with higher levels of swollen joints
(approximately half of those completing the trial), there was a statistically
significant difference between Therafectin and placebo in achieving success as
measured by the primary efficacy variable (Therapeutic Success). Additionally,
utilizing the most recent MIRA ("Minocycline in Rheumatoid Arthritis")
criteria for "meaningful improvement", defined as at least a 50% improvement
in joint swelling compared to baseline, Therafectin showed a statistically
significant improvement compared to placebo. Consistent with the previously
established excellent safety profile of Therafectin, there were no significant
adverse events attributable to Therafectin during the course of the study. In
view of the excellent safety profile of Therafectin, and the previous
statistically significant successful trial combined with at least three
supportive trials (previously completed by Greenwich), the Company convened an
advisory panel of clinical rheumatologists to seek input and advice regarding
whether to proceed with the submission of an amendment to the pending NDA
seeking approval for the drug.
In January 1998, the Company announced its intention to seek marketing
approval for Therafectin based upon the cumulative data obtained from the
trial and the input provided by its advisory panel of clinical
rheumatologists. The consensus of the advisory panel was that the cumulative
safety and efficacy data on Therafectin justified its use by clinicians
looking for a safe alternative to other more toxic drugs now being used to
treat Rheumatoid Arthritis. The Company also reported that further analysis of
the trial data strongly suggested the therapeutic efficacy of Therafectin.
Applying the widely-accepted "Paulus" criteria of therapeutic efficacy (at
least a 20% improvement in 4 of 6 measures: joint tenderness scores, joint
swelling scores, physician's and patient's global assessment, erythrocyte
sedimentation rate (ESR), and morning stiffness), there was a highly
statistically significant difference in the percentage of Therafectin patients
meeting the Paulus criteria for therapeutic efficacy as compared to the
percentage of placebo patients meeting the Paulus criteria (p<0.02). Among the
predefined secondary efficacy variables, the reduction in the number of
swollen joints, the ESR results, Functional Class scores, and the CLINHAQ (a
quality of life measurement) were statistically significant in favor of
Therafectin. In addition, after withdrawing non-steroidal medication, clinical
secondary variables returned to baseline or better in the Therafectin group,
while remaining statistically significantly worse than baseline in the placebo
group. Applying the American College of Rheumatology (ACR) "50% improvement"
criteria to the number of swollen joints, 36% of Therafectin patients
experienced at least a 50% decrease in the number of swollen joints compared
to 23% of placebo patients resulting in a statistically significant difference
(p<0.04). Finally, in the subgroup of patients (about half the total number)
entering the study with greater than the median number of swollen joints
(ten), the primary and secondary variables specified in the trial protocol
were statistically significant. The Company believes that statistically
significant improvement in the important clinical variables related to joint
swelling, functional class, and "quality of life" experienced by the
Therafectin patients demonstrates the clinical efficacy of Therafectin.
Because the beneficial effect is most obvious on joint swelling, the Company
believes that the other improvements are secondary to Therafectin's apparent
ability to favorably impact the underlying disease. A scientific manuscript
summarizing the data from the trial has been submitted to a premier peer-
review medical journal for consideration for publication.
The Company believes that the efficacy and safety of Therafectin as
demonstrated in several clinical trials merit FDA approval. The Company plans
to file an amendment to the NDA for Therafectin in the second quarter
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of 1998 and hopes to meet with the FDA's Arthritis Advisory Committee in the
fourth quarter of 1998. The Company expects to receive a decision from the FDA
in late 1998 or early 1999, although there can be no assurance that a decision
will be rendered by such time. If approved, the Company expects to seek to
commence product sales within six months of receiving approval. The Company
also expects that after such approval, the Company would be able to enter into
a marketing, manufacturing, and distribution agreement with an established
pharmaceutical or biotechnology company to support the sale of Therafectin.
Under such an agreement, the Company would receive royalties based upon
product sales. There can be no assurance, however, that the FDA will approve
Therafectin, or if Therafectin is approved, that the Company will be able to
successfully manufacture, market, and distribute Therafectin, or to enter into
a licensing and strategic alliance on acceptable terms.
PRODUCTS IN CLINICAL TRIALS
1. Altropane(TM)
Parkinson's Disease is a chronic, irreversible, neurodegenerative disease
generally afflicting those over 50. It is caused by a marked decrease in the
number of dopamine terminals in specific areas of the brain. Inadequate
production of dopamine causes the classic PD symptoms of resting tremor,
muscle retardation, and rigidity. Altropane is a /123/I-based nuclear medicine
imaging agent that the Company believes may be useful in the diagnosis of PD
in its early stages. Since administration of currently available therapies at
an early stage of PD may delay the progression of the disease, early
definitive diagnosis may be of substantial benefit. PD afflicts about 250,000-
500,000 Americans and about 4 million individuals worldwide. The number of
individuals having PD is expected to grow substantially as life expectancy
grows worldwide.
In July 1996, the Company completed a physician-sponsored Phase I/II study
of Altropane. In the Phase I portion of the study, Altropane was administered
to ten healthy normal volunteers in order to determine safety and brain image
quality. The Phase II portion of the study was designed to test Altropane's
ability to detect changes in the number of dopamine transporters in the brain
in nine patients with clinically diagnosed PD. The study was carried out at
the Massachusetts General Hospital ("MGH") under the guidance of Dr. Alan
Fischman, chief of nuclear medicine at the MGH.
The Company believes that the results from this study provided substantial
evidence that Altropane is a safe, accurate, and convenient agent to image the
dopamine transporter system in the brain. Quantitative data from this study
also indicated that the number of dopamine transporters in the affected region
of the brain can be obtained within 90 minutes of injection. The use of
Altropane together with SPECT brain scanning appeared to demonstrate a greater
than 70% loss of dopamine transporters in patients with mild clinical disease
and an even greater loss in patients with more severe disease. In one patient
in whom the diagnosis of PD was in dispute, physicians using Altropane were
able to demonstrate that the patient did not in fact have PD.
Based upon the results of the physician-sponsored Phase I/II study, the
Company filed an IND application in November 1996 seeking permission to
conduct full scale clinical trials of Altropane. In January 1997, the FDA
notified the Company that it could proceed with the trials. The Company
initiated its Phase I clinical trial in the second quarter of 1997 and
completed the Phase I trial in February 1998. The Company expects to commence
Phase II studies in April 1998 and to complete its Phase III trial by the end
of 1998, although there can be no assurance that this timing in fact will be
met.
In June 1997, three separate scientific papers pertaining to the use of
Altropane in the diagnosis of Parkinson's Disease were presented by scientific
collaborators of the Company at the 44th Annual Meeting of the Society of
Nuclear Medicine in San Antonio, Texas. The first two papers presented,
"Clinical Evaluation of Parkinson's Disease by SPECT with I-123 Altropane,"
and "Rapid Detection of Parkinson's Disease by SPECT with Altropane: A
Selective Ligand for Dopamine Transporters," detailed the results of clinical
studies conducted with 15 subjects, seven of whom were healthy volunteers and
eight of whom suffered from Parkinson's Disease. In the healthy volunteers,
the studies demonstrated that Altropane accumulated rapidly and
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selectively in the dopamine transporters in the brain and yielded high quality
images within an hour after injection. In patients suffering from Parkinson's
Disease, the studies showed that the accumulation of Altropane was markedly
reduced which is consistent with a diagnosis of the disease. The results of
these studies provide further evidence that I-123 Altropane is a highly useful
SPECT ligand for imaging dopamine receptors in the human brain. The results of
the studies also indicate that the high selectivity and rapid accumulation of
Altropane in the dopamine transporters appears to allow for the accurate
diagnosis of Parkinson's Disease in less than two hours after injection. The
third paper, "The SPECT Ligand Altropane Effectively Detects Parkinson's
Disease in Human Putamen," detailed scientists' work with Altropane in post
mortem human brains, evidencing its ability to bind to dopamine transporters.
Altropane binding sites were reduced by more than 80 percent in the putamen of
persons who had Parkinson's Disease thereby supporting the Company's belief in
the selectivity of Altropane for the dopamine transporter in the human brain.
In October 1996, the Company acquired the rights to a technetium-based
imaging agent, Technepine, together with supporting technology, also for the
potential diagnosis of PD. The Company believes that such a technetium-based
agent could eventually supplement Altropane in the PD diagnostic market and
thus could potentially represent a "second generation" radioimaging agent for
the diagnosis of PD. Technepine is in the early stages of preclinical
development and substantial additional work needs to be completed prior to the
commencement of human clinical testing.
PRECLINICAL DEVELOPMENT PROGRAMS
1. MHC Class II Expression
Autoimmune diseases are characterized by the production of antibodies
directed against the body's own tissues, and the consequent destruction of
those tissues by the body's immune cells. Central to the pathogenesis of these
diseases is the expression of MHC (Major Histocompatibility Complex) class II
DR molecules on the surface of antigen-presenting cells that are found within
the tissues that are attacked in autoimmune disease. The cause of this
expression of the MHC DR molecules is not known but it appears that the
expression of these molecules plays a role in triggering the immune system to
attack these tissues. The Company is seeking to develop a means to
specifically inhibit MHC DR expression. Inhibition of DR expression might
provide a specific treatment for autoimmune diseases, and because of its
specificity, this treatment might be relatively free of side effects.
Currently, the treatment of autoimmune disease consists of administering
nonspecific anti-inflammatory drugs, or in the most severe cases, nonspecific
immunosuppressives. These drugs, particularly steroids and the
immunosuppressives, are dangerous medications. The side effects of steroids
are particularly severe, and consist of bloating, muscle wasting,
osteoporosis, cataract formation, and psychosis. Therefore, there is a great
need for a specific treatment that addresses the underlying pathology in
autoimmune diseases.
In June 1995, the Company entered into a research and development
collaboration agreement (the "Agreement") with the U.K. company, Zeneca
Pharmaceuticals, Inc. ("Zeneca"). Under the terms of the Agreement, which
originally would have expired in June 1997, Zeneca provided funds for a two
year period to support the research and development of this technology. In
addition to providing funding, Zeneca has been screening its molecule
collection, seeking to identify an inhibitor of the Company's transcription
factor. The Agreement enabled Zeneca to acquire the product development rights
to the Company's technology. Zeneca requested, and was granted, an extension,
until January 1, 1998, to complete the screening of its molecule collection
before deciding if it will exercise its product development rights. Zeneca has
informed the Company that its screening process will not be completed until
May 31, 1998 and proposed a second extension which has not been granted by the
Company. If Zeneca desires to continue product development following
completion of screening, the Company could receive additional milestone
payments as well as royalties from the sale of any products originating from
the collaboration. However, there can be no assurance that Zeneca will decide
to continue product development, that Zeneca and the Company will reach a
renegotiated development agreement, that the Company will receive any
milestone or royalty payments, or that any products will result from the
collaboration.
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2. Troponin
Troponin is a naturally occurring protein that appears to inhibit new blood
vessel formation. Angiogenesis (new blood vessel formation) plays a key role
in the growth and spread of solid tumors throughout the body because cancerous
tumors require new blood vessels in order to grow and metastasize. The Company
intends to develop Troponin for the treatment of solid tumors and other
diseases of neovascularization, including rheumatoid arthritis and numerous
eye diseases. BLSI's collaborating scientists at The Children's Hospital
Corporation of Boston ("Children's") have successfully purified and cloned
this protein.
In January 1997, the Company reported that Troponin appears to significantly
inhibit tumor growth in mice. In the animal model laboratory experiment, human
prostate tumors were implanted subcutaneously into the backs of mice and
allowed to grow to a uniform size. Half the mice were then treated with
Troponin for 28 days during which time the growth of the tumors were measured.
The other half of the mice served as untreated controls. In the untreated
control mice, tumors continued to grow in a linear fashion, reaching
approximately four times their original volume after 28 days. In contrast,
treated mice exhibited a very significant inhibition in the growth of their
tumors. Furthermore, treated mice demonstrated no significant growth in their
tumors after approximately fourteen days of treatment, while the tumors in the
untreated mice continued to grow at a rapid rate throughout the 28-day period.
Additional experiments were completed in June 1997 with similar results. In
these studies, human breast cancer was implanted into nude mice and
recombinant Troponin was then administered subcutaneously over a 28-day
period. The results again indicated that tumor growth in the treated animals
was significantly inhibited compared to tumor growth in the control mice.
In July 1997, the Company completed studies which also demonstrated
Troponin's effectiveness in animal models of corneal neovascularization. Based
on these results, the Company plans to expand its preclinical development
program to include potential ophthalmic indications for Troponin. The Company
plans to review additional animal models of corneal and retinal
neovascularization to work on clarifying dosing and formulation issues.
The Company has completed a "scale-up" manufacturing process for Troponin
and, as a result, should be able to produce sufficient quantities of material
using the FDA-required "current good manufacturing processes" ("GMP") for
clinical trials of Troponin. The material will also be used for the final
preclinical studies necessary for the filing of an Investigational New Drug
(IND) application with the FDA. The Company's objective is to file an IND in
1998 and to initiate clinical trials as early as possible thereafter. A
scientific paper detailing the discovery of Troponin I as a native, cartilage-
derived, anti-angiogenic factor has been submitted for publication by the
Company's collaborating scientists in a leading peer-review journal.
3. Axogenesis Factor 1 (AF-1)
Axogenesis Factor 1 (AF-1) is a nerve growth factor that the Company
believes promotes axon outgrowth from central nervous system (CNS) cells. This
property is significant, since the zone of partial injury surrounding the
central necrotic zone contains live but damaged nerve cells that have lost
their axons. AF-1 would potentially salvage these partially injured cells,
thereby resulting in some recovery of function. The Company hopes that AF-1
could provide a "regenerative" treatment for stroke, spinal cord injury and
other CNS degenerative diseases. The rationale for pursuing these indications
is that AF-1 acts by promoting growth of nerve cell projections. These
projections are the most sensitive to injury and they regress if the nerve
cell is stressed but still alive. Thus the cells on the periphery of the
injury may still be alive but with axons that have regressed. The Company
expects that AF-1 might promote the regrowth of these axons and presumably
allow them to reestablish physiologic connections with neighboring cells.
The annual incidence of stroke in the U.S. is approximately 500,000 with
more than 3,000,000 stroke survivors currently alive. The incidence of
traumatic brain injury is approximately 50,000 annually. The incidence of
spinal cord injury is approximately 10,000 cases annually. Treatment for these
conditions is presently limited to hemodynamic support, steroids to reduce
inflammation, and, in the case of stroke, the correction of predisposing
hematological abnormalities.
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Since the discovery of AF-1, the Company's collaborating scientists believe
that they have purified AF-1, and are in the process of sequencing the
molecule.
In October 1997, the Company announced that in initial in vivo experiments,
AF-1 appeared to stimulate regeneration of the optic nerve in mice. In these
experiments, two weeks following surgical transection of the optic nerve, the
eyes were dissected and examined for optic nerve regeneration. In the group
treated with AF-1, all eyes showed evidence of optic nerve axon regeneration,
whereas in the control group, none of the eyes showed evidence of optic nerve
regeneration. These results, though preliminary, represent an extremely
important "Proof of Principle" milestone in confirming the potential of AF-1
to promote in vivo regeneration in the CNS. The Company believes that this is
the first time that a single, naturally-occurring nerve growth factor has been
reported to regenerate CNS axons in an animal model of CNS injury.
In December 1997, the Company announced that its collaborating scientists
had discovered a second axonal growth factor in connection with its nerve
regeneration program. The Company believes that the discovery of this
naturally occuring molecule provides further evidence that neurons in the
central nervous system may be capable of regenerating axonal connections
between cells.
4. C-MAF
In June 1996, the Company acquired the rights to a transcription factor
called C-MAF which has been shown, in preclinical in vitro tests, to regulate
the switching of T helper 1 (Th1) cells into T helper 2 (Th2) cells. The
Company believes that the ability to switch Th1 cells into Th2 cells (and vice
versa) may be significant in the treatment of autoimmune diseases and
allergies.
The discovery of and potential role for this factor was the subject of a
lead article in the June 28, 1996 edition of Cell. When C-MAF was inserted
into Th1 cells, they transformed themselves into Th2 cells. The Company's
collaborating scientists have since accomplished the stable transfection of a
large proportion of T cells in culture, which is the first step in creating a
gene therapy product for clinical use. In a "Proof of Principle" experiment,
C-MAF was inserted into a fertilized mouse egg. The T cells of the fully
developed animal all appeared to be of the Th2 subtype, thereby providing
evidence that one can transform an animal's T cells in vivo. Animal
experiments are currently underway in an attempt to demonstrate that
autoimmune disease might be successfully treated using this approach. In
addition, the Company's scientists believe that they have identified the C-MAF
promoter, which could represent an ideal target for the development for small
molecule inhibition of the allergic/autoimmune response. A product based upon
a successful program in this area would potentially address a large cross-
section of autoimmune and allergic diseases.
In addition to C-MAF, a second factor, called NIP-45, has been discovered
which appears to synergize with C-MAF and other factors to significantly boost
transcription of the IL4 gene in Th2 cells. Thus, a gene therapy strategy
focused on either inserting C-MAF alone, or C-MAF together with NIP-45, could
potentially yield a powerful therapeutic product for the treatment of severe
autoimmune diseases, although results to date are preliminary.
The approach to the treatment for allergies requires the development of an
inhibitor to C-MAF, NIP-45, or both, in order to decrease the number of Th2
cells and to restore the proper balance between the numbers of Th1 and Th2
cells at the site of inflammation. In the case of asthma and hay fever, the
optimal formulation would be a small molecule that could be delivered via
aerosol to the lung where it would be incorporated into the Th2 cells
surrounding the bronchi. The Company expects to identify and collaborate with
a corporate partner in the development of such a small molecule inhibitor,
although there can be no assurances in that regard.
COLLABORATIVE RESEARCH AGREEMENTS
Most of the Company's technologies currently under development were invented
or discovered by researchers working at Harvard and its Affiliates. With
respect to all of its technologies, the Company has funded the research and
development of these technologies through a variety of sponsored research and
licensing
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agreements with the collaborating institution. The Company anticipates that,
to the extent funds are available, it will continue to fund its research and
development work in this manner by entering into sponsored research
agreements, licensing agreements, and contracts with certain contract research
organizations.
Each of the Company's collaborative research agreements is managed by a
sponsoring scientist and/or researcher who has his or her own independent
affiliation with the collaborating institution, primarily Harvard and its
Affiliates. In addition, the Company may enter into consulting, advisory, and
related arrangements with other scientific, research and development
professionals whom the Company believes can assist the Company in the
development of its technologies. A summary of the principal scientific,
research and development professionals associated with the Company, and a
composite of their professional background and affiliations is as follows:
LARRY I. BENOWITZ, PH.D., Director, Laboratories for Neuroscience Research
in Neurosurgery, Children's Hospital, Boston; Associate Professor of
Neuroscience, Department of Surgery, Harvard Medical School
ALAN J. FISCHMAN, M.D., PH.D., Chief, Department of Nuclear Medicine,
Massachusetts General Hospital; Professor of Radiology, Harvard Medical School
LAURIE H. GLIMCHER, M.D., Irene Heinz Given Professor of Immunology, Harvard
School of Public Health; Professor of Medicine, Harvard Medical School
ALEXANDER M. KLIBANOV, PH.D., Professor of Chemistry, Massachusetts
Institute of Technology
ROBERT S. LANGER, SC.D. Germeshausen Professor of Chemical and Biomedical
Engineering, Massachusetts Institute of Technology
BERTHA K. MADRAS, PH.D., Associate Professor of Psychobiology, Harvard
Medical School
PETER MELTZER, PH.D., President, Organix, Inc., Woburn, MA
VLADIMIR TORCHILIN, PH.D., Head of the Chemistry Program, Center for Imaging
and Pharmaceutical Research and Associate Professor of Radiology, Harvard
Medical School
LICENSING AGREEMENTS
The Company has entered into a number of exclusive worldwide licenses of
patent applications covering the technologies currently under development.
These licenses are secured through the collaborating institutions where such
technologies were invented or discovered (generally Harvard and its
Affiliates), and generally include the right to sublicense, to make, use or
sell, products or processes resulting from the development of these
technologies. The licensing agreements generally require the payment of an
initial licensing fee as well as additional payments upon the attainment of
development milestones, as defined in each respective agreement. The licensing
agreements also provide for the payment of a royalty to the collaborating
institution based upon the sales of any resulting products by the Company or
its sublicensees. The Company also usually has a first option to license
additional technologies invented or discovered during the course of related
research programs funded by the Company. There can be no assurance that such
research will lead to the discovery of new technologies or that the Company
will be able to obtain a license with respect to such newly discovered
technologies on acceptable terms, if at all.
PATENTS
The Company's patent strategy has been to aggressively pursue patent
protection for compounds and technologies in the development pipeline. The
ultimate goal has been to obtain broad patent protection for the compounds and
technologies under development and the relating medical indications of those
technologies. BLSI has also aggressively pursued similar international patent
protection to the extent available for certain compounds
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and technologies, and has filed patent applications covering these compounds
and technologies in most major industrialized countries.
There can be no assurance that patent applications owned by, or licensed to,
the Company will be issued or that, if issued, the Company's patents will be
valid or that they will provide the Company with meaningful protection against
competitors or with a competitive advantage. There can be no assurance that
the Company will not need to acquire licenses under patents belonging to
others for technology potentially useful or necessary to the Company and there
can be no assurance that such licenses will be available to the Company on
acceptable terms, if at all. Moreover, there can be no assurance that any
patent issued to or licensed by the Company will not be infringed upon or
circumvented by others. In particular, if the Company is unable to obtain
issuance of a patent with broad claims, a competitor may be able to design an
alternative treatment that is covered by valid patent claims.
Much of the Company's know-how and technology may not be patentable. To
protect its rights, the Company requires employees, consultants, advisors and
collaborators to enter into confidentiality agreements. There can be no
assurance, however, that these agreements will provide meaningful protection
for the Company's trade secrets, know-how or other proprietary information in
the event of any unauthorized use or disclosure. In addition, the Company's
business may be adversely affected by competitors who independently develop
competing technologies, especially if the Company obtains no, or only narrow,
patent protection.
CORPORATE ALLIANCES
In June 1995, the Company entered into a research and development
collaboration agreement (the "Agreement") with the U.K. company, Zeneca
Pharmaceuticals, Inc. ("Zeneca"). Under the terms of the Agreement, which
originally would have expired in June 1997, Zeneca provided funds for a two
year period to support the research and development of this technology. In
addition to providing funding, Zeneca has been screening its molecule
collection, seeking to identify an inhibitor of the Company's transcription
factor. The Agreement enabled Zeneca to acquire the product development rights
to the Company's technology. Zeneca requested, and was granted, until January
1, 1998, an extension to complete the screening of its molecule collection
before deciding if it will exercise its product development rights. Zeneca has
informed the Company that its screening process will not be completed until
May 31, 1998 and proposed a second extension which has not been granted by the
Company. If Zeneca desires to continue product development following
completion of screening, the Company could receive additional milestone
payments as well as royalties from the sale of any products originating from
the collaboration. However, there can be no assurance that Zeneca will decide
to continue product development, that Zeneca and the Company will reach a
renegotiated development agreement, that the Company will receive any
milestone or royalty payments, or that any products will result from the
collaboration.
SCIENTIFIC ADVISORY BOARD
BLSI has organized a Scientific Advisory Board, which currently consists of
five members (the "Scientific Advisors"). The Scientific Advisors have
extensive experience in fields related to BLSI's fields of research. The
Scientific Advisors may be asked to review and evaluate the research programs
of the Company, to provide advice with respect to technical matters in fields
in which it is involved, and to recommend personnel to the Company.
The Scientific Advisors are employed by or have consulting agreements with
other entities, some of which may conflict or compete with the Company, and
the Scientific Advisors are expected to devote only a minor portion of their
time to the Company. With the exception of the members of the Scientific
Advisory Board who are also consultants to the Company or its subsidiaries,
the Scientific Advisors are not expected to participate actively in the
Company's activities or in the development of its technologies. Certain of the
institutions with which the Scientific Advisors are affiliated may have
regulations or policies which limit the ability of such personnel to act as
consultants or in other capacities for a commercial enterprise. Regulations or
policies not in effect and adopted in the future might limit the ability of
the Scientific Advisors to consult with the Company.
8
<PAGE>
Furthermore, no inventions or processes discovered by the Scientific
Advisors will become the property of BLSI but will remain the property of such
persons' full-time employers, other than those inventions or processes that
may be covered by consulting agreements between the Company and such advisors.
In addition, the institutions with which the Scientific Advisors are
affiliated may make available the research services of their scientific and
other skilled personnel, including the Scientific Advisors, to entities other
than the Company pursuant to sponsored research agreements with others. Under
such sponsored research agreements, such institutions may be obligated to
assign or license patents and other proprietary information which may result
from research sponsored by an entity other than BLSI, including research
performed by a Scientific Advisor for a competitor of the Company.
The members of the Scientific Advisory Board and a composite of their
professional background and affiliations is as follows:
HENRY BREM, M.D. Dr. Brem is Professor of Neurosurgery, Ophthalmology, and
Oncology at Johns Hopkins University, and Director of Neurosurgical Oncology
at Johns Hopkins Hospital.
JOSEPH P. VACANTI, M.D. Dr. Vacanti is Associate Professor of Surgery,
Harvard Medical School, and Director of the Laboratory for Transplantation and
Tissue Engineering at the Children's Hospital, Boston.
ALEXANDER M. KLIBANOV, PH.D. Dr. Klibanov is Professor of Chemistry at
Massachusetts Institute of Technology.
MICHAEL A. MOSKOWITZ, M.D. Dr. Moskowitz is Professor of Neurology, Harvard
Medical School, and Associate Neurologist at Massachusetts General Hospital.
VLADIMIR TORCHILIN, PH.D. Dr. Torchilin is the Head of the Chemistry Program
at the Center for Imaging and Pharmaceutical Research, and Associate Professor
of Radiology at the Harvard Medical School.
MANUFACTURING
The Company currently has no manufacturing facilities for either clinical
trial or commercial quantities of any of its products. To date, the Company
has obtained the limited amount of quantities required for clinical trials
from contract manufacturing companies. The Company intends to continue to
utilize contract manufacturing arrangements with experienced firms for the
supply of material for both clinical trials and commercial sale. As a result
of these contract manufacturing arrangements, the Company will depend upon
third parties to produce and deliver products in accordance with all
applicable FDA and other governmental regulations. There can be no assurance
that such parties will perform their obligations in a timely fashion and that
any failures by such third parties would not cause a delay in clinical trials,
commercialization of products, or the ability to supply the market.
OBTAINING FDA AND OTHER GOVERNMENTAL APPROVALS
The Company's products and its manufacturing and research activities are and
will be subject to varying degrees of regulation by a number of government
authorities in the United States and other countries, including the FDA
pursuant to the Federal Food, Drug and Cosmetic Act. The FDA regulates
pharmaceutical products, including their manufacture and labeling. Prior to
marketing, any product developed by the Company must undergo an extensive
regulatory approval process which includes preclinical and clinical testing of
such product to demonstrate its safety and efficacy. This regulatory process
can require many years and the expenditure of substantial resources. Data
obtained from preclinical and clinical trials are subject to varying
interpretations, which can delay, limit or prevent FDA approval.
None of the Company's product candidates, preclinical compounds or other
technologies have been approved for marketing by the FDA or its international
equivalent. The Company cannot predict all relevant regulatory requirements or
issues that may arise with respect to its current and future products. Changes
in
9
<PAGE>
existing laws, regulations, policies or interpretations of prior events could
prevent the Company or its licensees, licensors or collaborators from, or
could affect the timing of, achieving compliance with regulatory requirements
including obtaining current and future regulatory clearances, where necessary.
Federal and state laws, regulations and policies are subject to change with
possible retroactive effect, and depend heavily on administrative policies and
interpretations. There can be no assurance that any changes with respect to
Federal and state laws, regulations and policies, and particularly, with
respect to FDA and other such regulatory bodies, will not have a material
adverse effect on the Company.
The process of obtaining FDA clearances can be time-consuming and expensive,
and there is no assurance that such clearances will be granted or that the FDA
review process will not involve delays that materially and adversely affect
the testing, marketing and sale of the Company's products. Similar delays may
be encountered in foreign countries. Moreover, regulatory clearances for new
products, even if granted, may include significant limitations on the uses for
which such products may be marketed. In addition, even if regulatory approval
is obtained, any marketed product and its manufacturer are subject to
continual review and any discovery of previously unrecognized problems with a
product or manufacturer could result in the suspension or limitation of
approvals. There can be no assurance that any clearances that are required,
once obtained, will not be withdrawn or that compliance with other regulatory
requirements can be maintained to the degree that the Company may have already
complied.
COMPETITION
The pharmaceutical industry is highly competitive and research on the causes
of, and possible treatments for, rheumatoid arthritis, cancer, Parkinson's
Disease, central nervous system disorders and autoimmune diseases are
developing rapidly. The Company competes with a number of pharmaceutical and
biotechnology companies which have financial, technical and marketing
resources significantly greater than those of the Company. Some companies with
established positions in the pharmaceutical industry may be better equipped
than the Company to develop and market products based on the application of
new technologies for the treatment of these diseases. A significant amount of
research in the field is also being carried out at universities and other not-
for-profit research organizations. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for use of technology that they have developed. These institutions
may also market competitive commercial products on their own or through joint
ventures and may compete with the Company in recruiting highly qualified
scientific personnel.
The Company is pursuing areas of product development in which there is a
potential for extensive technological innovation in relatively short periods
of time. The Company's competitors may succeed in developing products that are
more effective than those of the Company. Rapid technological change or
developments by others may result in the Company's potential products becoming
obsolete or non-competitive.
ADDITIONAL BUSINESS RISKS
Early Stage of Development; History of Operating Losses; Anticipation of
Future Losses
The Company is a development stage company. It has generated no revenues
from product sales, and it does not expect to generate revenue from product
sales. As of December 31, 1997, the Company's accumulated deficit was
approximately $33 million. To date, the Company has dedicated most of its
financial resources to the research and development of products, general and
administrative expenses, and the prosecution of patents and patent
applications. The Company expects to incur significant operating losses for at
least the next twelve months, and possibly longer, primarily due to the
expansion of its research and development programs, including preclinical
studies and clinical trials, and costs associated with the commercialization
of its products, if regulatory approvals are received. The Company's ability
to achieve profitability will depend, among other things, on successfully
completing development of its products, obtaining regulatory approvals,
establishing manufacturing, sales and marketing capabilities or collaborative
arrangements, and raising sufficient funds to finance its
10
<PAGE>
activities. There can be no assurance that the Company will be able to achieve
profitability or that profitability, if achieved, can be sustained. See
"Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Future Capital Needs; Uncertainty of Additional Funding
The Company has experienced negative cash flows from operations since its
inception and has funded its activities to date primarily from equity
financings. The Company has expended, and will continue to require,
substantial funds to continue research and development, including preclinical
studies and clinical trials of its products, and to commence sales and
marketing efforts if FDA and other regulatory approvals are obtained. The
Company expects that its existing capital resources will be sufficient to fund
its capital requirements through at least the next twelve months, and possibly
longer. Thereafter, the Company may need to raise substantial additional
capital to fund its operations. The Company's capital requirements will depend
on many factors, including the problems, delays, expenses and complications
frequently encountered by development stage companies; the progress of the
Company's research, development and clinical trial programs; the Company's
ability to satisfy the extent and terms of any future collaborative research,
manufacturing, marketing or other funding arrangements; the costs and timing
of seeking regulatory approvals of the Company's products; the Company's
ability to obtain regulatory approvals; the success of the Company's sales and
marketing programs; costs of filing, prosecuting and defending and enforcing
any patent claims and other intellectual property rights; and changes in
economic, regulatory or competitive conditions of the Company's planned
business. Estimates about the adequacy of funding for the Company's activities
are based on certain assumptions, including the assumption that testing and
regulatory procedures relating to the Company's products can be conducted at
projected costs. There can be no assurance that changes in the Company's
research and development plans, acquisitions, or other events will not result
in accelerated or unexpected expenditures. To satisfy its capital
requirements, the Company may seek to raise additional funds in the public or
private capital markets. The Company's ability to raise additional funds in
the public or private markets will be adversely affected if the results of its
current or future clinical trials are not favorable. The Company may seek
additional funding through corporate collaborations and other financing
vehicles. There can be no assurance that any such funding will be available to
the Company on favorable terms, if at all. If adequate funds are not
available, the Company may be required to significantly curtail one or more of
its research or development programs, or it may be required to obtain funds
through arrangements with future collaborative partners or others that may
require the Company to relinquish rights to some or all of its technologies or
products. If the Company is successful in obtaining additional financing, the
terms of such financing may have the effect of diluting or adversely affecting
the holdings or the rights of the holders of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Potential Product Liability; Availability of Insurance
The Company risks exposure to product liability claims if the use of its
products is alleged to have an adverse effect on subjects or patients. This
risk exists for products tested in human clinical trials as well as products
that are sold commercially. There can be no assurance that product liability
claims, if made, would not result in a recall of the Company's products or a
change in the indications for which they may be used. The Company maintains
product liability insurance coverage for claims arising from the use of its
products in clinical trials. There can be no assurance that this coverage will
be adequate to cover claims. Product liability insurance is becoming
increasingly expensive, and no assurance can be given that the Company will be
able to maintain such insurance, obtain additional insurance, or obtain
insurance at a reasonable cost or in sufficient amounts to protect the Company
against losses that could have a material adverse effect on the Company.
Dependence on Key Personnel
The success of the Company depends in large part on the Company's ability to
attract and retain highly qualified scientific and management personnel. The
Company faces competition for such personnel from other companies, research
and academic institutions, government entities and other organizations. There
can be no assurance that the Company will be successful in hiring or retaining
key personnel.
11
<PAGE>
Year 2000 Compliance
The Company does not use computers extensively in its operations. To the
extent that the Company uses software applications which contain source code
that is unable to interpret appropriately the upcoming calendar year "2000",
some level of modification or, more likely, the replacement of such
applications will be necessary. The Company is currently in the process of
completing the identification of software applications that are not "Year
2000" compliant and expects to make appropriate responses to address any issue
identified. Given the information known at this time about the Company's
systems, coupled with the Company's ongoing, normal course-of-business efforts
to upgrade or replace business critical systems as necessary, it is currently
not anticipated that these "Year 2000" costs will have any material adverse
effect on the Company's business, financial condition or results of
operations.
EMPLOYEES
As of March 24, 1998, the Company employed 12 individuals full-time, of whom
four hold Ph.D. or M.D. degrees. None of the Company's employees is covered by
a collective bargaining agreement. The Company believes its employee relations
are good.
ITEM 2. PROPERTIES.
The Company's administrative offices are located in Boston, Massachusetts.
The lease on this 3,500 square foot facility expires on June 30, 1999 and can
be renewed by the Company for additional three year periods. In addition, the
Company has 4,000 square feet of warehouse space in Horsham, Pennsylvania.
This lease will terminate on March 31, 1999. The Company believes that its
existing facilities are adequate for its present and anticipated purposes,
except that additional facilities will be needed if the Company builds its own
laboratory space or undertakes manufacturing operations. The Company, however,
has no present intention to develop such capabilities for its technologies.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings and is not aware of any
threatened litigation that could have a material adverse effect on the
Company's business, results of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The following is a list of the executive officers of the Company and their
principal positions with the Company. Except for S. David Hillson, Esq. and
Marc E. Lanser, M.D., who are employed pursuant to employment agreements, each
individual officer serves at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
S. David Hillson, Esq. ...... 57 Chairman of the Board of Directors, President
and Chief Executive Officer
Marc E. Lanser, M.D. ........ 49 Executive Vice President and Chief Scientific
Officer
Steve H. Kanzer, Esq. ....... 35 Secretary
Joseph Hernon, CPA........... 38 Chief Financial Officer
</TABLE>
S. DAVID HILLSON, ESQ. Mr. Hillson has been President and Chief Executive
Officer and a member of the Board since the Merger with Greenwich in June
1995. He also has served as Chairman of the Board of Directors
12
<PAGE>
since September 1996. Prior to the Merger, Mr. Hillson served as President,
Chief Executive Officer and a member of the Board of Directors of Old BLSI
from November 1994. Prior to his responsibilities at Old BLSI, from January to
November 1994, Mr. Hillson was Senior Vice President of Josephthal, Lyon &
Ross, Incorporated in the research and investment banking divisions and from
November 1992 to January 1994, Mr. Hillson was the Senior Managing Director,
investment banking, at The Stamford Company in New York City. From October
1990 until October 1992, Mr. Hillson was an Executive Vice President of the
asset management division of Mabon Securities. Earlier in his career as an
investment manager, Mr. Hillson was a Senior Vice President with Shearson,
Lehman, Hutton from 1983 to 1990, where he managed three mutual funds,
primarily in the emerging growth area, for the SLH Asset Management division.
Prior to his fund management responsibilities, he was the Chairman of the
Equity Committee for Hutton Investment Management (1976-1982). He started his
business career as an attorney in New York City, having received his Juris
Doctorate from New York University School of Law. He also attended the
Columbia University School of Business Administration and received a Bachelor
of Arts degree from Columbia College.
MARC E. LANSER, M.D. Dr. Lanser has been Executive Vice President and Chief
Scientific Officer and a member of the Board since June 1995. Prior to the
Merger, Dr. Lanser held the same position with Old BLSI from November 1994.
From October 1992 until November 1994, Dr. Lanser was President and Chief
Executive Officer of Old BLSI. Prior to assuming the position of President and
Chief Executive Officer of Old BLSI, Dr. Lanser was an Assistant Professor of
Surgery at Harvard Medical School and member of the full-time academic
faculty, where he directed an NIH funded research project in immunology and
received an NIH Research Career Development Award. Dr. Lanser has published
more than 30 scientific articles in his field in peer-reviewed journals. Dr.
Lanser received his M.D. from Albany Medical College.
STEVE H. KANZER, CPA, ESQ. Mr. Kanzer has been Secretary and a member of the
Board since June 1995. Prior to the Merger, Mr. Kanzer held the same position
with Old BLSI from October 1992. Mr. Kanzer is a Senior Managing Director--
Head of Venture Capital of Paramount Capital Investments, LLC, a firm
specializing in organizing and providing capital for biotechnology
acquisitions and startups, and Senior Managing Director of Paramount Capital,
Inc., a New York-based investment banking firm. Mr. Kanzer is also a member of
the board of directors of Atlantic Pharmaceuticals, Inc. and Endorex
Corporation, both publicly traded biopharmaceutical companies, and Chairman of
Discovery Laboratories, Inc., a privately held biopharmaceutical company. Due
to the demands of these activities, Mr. Kanzer informed the Board that he
wished to allow his term as a director to expire at the Company's 1998 Annual
Meeting of Stockholders. He has also indicated that he will resign as the
Company's Secretary as soon as a replacement is designated by the Board. From
October 1991 until January 1995, Mr. Kanzer was the General Counsel of The
Castle Group Ltd., a privately held biotechnology venture capital firm. Prior
to joining Paramount Capital Investments, LLC and Paramount Capital, Inc. in
1991, Mr. Kanzer was an associate at Skadden, Arps, Slate, Meagher & Flom in
New York City from 1988 to 1991. Mr. Kanzer received his J.D. from New York
University School of Law and a B.B.A. from Baruch College.
JOSEPH P. HERNON, CPA. Mr. Hernon has been Chief Financial Officer since
August 1996. Prior to joining the Company, Mr. Hernon was a Business Assurance
Manager at Coopers & Lybrand where he was employed from January 1987 to August
1996. Mr. Hernon holds a Masters of Science in Accountancy from Bentley
College and a Bachelor of Science in Business Administration from the
University of Lowell.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on The Nasdaq SmallCap Market under the
symbol BLSI. From October 28, 1994, until the Merger was completed in June
1995, the Company's Common Stock was traded on the Nasdaq SmallCap Market
under the symbol GRPI. Prior to October 28, 1994, the Company's Common Stock
was traded on The Nasdaq National Market under the symbol GRPI.
The following table sets forth the high and low sale prices for the
Company's Common Stock by quarter for 1996 and 1997, as reported by Nasdaq.
These prices reflect inter-dealer quotation, without retail mark-up, mark-
downs or other fees or commissions, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
--------- --------
<S> <C> <C>
1996
First Quarter........................................ $20 $6 1/4
Second Quarter....................................... 17 31/32 8 3/4
Third Quarter........................................ 12 1/2 6 7/8
Fourth Quarter....................................... 9 3/8 5 5/16
1997
First Quarter........................................ $10 $6 1/4
Second Quarter....................................... 7 1/2 4 13/16
Third Quarter........................................ 9 4 3/8
Fourth Quarter....................................... 4 1/8 1 31/32
</TABLE>
On March 24, 1998, the closing sales price for the Common Stock was $1 15/16
per share. The number of stockholders of record of Common Stock on March 24,
1998 was approximately 6,763. The Company has not paid any dividends and does
not expect to pay dividends in the foreseeable future.
Recent sales of unregistered securities: During the year ended December 31,
1997, the Company issued 18,018 shares of common stock related to the exercise
of outstanding warrants for which the Company received consideration in the
amount of $31,500. In addition, the Company issued 13,761 shares of common
stock related to the exercise of 14,100 warrants, of which 339 warrants were
surrendered to finance the exercise price of the warrants. All such
outstanding warrants had been issued prior to the year ended December 31,
1997, in transactions not involving a public offering.
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial information presented below has been
derived from the audited consolidated financial statements of the Company.
This data is qualified in its entirety by reference to, and should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations, included elsewhere herein.
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION YEAR ENDED
(OCTOBER 16, 1992) --------------------------
THROUGH DECEMBER 31, DECEMBER 31,
DECEMBER 31, 1992 1993 1994
--------------------- ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues..................... $ 0 $ 0 $ 0
Operating expenses........... 294,805 2,260,874 2,609,068
Net loss..................... (295,388) (2,254,898) (2,596,872)
Net loss per share........... $ (0.19) $ (0.78) $ (0.66)
Weighted average number of
shares outstanding.......... 1,520,044 2,893,940 3,933,921
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
YEAR ENDED (OCTOBER 16, 1992)
---------------------------------------- THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1997
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenues................ $ 416,940 $ 200,000 $ 83,060 $ 700,000
Operating expenses...... 13,462,322 7,047,399 9,202,664 34,877,132
Net loss, before
preferred stock
preferences............ (14,149,151) (5,996,147) (7,974,016) (33,266,472)
Preferred stock
preferences............ -- $(34,387,953) --
Net loss available to
common shareholders.... (14,149,151) (40,384,100) --
Basic and diluted net
loss per share, before
preferred stock
preferences............ $ (2.23) $ (0.61) $ (0.64)
Per share effect of
preferred stock
preferences............ -- (3.48) --
Basic and diluted net
loss per share
available to common
shareholders........... $ (2.23) $ (4.09) $ (0.64)
Weighted average number
of shares outstanding.. 6,347,993 9,880,222 12,378,219
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
--------- --------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets............ $ 314,136 $ 483,835 $ 806,502 $6,585,101 $26,153,130 $18,578,969
Working capital......... (262,725) (145,178) (1,518,571) (297,303) 20,383,735 12,718,875
Long-term debt.......... 0 0 0 658,735 0 0
Stockholders' equity
(deficit).............. (246,663) 42,374 (906,100) 1,185,802 24,100,406 16,587,165
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Management's Discussion and Analysis of Financial Condition and Results
of Operations that follows contains forward looking statements based on
current management expectations. Meaningful factors which could cause future
results to differ materially from such expectations include, without
limitation, the following: (i) the results from the Phase II/III clinical
trials for Altropane, (ii) scientific data collected on the Company's
technologies currently in preclinical research and development, (iii)
decisions made by the Food and Drug Administration ("FDA") or other regulatory
bodies with respect to the initiation of human clinical trials, (iv) decisions
made by the FDA or other regulatory bodies with respect to approval of the
amendment to the NDA for Therafectin, and to the commercial sale of any of the
Company's proposed products, including Therafectin, (v) the commercial
acceptance of any products approved for sale and the ability of the Company to
manufacture, distribute and sell for a profit any products approved for sale,
(vi) the Company's ability to obtain the necessary patents and proprietary
rights to effectively protect its proposed products and technologies, and
(vii) the outcome of any collaborations or alliances currently entered into by
the Company or to be entered into by the Company in the future with
pharmaceutical or other biotechnology companies.
RESULTS OF OPERATIONS
Overview
On June 15, 1995, Greenwich Pharmaceuticals Incorporated ("Greenwich")
acquired all of the outstanding common stock of Boston Life Sciences, Inc.
("Old BLSI") and merged with and into Old BLSI. Effective June 15, 1995, the
merged company was renamed "Boston Life Sciences, Inc." (the "Company") and
the management and Board of Directors of Old BLSI assumed management of the
Company. The acquisition of Old
15
<PAGE>
BLSI by Greenwich has been treated as a recapitalization of Old BLSI with Old
BLSI as the acquiror (reverse acquisition). The historical financial
statements prior to June 15, 1995 are those of Old BLSI.
The Company is a biotechnology company engaged in the research and
development of novel therapeutic and diagnostic products to treat chronic
debilitating diseases such as rheumatoid arthritis, cancer, central nervous
system disorders and autoimmune diseases. The Company anticipates that its (i)
research and development and (ii) general and administrative costs will
continue to increase as the Company attempts to gain regulatory approval for
the commercial introduction of its proposed products. At December 31, 1997,
the Company is considered a development stage enterprise as defined in
Statement of Financial Accounting Standards No. 7.
Year Ended December 31, 1997 and 1996
The Company's net loss was $7,974,016 for the year ended December 31, 1997
as compared with $5,996,147, excluding preferred stock preferences of
$34,387,953, for the year ended December 31, 1996. Net loss per common share
totaled $.64 per share for 1997 as compared with $.61 per share, excluding the
effect of preferred stock preferences which equaled $3.48 per share, for 1996.
The higher loss in 1997 was primarily due to (i) lower revenues, (ii)
increased research and development expenses, and (iii) higher costs associated
with the completion of the Phase III clinical trial for Therafectin which
began in March 1996 and ended in August 1997. The effect of these items were
partially offset by (i) lower licensing fees, (ii) decreased general and
administrative expenses and (iii) a reduction in interest expense.
The net loss available to common shareholders for the 1996 period, including
preferred stock preferences of $34,387,953, totaled $40,384,100. Net loss per
common share for 1996, including $3.48 attributable to preferred stock
preferences, totaled $4.09. In January and February 1996, the Company
completed a private placement of Series A Convertible Preferred Stock and
warrants. Based on the market price of the Company's stock on the date of
issuance, the preferred stock had a beneficial conversion feature of
$28,389,846 and the warrants had a fair value of $5,998,107.
Revenue was $83,060 during the year ended December 31, 1997 as compared with
$200,000 during the year ended December 31, 1996. Revenue for both periods was
attributable to the Agreement entered into with Zeneca in 1995. Under the
terms of the Agreement, which originally would have expired in June 1997,
Zeneca provided funds to support the research and development of certain
technology. In addition to providing funding, Zeneca has been screening its
molecule collection, seeking to identify an inhibitor of the Company's
transcription factor. The Agreement enables Zeneca to acquire the product
development rights to the Company's technology. Zeneca requested, and was
granted, an extension until May 1998, to complete the screening of its
molecule collection before deciding if it will exercise its product
development rights. If Zeneca exercises its option and achieves certain
product development milestones, the Company will receive additional milestone
payments as well as royalties from the sale of any products originating from
the collaboration.
Research and development expenses were $4,874,233 during the year ended
December 31, 1997 as compared with $2,408,734 during the year ended December
31, 1996. This increase was primarily due to the Company incurring a higher
level of research and development expenses for its existing technologies in
1997 as compared to 1996 related to the continued advancement of its clinical
efforts, and, to a lesser degree, to an increase in the number of personnel
supporting the Company's research and development activities. The majority of
the Company's research and development expenses were, and will continue to be
in 1998, sponsored research obligations paid to Harvard University and its
affiliated hospitals.
Licensing fees were $20,000 during the year ended December 31, 1997 as
compared with $390,000 during the year ended December 31, 1996. The decrease
primarily related to a decrease in the number of new technologies licensed to
the Company in 1997 as compared to 1996, as well as lower costs to obtain such
licenses. During 1997, the Company paid $20,000 to license one new technology
as compared to $340,000 paid in 1996 for the rights to three new technologies.
In addition to an initial licensing fee payment, the Company is obligated to
pay additional amounts upon the attainment of development milestones, as
defined in each respective
16
<PAGE>
licensing agreement, as well as royalties upon the sales of any resulting
products. During 1996, the Company made a milestone payment of $30,000 related
to the development of one of its technologies. The Company expects to pay
future licensing fees, the timing and amounts of which will depend upon the
progress attained in developing existing technologies and the terms of
agreements which may be executed for technologies currently being developed or
which may be developed in the future. There can be no assurance regarding the
likelihood or materiality of any such future licensing agreements.
Therafectin related expenses were $2,190,040 during the year ended December
31, 1997 as compared with $1,546,791 during the year ended December 31, 1996.
The increased level of expenses in 1997 related to the higher average number
of patients enrolled in the Company's Phase III clinical trial for Therafectin
in 1997 as compared to 1996. The Company commenced its Phase III clinical
trial in March 1996 and completed the trial in August 1997. On September 30,
1997, the Company announced the preliminary results of the trial. An analysis
of the trial data indicated that a statistically significant difference
between Therafectin and placebo in the percentage of patients achieving the
overall composite efficacy index had not been realized. However, in an
important secondary efficacy variable, there was a highly statistically
significant difference between Therafectin and placebo in reducing the number
of swollen joints in patients. Further, in a group of patients with higher
levels of swollen joints (approximately half of those completing the trial),
there was a statistically significant difference between Therafectin and
placebo in achieving success as measured by the overall composite efficacy
index. Additionally, utilizing the most recent MIRA ("Minocycline in
Rheumatoid Arthritis") criteria for "meaningful improvement", defined as at
least a 50% improvement in joint swelling compared to baseline, Therafectin
showed a statistically significant improvement compared to placebo. Consistent
with the previously established excellent safety profile of Therafectin, there
were no significant adverse events attributable to Therafectin during the
course of the study. In view of the excellent safety profile of Therafectin,
and the previous statistically significant successful trial combined with at
least three supportive trials (previously completed by Greenwich), the Company
convened an advisory panel of rheumatologists to seek input and advice
regarding whether to proceed with the submission of an amendment to the
pending NDA seeking approval for the drug.
In January 1998, the Company announced its intention to seek marketing
approval for Therafectin based upon the cumulative data obtained from the
trial and the input provided by its special panel of clinical rheumatologists.
The consensus of this special advisory panel was that the cumulative safety
and efficacy data on Therafectin justified its use by clinicians looking for a
safe alternative to other more toxic drugs now being used to treat Rheumatoid
Arthritis. The Company also reported that further analysis of the trial data
strongly suggested the therapeutic efficacy of Therafectin. Applying the
widely-accepted "Paulus" criteria of therapeutic efficacy (at least a 20%
improvement in 4 of 6 measures: joint tenderness scores, joint swelling
scores, physician's and patient's global assessment, erythrocyte sedimentation
rate (ESR), and morning stiffness), there was a highly statistically
significant difference in the percentage of Therafectin patients meeting the
Paulus criteria for therapeutic efficacy as compared to the percentage of
placebo patients meeting the Paulus criteria (p<0.02). Among the predefined
secondary efficacy variables, the reduction in the number of swollen joints,
the ESR results, Functional Class scores, and the CLINHAQ (a quality of life
measurement) were statistically significant in favor of Therafectin. In
addition, after withdrawing non-steroidal medication, clinical secondary
variables returned to baseline or better in the Therafectin group, while
remaining statistically significantly worse than baseline in the placebo
group. Applying the American College of Rheumatology (ACR) "50% improvement"
criteria to the number of swollen joints, 36% of Therafectin patients
experienced at least a 50% decrease in the number of swollen joints compared
to 23% of placebo patients resulting in a statistically significant difference
(p<0.04). Finally, in the subgroup of patients (about half the total number)
entering the study with greater than the median number of swollen joints
(ten), the primary and secondary variables specified in the trial protocol
were statistically significant. The Company believes that statistically
significant improvement in the important clinical variables related to joint
swelling, functional class, and "quality of life" experienced by the
Therafectin patients demonstrates the clinical efficacy of Therafectin.
Because the beneficial effect is most obvious on joint swelling, the Company
believes that the other improvements are secondary to Therafectin's apparent
ability to favorably impact the underlying disease.
17
<PAGE>
Before any commercially viable product from Therafectin may be developed,
and any revenue generated therefrom, the Company currently expects that
between $1.0 million and $2.0 million of additional future expense will be
necessary. There can be no assurance, however, that the expenditure of these
additional amounts will result in the regulatory approval of any compounds or
that such approval will ever be able to be obtained by the Company. Moreover,
if the Company is ultimately unsuccessful in obtaining regulatory approval for
Therafectin, the Company may be required to write off all or some portion of
the $3.5 million asset value attributable to Therafectin as reflected on the
Company's balance sheet.
General and administrative expenses were $2,118,391 during the year ended
December 31, 1997 as compared with $2,701,874 during the year ended December
31, 1996. This decrease was primarily due to lower professional services
expenses.
Interest income was $1,148,025 during the year ended December 31, 1997 as
compared with interest income of $1,151,810 during the year ended December 31,
1996. Average cash and investment balances during 1997 were comparable to
1996. The interest income realized during both periods related to the Company
raising net proceeds of approximately $25.6 million from two private
placements completed in 1996. Interest expense totaled $2,437 during the year
ended December 31, 1997 as compared to $300,558 during the year ended December
31, 1996. Interest expense incurred in 1996 included amounts related to (i)
$2.175 million of notes payable, which were fully repaid on April 1, 1996,
(ii) $1.0 million of convertible debentures, which were converted to common
stock in the first quarter of 1996, and (iii) the amortization of the discount
and debt issuance costs on both debt instruments during the period outstanding
in 1996.
At December 31, 1997, the Company had net deferred tax assets of
approximately $19.5 million for which a full valuation allowance has been
established. As a result of its concentrated efforts on research and
development and Therafectin related expenses, the Company has a history of
incurring net operating losses and expects to incur additional net operating
losses for the foreseeable future. Accordingly, management believes that, at
the present time, it is appropriate to conclude that it is more likely than
not that the future benefits related to the deferred tax assets will not be
realized and, therefore, has provided a full valuation allowance for these
assets. In the event the Company achieves profitability, these deferred tax
assets may be available to offset future income tax liabilities and expense.
Year Ended December 31, 1996 and 1995
The Company's net loss was $5,996,147, excluding preferred stock preferences
of $34,387,953, for the year ended December 31, 1996 as compared with
$14,149,151 during the year ended December 31, 1995. Net loss per common share
totaled $.61 per share for 1996, excluding the effect of preferred stock
preferences which equaled $3.48 per share, for 1996, as compared with $2.23
per share for 1995. The Company's operating loss for the year ended December
31, 1995 totaled $13,045,382 which included approximately $10.4 million of
purchased research and development in-process which was expensed in
conjunction with the Company's Merger with Greenwich on June 15, 1995.
Exclusive of the purchased research and development in-process, the Company's
operating loss increased from $2,623,838 for the year ended December 31, 1995
to $6,847,399 for the year ended December 31, 1996. The higher operating loss
in 1996 was primarily due to (i) lower revenues, (ii) costs associated with
the preparation and initiation of the Phase III clinical trial for Therafectin
which began in March 1996, (iii) an increase in the number of technologies
licensed to the Company by its collaborative partners and the resulting
incurrence of licensing fees and research and development expenses, and (iv)
higher costs associated with being a publicly traded company during all of
1996 as compared to only a portion of 1995.
The net loss available to common shareholders for the 1996 period, including
preferred stock preferences of $34,387,953, totaled $40,384,100. Net loss per
common share for 1996, including $3.48 attributable to preferred stock
preferences, totaled $4.09. In January and February 1996, the Company
completed a private placement of Series A Convertible Preferred Stock and
warrants. Based on the market price of the Company's stock on the date of
issuance, the preferred stock had a beneficial conversion feature of
$28,389,846 and the warrants had a fair value of $5,998,107.
18
<PAGE>
Revenue was $200,000 during the year ended December 31, 1996 as compared
with $416,940 during the year ended December 31, 1995. Revenue for both
periods includes approximately $200,000 and $167,000, respectively,
attributable to the Agreement with Zeneca. Revenue for 1995 also includes the
recognition of $250,000 of revenue which had previously been deferred until
the conclusion of negotiations regarding the treatment of such amounts with a
potential corporate partner.
Research and development expenses were $2,408,734 during the year ended
December 31, 1996 as compared with $1,446,298 during the year ended December
31, 1995. This increase was primarily due to (i) the Company incurring a
higher level of research and development expenses for its existing
technologies in 1996 as compared to 1995 related to the continued advancement
of its clinical efforts, (ii) the initiation of new Company sponsored research
contracts with its collaborators for the development of technologies licensed
to the Company in 1996 by these partners, and (iii) an increase in the number
of personnel supporting the Company's research and development activities. The
majority of the Company's research and development expenses were sponsored
research obligations paid to Harvard University and its affiliated hospitals.
Licensing fees were $390,000 during the year ended December 31, 1996 as
compared with $71,250 during the year ended December 31, 1995. The increase
primarily related to $340,000 of licensing fee payments for three new
technologies licensed to the Company in 1996 as compared to licensing fee
payments of $35,000 for two technologies initially licensed to the Company in
1995. In addition to an initial licensing fee payment, the Company is
obligated to pay additional amounts upon the attainment of development
milestones, as defined in each respective licensing agreement, as well as
royalties upon the sales of any resulting products. During 1996, the Company
made a milestone payment of $30,000 related to the development of one of its
technologies. The Company expects to pay future licensing fees, the timing and
amounts of which will depend upon the progress attained in developing existing
technologies and the terms of agreements which may be executed for
technologies currently being developed or which may be developed in the
future. There can be no assurance regarding the likelihood or materiality of
any such future licensing agreements.
Therafectin related expenses were $1,546,791 during the year ended December
31, 1996 as compared with zero during the comparable 1995 period. The Company
commenced its Phase III clinical trial for Therafectin in March 1996.
General and administrative expenses were $2,701,874 during the year ended
December 31, 1996 as compared with $1,523,230 during the year ended December
31, 1995. This increase was primarily due to the Company (i) expanding its
operations, including its headcount, and (ii) incurring higher costs,
primarily legal, public relations, and other professional services expenses,
associated with being a publicly traded company during all of 1996 as compared
with only a portion of 1995.
Interest income was $1,151,810 during the year ended December 31, 1996 as
compared with interest income of $51,120 during the year ended December 31,
1995. The increase in 1996 related to higher average cash and investment
balances associated with the Company raising net proceeds of approximately
$25.6 million from two private placements completed in 1996. Interest expense
totaled $300,558 during 1996 as compared to $1,154,889 during 1995. Interest
expense incurred in 1995 included amounts related to (i) the issuance of
$2.175 million of notes payable during the first quarter of 1995, (ii) the
issuance of $1.0 million of convertible subordinated debentures in the fourth
quarter of 1995, and (iii) the amortization of the discount and debt issuance
costs associated with both debt instruments. Interest expense incurred in 1996
included amounts related to (i) the notes payable, which were fully repaid on
April 1, 1996, (ii) the convertible debentures, which were converted to common
stock in the first quarter of 1996, and (iii) the amortization of the discount
and debt issuance costs on both debt instruments during the period outstanding
in 1996.
At December 31, 1996, the Company had net deferred tax assets of
approximately $15.6 million for which a full valuation allowance has been
established. As a result of its concentrated efforts on research and
development, and Therafectin related expenses, the Company has a history of
incurring net operating losses and expects to incur additional net operating
losses for the foreseeable future. Accordingly, management believed
19
<PAGE>
that it was appropriate to conclude that it was more likely than not that the
future benefits related to the deferred tax assets would not be realized and,
therefore, provided a full valuation allowance for these assets. In the event
the Company achieves profitability, these deferred tax assets may be available
to offset future income tax liabilities and expense.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily satisfied its working capital
requirements from the sale of the Company's securities through private
placements. In January and February 1996, the Company raised approximately
$20.6 million of net proceeds by completing a private placement of units
consisting of (i) shares of its Series A Convertible Preferred Stock and (ii)
warrants to purchase shares of the Company's common stock. In June 1996, the
Company raised approximately $5.0 million of net proceeds by completing a
private placement of 500,000 shares of common stock. For additional
information related to the private placements, see Notes 9 and 10 of the Notes
to the Consolidated Financial Statements included in this Form 10-K/A.
In addition, the Company has raised working capital through the issuance of
notes payable and convertible debentures. In March 1995, Old BLSI issued
$2,175,000 of units consisting of notes payable, common stock and warrants to
purchase shares of Old BLSI's Series B Preferred Stock. The $2,175,000 of
notes payable became obligations of the Company and the warrants exercisable
for shares of Old BLSI Series B Preferred Stock were exchanged for warrants
exercisable for shares of the Company's common stock. In the second quarter of
1996, the Company repaid all accrued interest plus the remaining principal of
$1,525,000 of the notes payable. In December 1995, the Company also issued
$1,000,000 of convertible subordinated debentures. During the first quarter of
1996, the entire $1,000,000 of convertible subordinated debentures were
converted into 156,605 shares of common stock.
In the future, the Company's working capital and capital requirements will
depend on numerous factors, including the progress of the Company's research
and development activities, the level of resources that the Company devotes to
the developmental, clinical, and regulatory aspects of its products, and the
extent to which the Company enters into collaborative relationships with
pharmaceutical and biotechnology companies.
At December 31, 1997, the Company had available cash, cash equivalents, and
investments of approximately $14.1 million and working capital of
approximately $12.7 million. The Company believes that the level of financial
resources available at December 31, 1997 will provide sufficient working
capital to meet its anticipated expenditures for more than the next twelve
months. The Company may raise additional capital in the future through
collaboration agreements with other pharmaceutical or biotechnology companies,
debt financing and equity offerings. There can be no assurance, however, that
the Company will be successful or that additional funds will be available on
acceptable terms, if at all.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Boston Life Sciences, Inc.
In our opinion, the accompanying consolidated financial statements listed in
the index on page 43 present fairly, in all material respects, the financial
position of Boston Life Sciences, Inc. (a development stage enterprise) and
its subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997 and for the period from inception (October 16, 1992)
through December 31, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 12, 1998
21
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents........................ $ 1,713,975 $ 8,411,821
Short-term investments........................... 12,338,496 12,995,022
Prepaid sponsored research and development
expenses........................................ 150,000 431,000
Other current assets............................. 508,208 598,616
------------ ------------
Total current assets........................... 14,710,679 22,436,459
Fixed assets, net.................................. 95,061 100,997
Acquired technology................................ 3,500,000 3,500,000
Other assets....................................... 273,229 115,674
------------ ------------
Total assets................................... $ 18,578,969 $ 26,153,130
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable.................................... $ -- $ 61,752
Accounts payable and accrued expenses............ 1,991,804 1,907,912
Deferred revenue................................. -- 83,060
------------ ------------
Total current liabilities...................... 1,991,804 2,052,724
------------ ------------
Commitments and contingencies (Note 13)
Stockholders' equity:
Series A convertible preferred stock, $.01 par
value, 1,000,000 shares authorized; 28,372 and
133,610 shares issued and outstanding at
December 31, 1997 and 1996, respectively........ 284 1,336
Common stock, $.01 par value; 25,000,000 shares
authorized; 12,993,838 and 11,104,854 shares
issued and outstanding at December 31, 1997 and
1996, respectively.............................. 129,938 111,049
Additional paid-in capital......................... 49,624,386 49,520,767
Deferred compensation.............................. -- (240,290)
Unrealized gains on investments.................... 99,029 --
Deficit accumulated during development stage....... (33,266,472) (25,292,456)
------------ ------------
Total stockholders' equity..................... 16,587,165 24,100,406
------------ ------------
Total liabilities and stockholders' equity..... $ 18,578,969 $ 26,153,130
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
22
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FROM INCEPTION
(OCTOBER 16,
FOR THE YEAR ENDED DECEMBER 31, 1992) TO
--------------------------------------- DECEMBER 31,
1997 1996 1995 1997
----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Revenues................ $ 83,060 $ 200,000 $ 416,940 $ 700,000
----------- ------------ ------------ ------------
Operating Expenses:
Research and
development.......... 4,874,233 2,408,734 1,446,298 11,897,113
Licensing fees........ 20,000 390,000 71,250 653,683
Therafectin related... 2,190,040 1,546,791 -- 3,736,831
General and
administrative....... 2,118,391 2,701,874 1,523,230 8,167,961
Purchased research and
development
in-process........... -- -- 10,421,544 10,421,544
----------- ------------ ------------ ------------
9,202,664 7,047,399 13,462,322 (34,877,132)
----------- ------------ ------------ ------------
Loss from
operations......... (9,119,604) (6,847,399) (13,045,382) (34,177,132)
Interest expense........ (2,437) (300,558) (1,154,889) (1,461,829)
Interest income......... 1,148,025 1,151,810 51,120 2,372,489
----------- ------------ ------------ ------------
Net loss.............. $(7,974,016) $ (5,996,147) $(14,149,151) $(33,266,472)
=========== ============ ============ ============
Calculation of net loss
available to common
shareholders:
Net loss.............. $(7,974,016) $ (5,996,147) $(14,149,151)
Preferred stock
preferences (Note
10).................. -- (34,387,953) --
----------- ------------ ------------
Net loss available to
common shareholders.. $(7,974,016) $(40,384,100) $(14,149,151)
=========== ============ ============
Calculation of basic and
diluted net loss per
share available to
common shareholders:
Net loss.............. $ (0.64) $ (0.61) $ (2.23)
Preferred stock
preferences (Note
10).................. -- (3.48) --
----------- ------------ ------------
Basic and diluted net
loss per share
available to common
shareholders......... $ (0.64) $ (4.09) $ (2.23)
=========== ============ ============
Weighted average shares
outstanding............ 12,378,219 9,880,222 6,347,993
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
23
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 16, 1992) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK
--------------------
NUMBER OF
SHARES PAR VALUE
--------- ---------
<S> <C> <C>
Issuance of common stock to founders.....................
Net loss.................................................
-------- -------
Balance at December 31, 1992.............................
Issuance of option to purchase common stock to a
licensor................................................
Issuance of common stock to a consultant.................
Issuance of common stock, net issuance costs of
$500,988................................................
Net loss.................................................
-------- -------
Balance at December 31, 1993.............................
Issuance of common stock, net issuance costs of
$406,916................................................
Issuance of common stock upon exercise of option.........
Net loss.................................................
-------- -------
Balance at December 31, 1994.............................
Issuance of common stock and warrants related to bridge
financing...............................................
Issuance of common stock and warrants upon merger........
Issuance of common stock in exchange for minority
interest in certain Subsidiaries........................
Issuance of common stock upon exercise of options........
Issuance of common stock subject to redemption...........
Expiration of valuation periods for common stock subject
to redemption...........................................
Issuance of convertible debt.............................
Deferred compensation related to stock options and
warrants granted........................................
Compensation expense related to stock options and
warrants................................................
Net loss.................................................
-------- -------
Balance at December 31, 1995............................. -- --
Issuance of preferred stock, net issuance costs of
$3,397,158.............................................. 239,911 2,399
Conversion of preferred stock into common stock.......... (106,301) (1,063)
Issuance of common stock, net issuance costs of $42,537..
Issuance of common stock upon conversion of convertible
debentures..............................................
Issuance of common stock upon exercise of warrants and
options.................................................
Expiration of valuation periods for common stock subject
to redemption...........................................
Deferred compensation related to stock options granted...
Compensation expense related to stock options............
Net loss................................................. -- --
-------- -------
Balance at December 31, 1996............................. 133,610 $ 1,336
Conversion of preferred stock into common stock.......... (105,238) (1,052)
Issuance of common stock upon exercise of warrants and
options.................................................
Expiration of valuation periods for common stock subject
to redemption...........................................
Deferred compensation related to stock options granted...
Compensation expense related to stock options............
Unrealized gains on investments..........................
Net loss................................................. -- --
-------- -------
Balance at December 31, 1997............................. 28,372 $ 284
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
<TABLE>
<CAPTION>
DEFICIT
COMMON STOCK ACCUMULATED TOTAL
--------------------- ADDITIONAL UNREALIZED DURING STOCKHOLDERS'
NUMBER OF PAID IN DEFERRED GAINS ON DEVELOPMENT EQUITY
SHARES PAR VALUE CAPITAL COMPENSATION INVESTMENTS STAGE (DEFICIT)
---------- --------- ----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1,520,044 $ 15,200 $ 33,525 $ -- $ 48,725
-- -- -- (295,388) (295,388)
---------- -------- ----------- --------- ------- ------------ -----------
1,520,044 15,200 33,525 (295,388) (246,663)
-- -- 62,433 -- 62,433
3,913 40 7,460 -- 7,500
1,545,713 15,457 2,458,545 -- 2,474,002
-- -- -- (2,254,898) (2,254,898)
---------- -------- ----------- --------- ------- ------------ -----------
3,069,670 30,697 2,561,963 (2,550,286) 42,374
987,355 9,873 1,638,211 -- 1,648,084
95,378 954 (640) -- 314
-- -- -- (2,596,872) (2,596,872)
---------- -------- ----------- --------- ------- ------------ -----------
4,152,403 41,524 4,199,534 (5,147,158) (906,100)
198,366 1,984 797,409 799,393
3,519,736 35,197 14,568,751 14,603,948
100,000 1,000 (1,000) --
37,567 375 184,952 185,327
324,675 3,247 (3,247) --
180,600 180,600
411,002 411,002
327,146 $(327,146) --
-- 60,783 60,783
-- -- -- -- (14,149,151) (14,149,151)
---------- -------- ----------- --------- ------- ------------ -----------
8,332,747 83,327 20,665,147 (266,363) (19,296,309) 1,185,802
-- -- 20,591,443 -- -- 20,593,842
1,864,276 18,643 (17,580) --
547,274 5,473 5,001,490 5,006,963
156,605 1,566 576,023 577,589
203,952 2,040 499,765 501,805
1,764,872 1,764,872
439,607 (439,607) --
465,680 465,680
-- -- -- -- (5,996,147) (5,996,147)
---------- -------- ----------- --------- ------- ------------ -----------
11,104,854 111,049 49,520,767 (240,290) (25,292,456) 24,100,406
1,845,634 18,456 (17,404) --
43,350 433 54,283 54,716
28,886 28,886
37,854 (37,854) --
278,144 278,144
$99,029 99,029
-- -- -- -- -- (7,974,016) (7,974,016)
---------- -------- ----------- --------- ------- ------------ -----------
12,993,838 $129,938 $49,624,386 $ -- $99,029 $(33,266,472) $16,587,165
========== ======== =========== ========= ======= ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM INCEPTION
(OCTOBER 16,
FOR THE YEAR ENDED DECEMBER 31, 1992) TO
--------------------------------------- DECEMBER 31,
1997 1996 1995 1997
----------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss......................... $(7,974,016) $ (5,996,147) $(14,149,151) $(33,266,472)
Adjustments to reconcile net loss
to net cash used for
operating activities:
Purchased research and
development in-process.......... -- -- 10,421,544 10,421,544
Compensation charge related to
options and warrants granted.... 278,144 465,680 60,783 874,540
Amortization and depreciation.... 79,946 297,839 962,252 1,355,583
Loss on disposal of fixed
assets.......................... -- -- 15,589 15,589
Changes in assets and
liabilities:
(Increase) decrease in prepaid
sponsored research and
development expenses........... 281,000 (313,098) (86,089) (150,000)
Decrease (increase) in other
current assets................. 90,408 (277,415) 189,713 (12,680)
(Decrease) increase in accounts
payable and accrued expenses... 83,892 396,741 (298,896) 1,044,139
(Decrease) increase in deferred
revenue........................ (83,060) -- (166,940) --
----------- ------------ ------------ ------------
Net cash used for operating
activities.................... (7,243,686) (5,426,400) (3,051,195) (19,717,757)
----------- ------------ ------------ ------------
Cash flows from investing
activities:
Cash acquired through the merger
with
Greenwich Pharmaceuticals, Inc... -- -- 1,758,037 1,758,037
Purchase of fixed assets......... (74,010) (107,384) (27,115) (256,701)
Proceeds from sale of fixed
assets.......................... -- -- 9,800 9,800
Increase in other assets......... (157,555) (107,674) -- (273,229)
Short term investments:
Purchases........................ (8,984,893) (22,324,741) (248,320) (31,557,954)
Sales and maturities............. 9,740,448 9,578,039 -- 19,318,487
----------- ------------ ------------ ------------
Net cash provided by (used for)
investing activities.......... 523,990 (12,961,760) 1,492,402 (11,001,560)
----------- ------------ ------------ ------------
Cash flows from financing
activities:
Proceeds from issuance of common
stock........................... 83,602 5,686,177 2,190,927 13,009,745
Proceeds from issuance of
preferred stock................. -- 20,872,170 -- 20,872,170
Proceeds from issuance of notes
payable......................... -- -- 2,175,000 2,585,000
Proceeds from issuance of
convertible debt................ -- -- 1,000,000 1,000,000
Principal payments of notes
payable......................... (61,752) (1,628,062) (696,653) (2,796,467)
Payment of note issuance costs... -- -- (399,702) (399,702)
Payment of stock issuance and
merger transaction costs........ -- (256,142) (731,773) (1,837,454)
----------- ------------ ------------ ------------
Net cash provided by financing
activities.................... 21,850 24,674,143 3,537,799 32,433,292
----------- ------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents............. (6,697,846) 6,285,983 1,979,006 1,713,975
Cash and cash equivalents,
beginning of period.............. 8,411,821 2,125,838 146,832 --
----------- ------------ ------------ ------------
Cash and cash equivalents, end of
period........................... $ 1,713,975 $ 8,411,821 $ 2,125,838 $ 1,713,975
=========== ============ ============ ============
Supplemental cash flow
disclosures:
Interest paid.................... $ 2,437 $ 198,739 $ 66,815
Noncash transactions
Described in footnotes........... 10 8, 9, 10 2, 8, 11
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
Boston Life Sciences, Inc. (the "Company"), founded in October 1992, is a
biotechnology company engaged in the research and development of novel
therapeutic and diagnostic products to treat chronic debilitating diseases
such as cancer, central nervous system disorders and autoimmune diseases. On
June 15, 1995, Greenwich Pharmaceutical Incorporated ("Greenwich") acquired
(the "Merger") all of the outstanding capital stock of Boston Life Sciences,
Inc. ("Old BLSI"). Effective June 15, 1995, the merged company was renamed
"Boston Life Sciences, Inc." (the "Company") and the management and Board of
Directors of Old BLSI assumed management of the Company (Note 2).
During the period from inception through December 31, 1997, the Company has
devoted substantially all of its efforts to business planning, raising
financing, consummating the merger with Greenwich, the research and
development of its technologies, Therafectin related activities and corporate
partnering efforts. Accordingly, the Company is considered to be in the
development stage as defined in Statement of Financial Accounting Standards
No. 7.
A summary of the Company's significant accounting policies is as follows:
Basis of Consolidation
The Company's consolidated financial statements include the accounts of its
six subsidiaries where a majority of the operations are conducted. Five of
these subsidiaries, Ara Pharmaceutical, Inc., Acumed Pharmaceutical, Inc.,
Boston Life Sciences International, Inc., Coda Pharmaceutical, Inc. and
NeuroBiologics, Inc., are wholly-owned. A minority shareholder owns 10% of the
sixth subsidiary, Procell Pharmaceutical, Inc. ("Procell"). For the period
from inception (October 16, 1992) through December 31, 1997, each subsidiary
has incurred losses, all of which are included in the Company's consolidated
statement of operations. All significant intercompany transactions and
balances have been eliminated.
Cash, Cash Equivalents and Investments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests its cash equivalents primarily in overnight repurchase agreements,
money market funds, and United States treasury and agency obligations. At
December 31, 1997 and periodically throughout the year, the Company had cash
balances at certain financial institutions in excess of federally insured
limits. However, the Company does not believe that it is subject to any
unusual credit risk beyond the normal credit risk associated with commercial
banking relationships.
Investments, which are classified as available-for-sale, are recorded at
fair value. Unrealized gains or losses are not immediately recognized but are
reflected as a component of stockholders' equity until realized. Investments
consist of United States treasury and agency bonds, and domestic and foreign
corporate bonds (Note 3). These investments are classified as a current asset
because they are highly liquid and are available, as required, to meet working
capital and other operating requirements.
Other assets include approximately $160,000 of cash maintained in a
restricted escrow account. In April 1997, the Company's primary banking
institution loaned $150,000 to an officer of the Company (the "Loan"). As a
condition to and as security for the Loan, the Bank requested that the Company
pledge to the Bank a certificate of deposit. Such funds will be maintained in
the escrow account until the Loan is repaid.
Financial Instruments
At December 31, 1997 and 1996, the carrying amounts of cash equivalents and
short-term investments approximate fair value because of their high credit
quality, or the short maturity or holding period of these instruments.
27
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition and Concentration of Customers
In June 1995, the Company entered into a research and development
collaboration agreement for a certain specified technology with a
pharmaceutical company. Under the terms of the agreement, which originally
would have expired in June 1997, the pharmaceutical company provided funds to
support the research and development of the specified technology. Payments
received were recognized as revenue ratably over the original term of the
agreement which the Company believes corresponded with the manner in which the
work was performed.
Fixed Assets
Furniture and equipment are stated at cost. Depreciation is provided using
the straight-line method based on the estimated useful lives of the assets.
Maintenance and repair expenditures are charged to expense as incurred.
Licensing Fees, Research and Development Expenses, and Concentration of
Outside Researchers
The Company has entered into licensing agreements with certain institutions
that provide the Company with the rights to certain patents and technologies,
and the right to market and distribute any products developed. Obligations
initially incurred to acquire these rights are recognized and expensed on the
date that the Company acquires the rights.
The Company has entered into sponsored research agreements with certain
institutions for the research and development of its licensed technologies.
Payments made under these sponsored research agreements are expensed ratably
over the term of the agreement which the Company believes corresponds with the
manner in which the work is performed.
The Company currently conducts a substantial portion of its research and
development through a certain University and its affiliates pursuant to
sponsored research agreements. The majority of the Company's technologies
currently under development were invented or discovered by researchers working
for this University and its affiliates. A substantial portion of the Company's
research is thus dependent upon a continuing business relationship with this
University.
Research and development activities cease when developmental work is
substantially complete and when the Company believes appropriate efficacy has
been demonstrated. In connection with its merger with Greenwich, the Company
acquired technology related to Therafectin, a treatment for rheumatoid
arthritis. Greenwich had previously conducted clinical trials which management
believes demonstrated the efficacy of the technology. Accordingly, costs
related to Therafectin have been separately stated in the consolidated
statement of operations.
Acquired Technology
In connection with the Merger, $3,500,000 of the purchase price was ascribed
to acquired technology. The Company assesses whether there has been impairment
whenever events or changes in circumstances indicate that any portion of the
carrying amount of the technology may not be recoverable. The Company
evaluates potential impairment by comparing anticipated undiscounted future
cash flows from expected product sales of the technology with its carrying
value. The factors considered by management in performing this assessment
include the expected cost to obtain product approval as well as the effects on
expected product sales of competition, demand, and other economic factors. At
December 31, 1997, management believes that there has been no impairment in
the value of the technology.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are recorded for the expected
future tax consequences of temporary differences between the
28
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
financial statement and tax bases of assets and liabilities. A valuation
allowance is established to reduce net deferred tax assets to the amount
expected to be realized.
Reverse Stock Split
On June 6, 1997, the Company's stockholders approved a one-for-ten reverse
split of the common stock effective as of June 9, 1997. All share and per
share amounts have been retroactively restated to reflect the terms of the
split.
Net Loss Per Share
In February 1997, The Financial Accounting Standards Board issued Statements
of Financial Accounting Standards (FAS) No. 128, "Earnings per Share". FAS 128
specifies the computation, presentation and disclosure requirements for
earnings per share and is designed to improve earnings per share information
by simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of per share data on an
international basis. FAS 128 simplifies the existing computational guidelines
by replacing primary EPS with basic EPS, with the principal difference being
that common stock equivalents are not considered in computing basic EPS. As
long as the Company continues to experience net losses, there will be no
impact to its net loss per share computation since its common stock
equivalents are anti-dilutive and are excluded in computing loss per share, as
noted above. FAS 128 became effective for annual and interim financial
statements issued for periods ending after December 15, 1997 with prior period
EPS data required to be restated. Due to the losses recorded to date, there
was no impact on prior year financial statements as a result of the adoption
of FAS 128.
Basic and diluted net loss per share available to common shareholders has
been calculated by dividing net loss, adjusted for preferred stock
preferences, by the weighted average number of common shares outstanding
during the period. All common stock equivalents have been excluded from the
calculation of weighted average common shares outstanding since their
inclusion would be antidilutive.
Accounting for Stock-Based Compensation
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock-based compensation plans and related equity
issuances. Under these standards, no compensation expense is recognized for
stock options issued to employees and directors ("qualified employees")
provided the exercise price for one share of common stock equals the market
price of the Company's common stock at the date of grant. Non-qualified
options issued at less than the market price result in the recognition of
compensation expense equal to the intrinsic value (difference between market
price and exercise price). Options and warrants issued to non-employees are
subject to a fair value based method of accounting under which compensation
cost is generally measured at the vesting date based on the value of the
award. The value is determined using the Black-Scholes pricing model and the
resulting expense is recognized over the vesting period.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123). The Company has elected to implement FAS 123 on a
disclosure basis only (Note 11).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses for the periods
presented. Actual results could differ from those estimates.
29
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Risks and Uncertainties
The Company is subject to risks and uncertainties common to the
biotechnology industry. Such risks and uncertainties include, but are not
limited to: (i) results from current and planned clinical trials, (ii)
scientific data collected on technologies currently in preclinical research
and development, (iii) decisions made by the Food and Drug Administration
("FDA") or other regulatory bodies with respect to the initiation of human
clinical trials and the commercial sale of any proposed products, (iv) the
Company's ability to obtain the necessary patents and proprietary rights to
effectively protect its technologies, and (v) the outcome of any current or
future collaborations or alliances with pharmaceutical or other biotechnology
companies.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation. These reclassifications had no
effect on net loss for 1996 and 1995.
2. ACQUISITION AND MERGER WITH GREENWICH
The acquisition of Old BLSI by Greenwich (the "Merger") has been treated as
a recapitalization of Old BLSI with Old BLSI as the acquiror (reverse
acquisition). The historical financial statements prior to June 15, 1995 are
those of Old BLSI. Historical stockholders' equity of Old BLSI prior to the
Merger has been retroactively restated for the equivalent number of shares
received in the Merger after giving effect to any difference in par value of
Greenwich's and Old BLSI's common stock, with an offset to paid-in capital.
Under the terms of the Merger, the outstanding shares of common stock of BLSI
were exchanged for approximately 4.35 million shares of the Company's common
stock. The total purchase price, including approximately 3.52 million shares
of the Company's common stock (with a value of approximately $14.3 million),
transaction costs, and the value ascribed to outstanding Greenwich stock
options and warrants, was approximately $15.5 million. Under the purchase
method used to account for this transaction, the purchase price was allocated
based on the estimated fair value of the assets and liabilities acquired at
the date of acquisition. Based upon management's review and the results of an
independent appraisal, $3.5 million of the purchase price was ascribed to
acquired technology (Notes 1 and 5). In addition, approximately $10.4 million
of the purchase price was allocated to acquired research and development in-
process, whereby appropriate efficacy had not been demonstrated and no
alternative future use identified. Accordingly, such amount was expensed in
the 1995 statement of operations. The results of operations of Greenwich have
been consolidated with the Company's results from June 15, 1995.
The following unaudited pro forma summary presents the consolidated results
of operations assuming that the merger of Greenwich and Old BLSI (the
"Merger") had occurred on January 1, 1995. No adjustments are required to
conform the accounting policies of Old BLSI and Greenwich. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what would have occurred had the transaction been effected on
the date indicated above or of results which may occur in the future. In
addition, for purposes of preparing the pro forma information, the $10.4
million charge for in-process research and development resulting from the
acquisition has been excluded.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
--------------------------------------------
OLD BLSI GREENWICH TOTAL
-------------- ----------------------------
<S> <C> <C> <C>
Revenues..................... $ 416,940 $ -- $ 416,940
============== ============ ==============
Net Loss..................... $ (3,727,607) $ (229,984) $ (3,957,591)
============== ============ ==============
Basic and diluted net loss
per share................... $ (0.50)
==============
</TABLE>
30
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. INVESTMENTS CONSIST OF THE FOLLOWING AT DECEMBER 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
U.S. Treasury obligations........................... $ 3,515,469 $ 3,003,800
U.S. Agency obligations............................. 6,002,267 6,987,591
Corporate debt obligations.......................... 2,820,760 3,003,631
----------- -----------
$12,338,496 $12,995,022
=========== ===========
</TABLE>
The contractual maturities of the Company's investments at December 31, 1997
is as follows: less than one year--$2,856,313; one to five years--$4,018,246;
six to ten years--$4,766,826; ten to fifteen years--$697,111. Actual
maturities may differ from contractual maturities because the issuers of these
securities may have the right to prepay obligations without penalty. Net
realized gains (losses), based on the specific identification method, totaled
$(3,768) and $28,223 in 1997 and 1996, respectively, and are included in
interest income in the statement of operations.
4. FIXED ASSETS CONSIST OF THE FOLLOWING AT DECEMBER 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
(YEARS) 1997 1996
----------- -------- --------
<S> <C> <C> <C>
Office furniture and equipment................... 3-5 $112,006 $ 85,511
Leasehold improvements........................... 3 59,424 42,924
Computer equipment............................... 3-5 58,510 31,920
Laboratory equipment............................. 3-5 33,018 28,593
-------- --------
262,958 188,948
Less accumulated depreciation.................... 167,897 87,951
-------- --------
$ 95,061 $100,997
======== ========
</TABLE>
Depreciation and amortization expense on fixed assets for the years ended
December 31, 1997, 1996 and 1995 was approximately $80,000, $58,000, and
$14,000, respectively, and $168,000 for the period from inception (October 16,
1992) through December 31, 1997.
5. ACQUIRED TECHNOLOGY
In connection with the Merger, a $3.5 million asset was established
representing the appraised value assigned to Therafectin technology acquired
from Greenwich Pharmaceuticals. The Company completed a Phase III clinical
trial for Therafectin in August 1997. On September 30, 1997, the Company
reported that a preliminary analysis of the results indicated that a
statistically significant difference between Therafectin(R) and placebo in the
percentage of patients achieving the overall composite efficacy index had not
been realized. However, further analysis of the trial data using more modern
measurement criteria supports the therapeutic efficacy of Therafectin. Based
upon evaluation of all of the trial data on Therafectin, including data from
previous Greenwich trials, and the advice obtained from a special panel of
clinical rheumatologists, the Company announced, in January 1998, its intent
to seek marketing approval for Therafectin. If the Company is ultimately
unsuccessful in obtaining regulatory approval for Therafectin, the Company may
be required to write off all or some portion of the $3.5 million asset value
attributable to Therafectin as reflected on the Company's balance sheet.
31
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RESEARCH AND DEVELOPMENT AGREEMENT
In June 1995, the Company entered into a research and development
collaboration agreement with a pharmaceutical company in the United Kingdom
(Zeneca) to develop small molecule inhibitors of Major Histocompatibilty
Complex (MHC) Class II gene transcription to treat autoimmune diseases. Under
the terms of the agreement, which formally expired in June 1997, the
pharmaceutical company provided funds to support the research and development
of the specified technology. These funds were recognized as revenue ratably
over the original term of the Agreement, and totaled $83,060, $200,000 and
$166,940 during 1997, 1996 and 1995, respectively. In addition to providing
funding, the pharmaceutical company has been screening its molecule
collection, seeking to identify an inhibitor of the Company's transcription
factor. The pharmaceutical company holds a product development option which it
may exercise, at a cost of $300,000, at any time prior to the expiration of
the agreement. The pharmaceutical company requested, and was granted, an
extension until January 1, 1998, to complete the screening of its molecule
collection before deciding if it desires to continue product development
rights. Zeneca has informed the Company that its screening process will not be
completed until May 31, 1998 and proposed a second extension which has not
been granted by the Company. If the pharmaceutical company desires to continue
product development and attains certain product development milestones, as
defined, the Company could receive milestone payments as defined provided that
the development agreement is reinstated or renegotiated by the parties. The
Company would also be entitled to receive royalties from the sale of any
products originating from the collaboration depending upon whether it is
renegotiated or reinstated.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES CONSIST OF THE FOLLOWING AT
DECEMBER 31:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accrued professional fees............................. $ 668,620 $ 735,639
Accounts payable and other operating expenses......... 613,897 388,740
Accrued research and development...................... 449,000 172,500
Accrued Therafectin related........................... 203,293 338,500
Accrued payroll related............................... 56,994 107,533
Accrued licensing fees................................ -- 165,000
---------- ----------
$1,991,804 $1,907,912
========== ==========
</TABLE>
8. NOTES PAYABLE AND DEBT
Notes Payable
In July 1997, the Company made the final $9,900 monthly payment on a note
with an imputed annual interest rate of 13.26%.
Senior Bridge Notes
In March 1995, Old BLSI executed unit purchase agreements with certain
investors whereby Old BLSI raised an aggregate amount of $2,175,000 through a
bridge loan financing. The unit purchase agreements included 65,250 shares of
Old BLSI common stock and warrants to purchase 130,500 shares of Old BLSI
Series B Preferred Stock. In connection with the Merger, such warrants were
exchanged for warrants to purchase 783,761 shares of the Company's common
stock exercisable at prices ranging from $1.50 to $10.00 per share (Note 11).
In connection with the financing, the placement agent, a related party (Note
14), received fees totaling approximately $320,000 and warrants currently
exercisable for 98,212 shares of common stock at prices ranging from $0.10 to
$11.00 per share (Note 11).
32
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In connection with the issuance of the notes, approximately $603,000 of the
issuance price was ascribed to the common stock and warrants included in the
unit purchase and was treated as a discount on the notes. In addition, the
warrants issued to the placement agent were ascribed a value of approximately
$53,000 and were included in deferred financing fees. The debt discount and
deferred financing fees were amortized over the term of the notes which were
repaid in full on March 31, 1996.
In connection with the Company extending the maturity of certain of the
notes by approximately 60 days, the Company issued additional warrants to
purchase 23,175 shares of the Company's common stock with an exercise price of
$3.50 per share (Note 11). The ascribed value of approximately $143,000 for
these additional warrants was recorded as interest expense in 1995.
7% Convertible Subordinated Debentures
In December 1995, the Company issued, pursuant to an investment agreement
(the "Subscription Agreement") under Regulation S of the Securities Act of
1933, an aggregate of $1 million of 7% convertible subordinated debentures
maturing in December 1997. The debentures were convertible, at the option of
the holder, into shares of common stock at sixty-five percent of the market
price of the common stock at the time of conversion. In addition, the
Subscription Agreement contained certain restrictions on the sale of common
stock issued upon conversion of the debentures. Because of the significant
discount associated with the conversion feature, an estimated value of
approximately $411,000 was ascribed to such feature and was recorded as a debt
discount and additional paid-in capital. The debt discount was initially being
amortized over the period the debentures were expected to be outstanding. In
February 1996, the holder elected to convert all of the 7% convertible
debentures into 156,605 shares of common stock. Approximately $70,000 of the
debt discount was amortized and recognized as interest expense in 1996 prior
to the conversion. The remaining unamortized discount and related deferred
financing fees were included in the carrying amount of the debt upon
conversion.
9. COMMON STOCK
Common Stock Subject to Redemption
In September and November 1995, the Company sold, pursuant to investment
agreements (each, individually, the "September Investment Agreements" and the
"November Investment Agreements") under Regulation S of the Securities Act of
1933, an aggregate of approximately 320,000 shares of common stock resulting
in net proceeds of approximately $1.8 million. Both agreements provided that,
based upon the average price of the Company's common stock through June 1996
and July 1996 for the September Investment Agreements and the November
Investment Agreements, respectively, (i) the Company was contingently
obligated to issue additional shares of common stock to the investors, (ii)
such investors were contingently obligated to make additional payments to the
Company for shares purchased, and (iii) the Company was contingently obligated
to make repayment to such investors for certain amounts of the investment.
Until the circumstances providing for the possible repayment by the Company of
certain amounts of the equity investment no longer existed, the portion of the
net proceeds which the Company was contingently obligated to repay was
classified as common stock subject to redemption on the Company's balance
sheet. The portion of the equity investment that was no longer subject to
possible repayment was reclassified to stockholders' equity upon the
expiration of the valuation periods as defined in the investment agreements.
In December 1995, $175,000 of the net proceeds subject to redemption was
reclassified to equity concurrent with the expiration of the first valuation
period. During 1997 and 1996, the Company received approximately $29,000 and
$135,000, respectively, in additional payments from the investors based upon
the average price of the Company's common stock for certain periods specified
in the agreements. Also in 1996, the amount of $1,630,000 previously
classified as common stock subject to redemption was reclassified to
stockholders' equity.
33
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Common Stock Issuance
In June 1996, the Company completed a private placement of 500,000 shares of
common stock which raised approximately $5 million in net proceeds. In
connection with this financing, the Company issued to the placement agent, as
payment for its services, 47,274 shares of common stock and warrants to
purchase 54,727 shares at a price of $11.00 per share (Note 11).
10. PREFERRED STOCK
The Company has authorized 1,000,000 shares of preferred stock of which
264,000 shares have been designated as Series A Convertible Preferred Stock.
The remaining authorized shares have not been designated.
In January and February 1996, the Company raised, through a private
placement of its securities, net proceeds of approximately $20.6 million, net
of approximately $3.4 million of issuance costs. In connection with the
private placement, the Company issued (i) 239,910 shares of Series A
Convertible Preferred Stock and (ii) granted warrants to purchase 599,775
shares of common stock at $6.71 per share (Note 11). The warrants may be
redeemed at the election of the Company, in whole but not in part, under
certain conditions as defined in the warrant agreements. In connection with
this financing, the Company granted to the placement agent, a related party
(Note 14), options to acquire 23.991 units with each unit consisting of 1,000
shares of Series A Convertible Preferred stock and warrants to purchase 2,500
shares of common stock at a unit exercise price of $110,000. These options
expire in February 2006.
Each share of the Series A Convertible Preferred Stock is convertible at any
time at the option of the holder into shares of common stock pursuant to a
ratio of 17.53771 shares of common stock for each share of Series A
Convertible Preferred Stock. The Company may, under certain conditions defined
in the preferred stock agreement, cause the conversion of the preferred stock,
in whole or in part, into common stock. The Company issued 1,845,634 and
1,864,276 shares of common stock during 1997 and 1996, respectively, related
to the conversion of 105,238 and 106,301 shares of preferred stock,
respectively.
In a 1997 announcement, the staff of the Securities and Exchange Commission
("SEC") indicated that when preferred stock is convertible at a discount from
the then current common stock market price, the discounted amount reflects at
that time an incremental yield , e.g. a "beneficial conversion feature", which
should be recognized as a return to the preferred shareholders. Based on the
market price of the Company's common stock on the various dates of issuance,
the preferred stock had a beneficial conversion feature of $28,389,846 at such
point in time. In addition, the warrants had a fair value of $5,998,107. The
beneficial conversion feature and the value attributable to the warrants
totaled $34,387,953 which was included in calculating the net loss available
to common shareholders for the year ended December 31, 1996. These preferred
stock preferences represent a non-cash charge in the determination of net loss
available to common shareholders.
11. STOCK OPTIONS AND WARRANTS
Stock Option Plans
In connection with the Merger (Note 2), the restated and amended Greenwich
Omnibus Stock Option Plan was adopted on June 15, 1995 and renamed the BLSI
Amended and Restated Omnibus Stock Plan (the "Omnibus Plan"). In connection
with the Merger and in exchange for options to purchase Old BLSI common stock
held by certain employees, officers, consultants, directors and members of the
Scientific Board of Old BLSI which were outstanding on June 15, 1995, the
Omnibus Plan provided for a one-time grant to these individuals of options to
purchase, at an exercise price of $.80 per share, up to 399,770 shares of the
Company's common
34
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
stock. All options granted prior to the Merger under the Greenwich Omnibus
Stock Option Plan expired as of December 31, 1996. In addition, in connection
with the Merger, the amended and restated Greenwich 1990 Non-Employee
Directors' Non-Qualified Stock Option Plan was adopted on June 15, 1995 and
renamed the BLSI Amended and Restated 1990 Non-Employee Directors' Non-
Qualified Stock Option Plan (the "Director's Plan", and together with the
Omnibus Plan, the "Amended and Restated Option Plans"). As a result of the
adoption of the Amended and Restated Option Plans, all other stock option
plans of Greenwich and Old BLSI were terminated.
Omnibus Plan
The Omnibus Plan provides for the issuance of both nonqualified stock
options and incentive stock options to employees, officers, consultants and
scientific advisors of the Company. The Omnibus Plan allows for the issuance
of options to purchase up to 1,200,000 shares of the Company's common stock
through April 2005. The Company's Board of Directors determines the term of
each option, option price, number of shares for which each option is granted
and the rate at which each option is exercisable. The term of each option
cannot exceed ten years. The exercise price of incentive stock options shall
not be less than the fair market value of the Company's common stock on the
date of grant. Nonqualified stock options may be issued under the Omnibus Plan
at an option price determined by the Board of Directors which shall not be
less than 50% of the fair market value of the Company's common stock on the
date of grant.
In 1995 and 1996, the Company granted, in recognition of services to be
performed by certain employees, consultants and scientific advisors, non-
qualified stock options under the Omnibus Plan. Options granted totaled 75,600
and 30,400 during 1996 and 1995, respectively. The total value (intrinsic and
fair value) of approximately $274,000 and $236,000 ascribed to the options
granted in 1996 and 1995, respectively, was recorded as deferred compensation
and is being charged to operations over the vesting period of the options
which management believes fairly approximates the service period. The charge
to operations for the years ended December 31, 1997, 1996 and 1995 totaled
approximately $182,000, $292,000 and $13,000, respectively.
Directors' Plan
The Directors' Plan allows for the issuance of up to 300,000 shares of the
Company's common stock through April 2005. The Director's Plan provides for an
automatic yearly grant of options to all non-employee directors of up to 2,500
options. Non-qualified stock options granted under the Directors' Plan
generally vest 75% six months from the grant date and the remaining 25% on the
later of six months from the date of grant or December 31st of the year of
grant, and have an exercise price equivalent to 20% of the quoted market price
of the Company's common stock on the date of grant. For new non-employee
Directors, the Directors' Plan also provides for the one-time issuance of
options to purchase 7,500 shares of the Company's common stock at fair market
value at the time of grant with such options vesting over a period of four
years. During 1996, the Directors' Plan was amended to provide for the
granting of additional options at the discretion of the Board of Directors.
All options granted under the Directors' Plan have a term of ten years.
Compensation expense related to the intrinsic value of options issued in 1997,
1996 and 1995 totaled approximately $18,000, $98,000 and $7,500, respectively.
35
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock-Based Compensation
If the Company had valued awards to qualified employees on the fair value
methodology prescribed by FAS 123, the Company's net loss, and basic and
diluted net loss per share would have equaled the pro forma amounts indicated
below.
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Net loss available to common
shareholders
As reported, including preferred
stock preferences.................. $(7,974,016) $(40,384,100) $(14,149,151)
Pro forma, including preferred stock
preferences........................ $(8,711,431) $(40,895,329) $(14,962,786)
Basic and diluted loss per share
available to common shareholders
As reported, including preferred
stock preferences.................. $ (0.64) $ (4.09) $ (2.23)
Pro forma, including preferred stock
preferences........................ $ (0.70) $ (4.14) $ (2.36)
</TABLE>
The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:
dividend yield of zero percent; expected volatility of 80 percent; risk-free
interest rates, based on the date of grant, ranging from 5.38% to 6.46%; and
expected lives of 5 years.
A summary of the status of the Company's stock option plans as of December
31, 1997, 1996, and 1995 and changes during the years ending on those dates
[restated for the Merger (Note 2)] is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 716,008 $4.30 661,260 $ 2.30 413,452 $ 0.80
Greenwich options out-
standing at date of
merger................. 91,416 12.30
Granted................. 409,640 4.43 174,368 6.70 253,292 7.70
Exercised............... (28,280) 0.82 (92,830) 2.10 (37,567) 4.90
Forfeited and expired... (57,700) 7.03 (26,790) 19.10 (59,333) 9.70
--------- ------- -------
Outstanding at end of
year................... 1,039,668 4.33 716,008 4.30 661,260 4.00
========= ======= =======
Options exercisable at
year-end............... 690,720 4.12 475,577 3.70 251,176 2.30
========= ======= =======
Weighted-average fair
value of options
granted During the
year................... $ 3.07 $ 5.70 $ 5.30
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
---------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$.80-$2.20.............. 304,993 6.8 years $0.84 300,443 $0.84
$4.47................... 404,400 9.5 years 4.47 108,135 4.47
$6.30-$9.40............. 330,275 8.3 years 7.37 282,142 7.43
--------- -------
1,039,668 8.4 years 4.33 690,720 4.10
========= =======
</TABLE>
36
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1997, 94,236 and 207,419 shares are available for grant
under the Omnibus Plan and the Director's Plan, respectively.
Other Stock Activity
In July 1995, the minority shareholder in certain of the Company's
subsidiaries exercised his option to exchange his minority ownership into
100,000 shares of common stock of the Company. As a result of this exercise,
Ara Pharmaceutical, Inc., Acumed Pharmaceutical, Inc., Coda Pharmaceutical,
Inc., and NeuroBiologics, Inc. became wholly-owned subsidiaries of the
Company.
Warrants
In August 1995, the Company granted 25,000 warrants pursuant to a letter
agreement between the Company and its financial advisor. The warrants were
ascribed a value of approximately $150,000 and were recorded as deferred
compensation. These fees were amortized over the two-year term of the advisory
agreement. The charge to operations totaled approximately $37,000, $75,000 and
$38,000 in 1997, 1996 and 1995, respectively. In December 1995, the Company
granted 23,175 warrants to certain bridge note holders in connection with the
Company extending the maturity of certain bridge notes (Note 8).
In January and February 1996, the Company granted 659,955 warrants in
connection with a private placement of its Series A Preferred Stock (Notes 10
and 14). In June 1996, the Company granted 54,727 warrants in connection with
a private placement of its common stock (Note 9). In September 1996, the
Company issued 5,000 warrants to its public relations advisor as partial
compensation for its services.
In January 1997, the Company issued 20,000 warrants pursuant to a letter
agreement between the Company and a shareholder.
At December 31, 1997, warrants outstanding were as follows:
<TABLE>
<CAPTION>
WARRANTS
EXERCISE OUTSTANDING
DATE PRICE AT EXPIRATION
OF ISSUE PER SHARE 12/31/97 DATE
--------- ---------- ----------- --------------
<S> <C> <C> <C>
January 1997........................... $ 15.00 20,000 January 2007
September 1996......................... 6.30 5,000 September 2006
June 1996.............................. 11.00 54,727 June 2006
February 1996.......................... 6.70 639,603 February 2006
December 1995.......................... 3.50 23,175 December 2000
August 1995............................ 6.90 25,000 July 2005
June 1995.............................. .10-11.00 91,298 March 2000
June 1995.............................. 2.30 57,548 July 1999
June 1995.............................. 2.10 134,713 April 1998
June 1995.............................. 1.50-10.00 716,194 March 2000
---------
1,767,258
=========
</TABLE>
Each warrant is exercisable into one share of common stock. The Company has
reserved sufficient shares of common stock to meet its stock option and
warrant obligations.
37
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stockholder Rights Plan
On September 29, 1991, the Board of Directors of Greenwich adopted a
Stockholder Rights Plan (the "Rights Plan"), which was amended during 1994 and
1993 and adopted by the Company in connection with the Merger (Note 2). Under
the Rights Plan, stockholders received as a dividend, for each share of common
stock owned by them, one right (the "Right") to purchase a fractional share of
a new class of preferred stock. With certain exceptions, if a person or group
(the "Acquirer") acquires 15 percent (the "trigger point") or more of the
outstanding shares of the Company's common stock, the Rights will separate
from the shares of common stock and become exercisable. Once the Rights are
exercised, and in certain circumstances if additional conditions are met, the
Rights Plan allows holders of the Rights (other than the Acquirer) to buy
common stock of the Company or the Acquirer at a substantial discount. The
Rights dividend was issued to stockholders of record on October 7, 1991. The
Rights will expire in ten years unless exercised by the holders or redeemed or
exchanged by the Company.
12. INCOME TAXES
Income tax benefit consists of the following for the years ended December
31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Federal................................ $2,543,000 $ 2,139,000 $ 1,054,000
State.................................. 1,346,000 680,000 348,000
---------- ----------- -----------
3,889,000 2,819,000 1,402,000
Valuation allowance.................... (3,889,000) (2,819,000) (1,402,000)
---------- ----------- -----------
$ -- $ -- $ --
========== =========== ===========
</TABLE>
Deferred tax assets (liabilities) consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net operating loss carryforwards................ $ 15,817,000 $ 11,955,000
Capitalized research and development expenses... 3,637,000 4,464,000
Research and development credit carryforwards... 717,000 404,000
Other........................................... 774,000 234,000
------------ ------------
Gross deferred tax assets....................... 20,945,000 17,057,000
Acquired technology............................. (1,435,000) (1,435,000)
------------ ------------
Net deferred tax assets......................... 19,510,000 15,622,000
Valuation allowance............................. (19,510,000) (15,622,000)
------------ ------------
$ -- $ --
============ ============
</TABLE>
The Company has provided a full valuation allowance for its deferred tax
assets since realization of these future benefits is not sufficiently assured.
In the event the Company achieves profitability, these deferred tax assets
will be available to offset future income tax liabilities and expense.
Approximately $7 million of the valuation allowance at December 31, 1997
relates to deferred tax assets acquired in the merger with Greenwich (Note 2).
When the valuation allowance related to these assets is released, the credits
will first be recorded to reduce the carrying value, if any, of acquired
technology purchased in the Merger.
38
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation between the amount of reported tax benefit and the amount
computed using the U.S. Federal statutory rate of 35% for the year ended
December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Benefit at statutory rate........ $ (2,825,000) $ (2,099,000) $ (4,952,000)
State taxes, net of federal bene-
fit............................. (587,000) (420,000) (220,000)
Charge for purchased research and
development acquired from Green-
wich............................ -- -- 3,648,000
Research and development credit.. (206,000) (72,000) (41,000)
Non-deductible research and
development expenses............ -- -- 14,000
Other............................ (271,000) (228,000) 149,000
------------ ------------ ------------
(3,889,000) (2,819,000) (1,402,000)
Benefit of loss not recognized,
increase in valuation
allowance....................... 3,889,000 2,819,000 1,402,000
------------ ------------ ------------
$ -- $ -- $ --
============ ============ ============
</TABLE>
As of December 31, 1997, the Company has federal net operating loss
carryforwards and research and development credits which may be used to offset
future federal and state taxable income and tax liabilities as follows:
<TABLE>
<CAPTION>
RESEARCH AND
YEAR OF DEVELOPMENT
EXPIRATION NET CREDIT
---------- OPERATING ----------------- ---
LOSS FEDERAL STATE
----------- -------- --------
<S> <C> <C> <C> <C>
2008....................................... $ 1,977,000 $ 83,000 $ 7,000
2009....................................... 14,172,000 106,000 53,000
2010....................................... 4,714,000 26,000 33,000
2011....................................... 7,989,000 72,000 76,000
2012....................................... 9,529,000 206,000 158,000
----------- -------- --------
$38,381,000 $493,000 $327,000
=========== ======== ========
</TABLE>
A portion of the net operating loss carryforwards totaling approximately
$864,000 relates to deductions for the exercise of non-qualified options and
will be credited to additional paid-in capital upon realization.
In connection with the Merger (Note 2), the Company acquired approximately
$90 million of net operating loss carryforwards of which approximately $11.6
million can be utilized by the Company under the ownership change provisions
of the Internal Revenue Code. These net operating losses, which expire in 2009
and 2010, cannot offset the taxable income of any of the subsidiaries of the
Company. In addition, ownership changes resulting from the Company's issuance
of common stock may limit the amount of net operating loss and tax credit
carryforwards that can be utilized annually to offset future taxable income.
The amount of the annual limitation is determined based upon the Company's
value immediately prior to the ownership change. Subsequent significant
changes in ownership could further affect the limitation in future years.
13. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain office equipment and its office space and
warehouse facilities under noncancelable operating leases. Terms of the lease
for office space include a renewal option of three years.
39
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Approximate future minimum lease commitments at December 31, 1997 are as
follows: 1998--$118,000 and 1999--$46,000.
Total rent expense under noncancelable operating leases was approximately
$131,000, $100,000 and $60,000 during the years ended December 31, 1997, 1996,
and 1995, respectively, and approximately $357,000 for the period from
inception (October 16, 1992) through December 31, 1997.
Sponsored Research and Development, and Consulting Agreements
Pursuant to sponsored research and development agreements and consulting
agreements, the Company is committed to make payments totaling approximately
$2.1 million in 1998.
Litigation
At December 31, 1997, the Company is not a party to any legal proceedings
and is not aware of any threatened litigation that could have a material
adverse effect on the Company's business, results of operations or financial
position.
14. RELATED PARTY TRANSACTIONS
Placement Agent Fees
The Chief Executive Officer and sole stockholder of the placement agent
("Principal Agent") involved with a significant portion of the Company's prior
equity and debt financings is a significant common stockholder of the Company.
During the three years ended December 31, 1997, compensation to the Principal
Agent, including its designees, were as follows (warrants adjusted on a post-
merger basis):
<TABLE>
<CAPTION>
WARRANTS EXERCISE CASH
DESCRIPTION OF FINANCING ISSUED PRICE PAYMENTS
------------------------ -------- ---------- --------
<S> <C> <C> <C>
Senior Bridge Notes (Note 8)................ 98,212 $.10-11.00 $322,000
</TABLE>
In addition, the Principal Agent received options to acquire 23.991 units in
connection with the Company's 1996 private placement of Series A Convertible
Preferred Stock (Note 10). Each unit consists of 1,000 shares of Series A
Convertible Preferred Stock and warrants to purchase 2,500 shares of common
stock at a unit exercise price of $110,000.
Service Agreements with Placement Agent
In August 1995, the Company entered into a two-year financial advisory
services agreement with the Principal Agent. In connection with the agreement,
the Company issued warrants to the Principal Agent for the purchase of 25,000
shares of the Company's common stock (Note 11).
In February 1996, the Company entered into a two-year agreement under which
the Principal Agent receives a monthly retainer fee of $2,500 per month. The
Principal Agent will also receive standard success fees, on terms to be
determined, for corporate partners first introduced to the Company by the
Principal Agent.
In April 1997, the Bank loaned $150,000 to Dr. Lanser, the Company's
Executive Vice President and Chief Scientific Officer (the "Loan"). The Loan
bears interest at prime and matures in its entirety on September 15, 1998. As
a condition to and as security for the Loan, the Bank requested that the
Company pledge to the Bank a
40
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
certificate of deposit in the amount of $155,000 (the "Company Pledge"). In
recognition of Dr. Lanser's past and expected future contributions to the
Company and as an additional motivation and incentive to Dr. Lanser, which the
Company's Board of Directors determined would reasonably benefit the Company,
the Company agreed to provide the Company Pledge. As security for the Company,
however, in the event Dr. Lanser defaults on the Loan and the Bank forecloses
on the Company Pledge, Dr. Lanser has executed and delivered to the Company
his contingent note in the amount of $150,000, bearing interest identical to
the Loan (the "Contingent Note") and a perfected pledge of 50,000 shares of
Common Stock of the Company which he beneficially owns. The Company will
demand payment of the Contingent Note only in the event that the Bank
forecloses on the Company Pledge as a result of Dr. Lanser's defaulting on his
payment of the Loan.
41
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Incorporated by reference from the Company's Current Report on Form 8-K
dated July 28, 1995, as amended by the Company's Current Report on Form 8-K/A
dated September 1, 1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item 10, with respect to executive
officers, is hereby incorporated by reference to the text appearing under Part
1, Item 4A under the caption "Executive Officers of the Registrant" in this
Report, and, with respect to directors, by reference to the information
included under the headings "Information Regarding Directors", "Executive
Officers", and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Company's definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders to be filed by the Company with the Securities and Exchange
Commission within 120 days after the close of the Company's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is hereby incorporated by reference
to the information under the heading "Executive Compensation" and "Report of
Compensation Committee on Executive Compensation" in the Company's definitive
Proxy Statement for the 1998 Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission within 120 days after the close of its
fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 12 is hereby incorporated by reference
to the information under the heading "Security Ownership of Principal
Stockholders and Management" in the Company's definitive Proxy Statement for
the 1998 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission within 120 days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 13 is hereby incorporated by reference
to the information under the heading "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of its fiscal year.
42
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1)Consolidated Financial Statements of the Company
Financial Statements of the Registrant and Report of Independent
Accountants thereon
Consolidated Balance Sheets at December 31, 1997 and 1996
Consolidated Statements of Operations for the fiscal years ended
December 31, 1997, 1996 and 1995 and for the period from inception
(October 16, 1992) through December 31, 1997
Consolidated Statements of Stockholders' Equity (Deficit) for the
fiscal years ended December 31, 1997, 1996 and 1995 and for the
period from inception (October 16, 1992) through December 31, 1997
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 1997, 1996 and 1995, and for the period from inception
(October 16, 1992) through December 31, 1997
Notes to Consolidated Financial Statements
(a)(2)Financial Statement Schedules
Schedules are omitted since the required information is not applicable or is
not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the Consolidated Financial
Statements or Notes thereto.
(a)(3)Exhibits.
The following exhibits are incorporated in this report by reference or
included and submitted with this report, as indicated.
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION AND METHOD OF FILING
--------- --------------------------------
<C> <S>
2.1 Amended and Restated Agreement of Merger, dated as of December 29, 1994,
by and between the Company and Greenwich Pharmaceuticals Incorporated(1)
2.2 Amendment No. 1 to Amended and Restated Agreement of Merger, dated as of
April 6, 1995, by and between the Company and Greenwich Pharmaceuticals
Incorporated(4)
3.1 Amended and Restated Certificate of Incorporation dated March 29, 1996,
as amended on June 9, 1997(6)
3.2 Amended and Restated ByLaws, effective as of June 26, 1995(5)
4.1 Rights Agreement between the Company and Chemical Trust Group (formerly
Manufacturers Hanover Trust Company) as Rights Agent dated September 26,
1991(2)
10.1 Form of Indemnity Agreement to be entered into by the Company and its
directors and officers(3)
10.2 Boston Life Sciences, Inc. Amended and Restated Omnibus Stock Option
Plan(4)
10.3 Boston Life Sciences, Inc. Amended and Restated 1990 Non-Employee
Directors' NonQualified Stock Option Plan(4)
21.1 Subsidiaries of the Registrant(6)
23.1 Consent of Independent Accountants(6)
27.1 Financial Data Schedule(6)
</TABLE>
- --------
(1) Incorporated by reference to Greenwich's Annual Report on Form 10-K for
the year ended December 31, 1994
43
<PAGE>
(2) Incorporated by reference to Greenwich's Current Report on Form 8-K dated
September 26, 1991
(3) Incorporated by reference to Greenwich's proxy statement in connection
with its 1987 Annual Meeting of Stockholders
(4) Incorporated by reference to the Registration Statement of Greenwich
Pharmaceuticals Incorporated on Form S-4, Registration No. 33-91106
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995
(6) Filed herewith
(b) REPORTS ON FORM 8K: The Registrant filed the following Reports on Form
8-K during the fourth quarter of 1997 and through March 24, 1998:
<TABLE>
<CAPTION>
ITEM
DATE OF REPORT REPORTED
-------------- --------
<S> <C>
October 23, 1997.................................................... 5,7
December 29, 1997................................................... 5,7
January 20, 1998.................................................... 5,7
March 9, 1998....................................................... 5,7
</TABLE>
44
<PAGE>
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.
Boston Life Sciences, Inc.
(Registrant)
/s/ S. David Hillson
May 18, 1998 By __________________________________
S. DAVID HILLSON
Chairman, President & Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ S. David Hillson Chairman, President
- ------------------------------------- & Chief Executive May 18, 1998
S. DAVID HILLSON Officer (Principal
Executive Officer)
/s/ Marc E. Lanser, M.D. Executive Vice
- ------------------------------------- President & Chief May 18, 1998
MARC E. LANSER, M.D. Scientific Officer
/s/ Joseph P. Hernon Chief Financial
- ------------------------------------- Officer (Principal May 18, 1998
JOSEPH P. HERNON Financial and
Accounting Officer)
/s/ Colin B. Bier, M.D. Director
- ------------------------------------- May 18, 1998
COLIN B. BIER, M.D.
/s/ Edson D. de Castro Director
- ------------------------------------- May 18, 1998
EDSON D. DE CASTRO
/s/ Steve H. Kanzer, Esq. Director
- ------------------------------------- May 18, 1998
STEVE H. KANZER, ESQ.
/s/ Ira W. Lieberman, Ph.D. Director
- ------------------------------------- May 18, 1998
IRA W. LIEBERMAN, PH.D.
/s/ E. Christopher Palmer Director
- ------------------------------------- May 18, 1998
E. CHRISTOPHER PALMER
45
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION AND METHOD OF FILING NUMBER
------- -------------------------------- -------
<C> <S> <C>
2.1 Amended and Restated Agreement of Merger, dated as of December
29, 1994, by and between the Company and Greenwich
Pharmaceuticals Incorporated (1)
2.2 Amendment No. 1 to Amended and Restated Agreement of Merger,
dated as of April 6, 1995, by and between the Company and
Greenwich Pharmaceuticals Incorporated (4)
3.1 Amended and Restated Certificate of Incorporation dated March
29, 1996, as amended on June 9, 1997(6)
3.2 Amended and Restated By Laws, effective as of June 26, 1995 (5)
4.1 Rights Agreement between the Company and Chemical Trust Group
(formerly Manufacturers Hanover Trust Company) as Rights Agent
dated September 26, 1991 (2)
10.1 Form of Indemnity Agreement to be entered into by the Company
and its directors and officers (3)
10.2 Boston Life Sciences, Inc. Amended and Restated Omnibus Stock
Option Plan (4)
10.3 Boston Life Sciences, Inc. Amended and Restated 1990 Non-
Employee Directors' NonQualified Stock Option Plan (4)
21.1 Subsidiaries of the Registrant (6)
23.1 Consent of Independent Accountants (6)
27.1 Financial Data Schedule (6)
</TABLE>
- --------
(1) Incorporated by reference to Greenwich's Annual Report on Form 10-K for the
year ended December 31, 1994
(2) Incorporated by reference to Greenwich's Current Report on Form 8-K dated
September 26, 1991
(3) Incorporated by reference to Greenwich's proxy statement in connection with
its 1987 Annual Meeting of Stockholders
(4) Incorporated by reference to the Registration Statement of Greenwich
Pharmaceuticals Incorporated on Form S-4, Registration No. 33-91106
(5) Incorporated by reference to BLSI's Annual Report on Form 10-K for the year
ended December 31, 1995
(6) Filed herewith
46
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation
------------------ ----------------------
Acumed Pharmaceuticals, Inc. .......................... Delaware
Ara Pharmaceuticals, Inc. ............................. Delaware
Boston Life Sciences International, Inc. .............. Delaware
Coda Pharmaceuticals, Inc. ............................ Delaware
Neurobiologics, Inc. .................................. Delaware
ProCell Pharmaceuticals, Inc. ......................... Delaware
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-98104 and No. 33-98138) and in the Prospectus
constituting part of the Registration Statements on Forms S-3 (No. 333-02730 and
No. 333-08993) of Boston Life Sciences, Inc. and its subsidiaries (the
"Company") of our report dated February 12, 1998 appearing on page 21 of the
Company's Annual Report on Form 10-K/A for the year ended December 31, 1997.
PRICE WATERHOUSE LLP
Boston, Massachusetts
May 18, 1998
48
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