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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
137 NEWBURY STREET, 8TH FLOOR 02116
BOSTON, MASSACHUSETTS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE 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 or any amendment to this Form 10-K. [X]
Based on the last sales price of the Registrant's Common Stock as reported on
the Nasdaq Small Cap Market on March 22, 2000, the aggregate market value of the
16,320,823 outstanding shares of voting stock held by nonaffiliates of the
Registrant was $159,128,024.
As of March 22, 2000, there were 17,309,879 shares of the Registrant's 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: The Company's Definitive
Proxy Statement for the Company's Annual Meeting of Stockholders to be held on
June 13, 2000 (Part III).
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PART I
Item 1. Business.
OVERVIEW
Boston Life Sciences, Inc. ("BLSI" or the "Company" or "We") 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.
Boston Life Sciences ("Old BLSI"), originally a privately-held company founded
in 1992, merged with a publicly held company effective June 15, 1995 (the
"Merger"). The publicly-held company survived the merger and changed its name to
Boston Life Sciences, Inc. However, all of the employees of the public company
(other than a caretaker management) ceased employment six months prior to the
merger, the company's facilities and equipment were sold, and all directors
resigned effective with the merger, whereupon the management and directors of
old BLSI assumed management of the Company. 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. Our principal executive offices are located at 137 Newbury
Street, 8th Floor, Boston, Massachusetts, and the telephone number is
(617) 425-0200.
In general, our corporate strategy is to seek to (i) utilize our affiliations
and relationships with Harvard University and its affiliated hospitals ("Harvard
and its Affiliates") to license the rights to promising medical discoveries,
(ii) fund the preclinical development of these licensed technologies, and (iii)
enter into corporate partnering arrangements with established pharmaceutical or
biotechnology companies to support the continued development of our technologies
and the marketing of any products as and to the extent they receive government
approval. Additionally, since we do not currently own any laboratory or
manufacturing facilities, we contract for such services and intend to continue
to do so.
We currently have eleven technologies in our product portfolio, the majority
of which were invented or discovered by researchers working at Harvard and its
Affiliates and have been licensed to us.
PRODUCTS IN CLINICAL TRIALS
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1. Altropane(TM)
Altropane is a small molecule invented by researchers at Harvard and the
Massachusetts General Hospital that binds with extremely high affinity and
specificity to the Dopamine Transporter ("DAT"). Consequently, the amount of
Altropane taken up by the brain is directly proportional to the number of DATs
that are present in any given area of the brain. In Parkinson's Disease ("PD"),
there is a marked decrease in the number of DATs in the striatal region of the
brain. As a result, Altropane uptake is substantially diminished. This marked
decrease in Altropane uptake in PD is the basis for our diagnostic test for
early PD. Conversely, as suggested in a study published in the December 18,
1999 issue of The Lancet, Attention Deficit Hyperactivity Disorder ("ADHD")
appears to be associated with an excess number of DATs in this same region of
the brain and thus Altropane has the potential to be a valuable diagnostic
imaging agent for ADHD as well.
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Parkinson's Disease
Parkinson's Disease is a chronic, irreversible, neurodegenerative disease
that generally affects people over 50 years old. It is caused by a significant
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 an 123I-based nuclear
medicine imaging agent that we believe is 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 (developed nations). The number of
individuals having PD is expected to grow substantially as people continue to
live longer and the overall population ages.
We completed our Phase I clinical trial of Altropane for PD in February
1998 and completed our Phase II clinical trial in February 1999. We believe that
the results of the Phase II study provide clear evidence that Altropane is
useful in distinguishing normal individuals from those individuals with early
PD. The results of the Phase II trial indicate that patients with early or mild
PD can be reliably and easily differentiated from normal patients based on the
Altropane scan results. Normal patients had a mean striatal binding potential of
1.07 +/- 0.17 vs 0.44 +/- 0.19 for patients with early/mild PD (p less than
0.00007). The highest binding potential for a PD patient (0.66) was still well
below the lowest binding potential seen in the normal patients (0.9).
Qualitative assessment of the scans revealed moderate to marked decrease in at
least one quadrant of the striatum in the brain of PD patients compared to the
normal patients.
We initiated our Phase III clinical trial in March of 1999 and completed
trial enrollment in March of 2000. The trial was conducted at 20 clinical sites
and was comprised of 160 patients, of which approximately 50% were diagnosed as
having PD and approximately 50% were diagnosed as having other movement
disorders. We expect to complete our evaluation of the Phase III trial data by
the end of the second quarter, and hope to file our New Drug Application ("NDA")
with the Food and Drug Administration ("FDA") during the second half of 2000.
In December 1998, we announced that we had started preclinical development
on a "second generation" technetium-based compound for the diagnosis of PD.
This compound differs from Altropane in structure and in the advantageous
substitution of technetium for iodine as the radio-ligand. Subsequent research
has shown that this agent can differentiate PD from normal, but comprehensive
data on its performance in human subjects as compared to Altropane is not yet
available. However, Primate studies using the technetium compound have
demonstrated that this compound is taken up by the normal striatum in sufficient
quantity to provide an easily readable image. Primates with experimentally-
induced PD had markedly decreased uptake of the compound. Radiation dosimetry,
pharmacokinetic, and toxicology studies were all favorable. Based on these pre-
clinical results, a Physician's Sponsored Investigational New Drug ("IND") has
been prepared for filing with the FDA. Human trials with this compound are
expected to start in the 2nd half of 2000. We believe that the ability to
eventually follow Altropane to market with a second-generation technetium
product would give us a long-term competitive advantage in this rapidly emerging
diagnostic area.
Attention Deficit Hyperactivity Disorder (ADHD)
ADHD is the most commonly diagnosed behavioral disorder in children and is the
fastest growing psychiatric disorder in adults. Since 1990, the total number of
American children diagnosed with ADHD has risen from 900,000 to over 5.5
million, and the use of stimulant medication such as Ritalin has increased 700%
in the same period. ADHD is currently diagnosed according to a set of
behavioral criteria defined in the Diagnostic and Statistical Manual (DSM) used
by psychiatrists. However, it has not been possible to validate these criteria
against an objective biological standard since such a standard has never been
established and does not currently exist. Consequently, the DSM criteria have
generated widespread concern and, in the view of many critics, often are
misapplied and misinterpreted. The lack of a clear-cut, demonstrated biological
basis for ADHD has led to a great deal of confusion concerning the diagnosis of
ADHD and has even provoked skepticism regarding the very existence of the
disorder.
There is currently no objective test to diagnose ADHD. Researchers have
recently postulated, but have not been able to confirm, that ADHD may be linked
to an abnormality in the DAT. A number of drugs including Ritalin, currently
constitute the most prescribed treatment for the broadly described disorder
labeled "ADHD." Since there has not been an objective test to differentiate
between biochemical abnormality and purely psychological behavior disorders, the
increasing use of potentially addictive drugs among children has prompted
vigorous public debate amongst educators, parents and the medical community.
This concern escalated throughout 1999 as evidenced by widespread coverage in
the media. US News & World Report, Time and CNN were among the numerous media
outlets featuring full-length features and analyses of this issue.
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In June 1999, we announced the initiation of a development program
utilizing Altropane for the early diagnosis of ADHD. Under a Physician's
Sponsored IND application, adult patients with ADHD underwent brain scanning
using Altropane, and were found to have a significantly abnormal elevation in
the number of DATs in the midbrain. All of the patients tested showed this
abnormality. The results of the study were subsequently published in the
December 18, 1999 issue of the British medical journal The Lancet. The senior
author of the article was Dr. Alan Fischman, Chief of Nuclear Medicine at the
Massachusetts General Hospital.
The excessive number of dopamine transporters found in the midbrain in
these ADHD subjects strongly suggests that there is an underlying detectable
biochemical abnormality in at least a certain segment of individuals presenting
with symptoms of ADHD. We believe that this abnormality is related to the
production of excessive amounts of dopamine in the midbrain of individuals with
ADHD. Based on the encouraging results obtained in this trial, we convened an
independent panel composed of ADHD experts, neurologists and radiologists to
help us determine the potential utility of Altropane(TM) as a safe, definitive
and rapid diagnostic test for biochemically based ADHD. Such a diagnostic test
could help physicians determine the appropriate medical therapy, as physicians
currently rely solely on the psychological and behavioral criteria to diagnose
ADHD.
In January 2000, we finalized the clinical trial program, and announced
that we expect to initiate a Phase II trial at the end of the first quarter of
2000. Our plans were finalized after discussing with the FDA the appropriate
structure for the Phase II and III clinical trials. We plan to perform a 40
subject Phase II trial in adults in order to expand the database on normal
individuals and to elaborate on the findings obtained to date. If successful, we
plan to proceed with two parallel Phase III studies in adults 20 - 40 years of
age. Upon obtaining successful results of these trials, we intend to file for
marketing approval for Altropane to diagnose ADHD in adults. Upon completion of
these parallel adult trials, in line with guidance from the FDA, we plan to
initiate a comprehensive Phase III study in children in order to expand the
indication for this diagnostic to serve the millions of schoolchildren for whom
the diagnosis of ADHD is often a perplexing issue for doctors, educators and
parents. We hope to obtain a Fast Track designation from the FDA for Altropane
in the ADHD indication based on `unmet medical need', since there is presently
no objective biologic test for ADHD available.
Market Potential
We believe that the total market prospects for Altropane in both PD and
ADHD are substantial. It is estimated that 250,000 individuals per year present
to their physician with new, undiagnosed movement disorders, and are therefore
candidates for an Altropane scan to diagnose or rule-out early Parkinson's
Disease. In the far larger ADHD market, a conservatively estimated 1.5 million
adults between the ages of 20 to 40 are tentatively diagnosed with ADHD. The
most significant single market is, of course, the 5 million children who are
categorized as having ADHD. The annual incidence (new cases) of ADHD in both
adults and children is approximately 1.6 million. We believe that an effective
diagnostic for ADHD will provide a much-needed objective basis for therapeutic
intervention with drugs such as Ritalin(R). Totaling the use of Altropane for
both PD and ADHD indications, this imaging agent has the potential, if approved,
to become one of the largest selling radiopharmaceuticals ever developed. Our
preliminary projections point toward a combined potential of 300,000 to 500,000
scans per year.
PRINCIPAL PRECLINICAL DEVELOPMENT PROGRAMS
1. Troponin
Angiogenesis, the formation of new blood vessels, plays an important role
in the growth and spread of cancer throughout the body. Experimental and
clinical evidence strongly suggests that the inhibition of angiogenesis could
potentially offer a general therapeutic approach to the prevention or treatment
of all solid tumor metastases. This approach is independent of tumor type since
it targets only proliferating blood vessel cells, and if the anti-angiogenic
agent is specific to endothelial (blood vessel) cells, it is also theoretically
nontoxic since angiogenesis does not take place under normal circumstances. In
addition to the treatment of cancer, the anti-angiogenic approach appears to
have significant potential for the treatment of eye diseases that are associated
with abnormal retinal angiogenesis. Two of these diseases, Macular Degeneration
and Diabetic Retinopathy, are the major causes of blindness in developed
countries.
Our anti-angiogenic agent, Troponin I was discovered to be present in
cartilage (a tissue devoid of blood vessels) by scientists at Children's
Hospital in Boston, and found to have extremely strong anti-angiogenic activity,
both in vitro and in vivo. Recombinant Troponin I has been shown to inhibit
lung metastases in animals at doses that by extrapolation to the human
equivalent appears to yield a convenient clinical dosing regimen. The
scientific basis for the Company's development of Troponin was published in the
March 16, 1999 edition of the Proceedings of the National Academy of Sciences
("PNAS"). We own the exclusive license to the recently issued (November 1998)
U.S. patent for the use of Troponin I to treat a broad spectrum of angiogenic
diseases including solid tumors, eye diseases, atherosclerosis, hypertrophic
scarring (including in the spinal cord), arthritis and psoriasis. A second
patent, covering pharmaceutical compositions of Troponin,
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was subsequently issued to us (March 2000) which significantly strengthens our
proprietary position regarding the use of this natural compound.
In August 1999, we announced that in the course of our continued
development work on Troponin I, our collaborating scientists at Children's
Hospital had identified and purified a fragment, or analogue, of Troponin I that
accounted for all of the biologic activity of the native Troponin I. This
fragment (designated BLS 0597), containing the C-terminal half of the molecule,
had approximately 10 times the in vitro activity of the parent molecule, was 10
times more soluble, and was easily purified in the laboratory in its active
configuration. A "Composition of Matter" patent covering BLS 0597 and other
fragments of Troponin was also filed. We view this as a second-generation
product with many potential benefits. If the results of our in vivo testing of
BLS 0597 continue to exceed results obtained for whole Troponin, BLS 0597 could
evolve as our lead clinical and commercial formulation. The potential advantages
for BLS 0597 include dose reduction, ease of manufacturing, and enhanced patient
compliance.
We hope to initiate Phase I/II studies in breast cancer and sarcomas
(including melanoma) in the second half of 2000, although there can be no
assurances that we can meet this timetable. Our parallel pre-clinical studies
with BLS 0597 should not significantly affect that schedule. Our decision to
include patients with sarcoma to the breast cancer study was based on the
experimental results already published in PNAS, as well as an additional study
in animals injected with a sarcoma (an inherently aggressive type of cancer). In
that study, total volume of metastases from sarcoma was reduced from
approximately 169 cubic millimeters to less than 9 cubic millimeters in mice
treated twice weekly with 0.25 milligrams of Troponin for 28 days.
2. Axogenesis Factor 1 (AF-1) and Inosine
Axogenesis Factor 1 (AF-1) and Inosine are nerve growth factors which
specifically promote axon outgrowth in central nervous system (CNS) cells. Since
axons form the connections between cells of the CNS (brain and spinal cord), we
believe that AF-1 and Inosine could provide a means to regenerate those
connections following CNS damage suffered in stroke or spinal cord injury. We
believe that these compounds have the potential to treat other acute and chronic
degenerative CNS disorders, such as stroke, Parkinson's Disease, and
Alzheimer's.
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.
Some of the important findings concerning the regulation of axon growth in
CNS nerve cells that were generated by our collaborating researchers were
initially announced in 1998. These discoveries were presented at the annual
meeting of the Society for Neuroscience and were published in The Journal of
Biological Chemistry in a paper which described the intracellular pathway that
may control axon growth in all nerve cells.
In November 1999, we announced that our collaborating scientists at
Children's Hospital, Boston, had reported in The Proceedings of the National
Academy of Sciences (PNAS) that Inosine had stimulated axon collateral growth in
an animal model that has many features in common with spinal cord injury in
humans. In this model, one side of the corticospinal tract in rats was severed
as it courses through the brainstem. Inosine was then infused directly into the
motor cortex of the brain, the site of origin for those axons descending into
the non-injured side of the corticospinal tract. After 14 days of treatment,
newly grown axon branches were traced by injecting a dye into the treated nerve
cells in the cortex. Animals were then sacrificed and the spinal cord examined
for histologic evidence of new axon growth. Almost all of the treated animals
showed signs of extensive collateral sprouting of axons from the uninjured to
the injured side of the corticospinal tract reaching below the level of the
hemi-transection. These new axonal branches then continued to descend down the
injured side of the corticospinal tract, effectively replacing severed axons
with new ones. These axons were found to enter the gray matter of the spinal
cord in a normal fashion. The number of collateral (new) axons ranged up to
2500 per treated animal, compared to 28-170 axons seen in control animals. We
believe that this was the first published study demonstrating that the
corticospinal tract can be extensively reconstituted following experimental
injury. Similar results were subsequently obtained using AF-1. Since
corticospinal tract regeneration is an absolute prerequisite for obtaining
functional recovery after spinal injury in humans, we believe that these
published results demonstrate that we are in the forefront in the search for
potentially important therapeutic agents for spinal cord injury.
In January 2000, we announced that our collaborating scientists had
identified a previously unknown biological pathway for the stimulation of optic
nerve regeneration, which we believe will greatly enhance the development of AF-
1 and Inosine. These findings have been accepted for publication in a premier
neurological journal. The discovery of this novel pathway (included in the
pending patent rights licensed to us through our CNS research program) impacts
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specifically on potential ophthalmic applications. Consequently, therapeutic
treatment for glaucoma is now encompassed within the possible uses of AF-1 and
Inosine.
In February 2000, we announced that our collaborating scientists had
isolated the molecular target of AF-1 and Inosine. This target appears to be an
enzyme within CNS neurons that specifically controls axon growth of all CNS
nerve cells, whether in the brain or in the spinal cord. Activation of this
enzyme by Inosine and AF-1 is apparently sufficient to overwhelm the natural
inhibitory factor(s) such as Nogo that ordinarily prevent nerve regeneration in
the CNS. We believe that the identification of this control enzyme represents a
critical breakthrough in our understanding of the mechanisms underlying CNS
nerve regeneration. As documented in the PNAS article, stimulation of this
enzyme by Inosine appears to be far more effective in stimulating axon growth in
the motor tracts of the spinal cord following experimental injury than the use
of antibodies to counteract the natural axon growth inhibitor, Nogo. Direct
comparison of our PNAS data with that published for experiments using antibodies
to Nogo (Journal of Neuroscience) demonstrates at least a ten-fold increase in
the amount of axon growth produced utilizing Inosine compared to that achieved
through the previously reported use of antibodies to Nogo. Based on these and
other published data, we believe that administration of Inosine and AF-1
currently appears to offer the most promising potential approach yet reported in
the effort directed at overcoming the long-recognized natural inhibition to
nerve regeneration in the CNS. We believe that these findings may imply an
important clinical advantage for AF-1 and Inosine since they appear to activate
this pivotal enzyme to stimulate axon regeneration.
We have initiated the early preclinical studies necessary for the eventual
filing of an IND, and hope to bring either Inosine or AF1 (or both) into human
clinical testing in 2001.
3. C-MAF
In June 1996, we 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. We believe 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. Our 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. In addition, our collaborating
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 lead to the development of a therapeutic product for
the treatment of severe autoimmune diseases, although results to date are
preliminary.
This approach to a 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.
Our strategy for the commercialization of this technology is to collaborate with
a corporate partner in the discovery and clinical development of such a small
molecule inhibitor utilizing the basic research and screening techniques
developed by our research program.
In September 1999 we announced that we had entered into a development and
licensing agreement with Pfizer, Inc. to further develop a major sector of the
C-Maf technology. Under the terms of the agreement (which includes a transfer
of the technology to Pfizer), Pfizer will screen its small molecule collection
for potential inhibitors of C-Maf, with the goal of developing a small molecule
therapeutic drug for the treatment of a wide range of allergies and asthma. We
received an initial payment and will also receive royalties on eventual sales of
any product derived from the development effort.
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4. Fusion Toxins
In September 1999, we finalized an agreement with MTR Technologies, Inc.
("MTR") under which we obtained an option to acquire the exclusive worldwide
licensing rights to a broad-based technology covering fusion toxins for the
treatment of a wide variety of solid tumors, as well as Multiple Sclerosis (MS)
and allergies. These novel genetically engineered fusion toxins consist of a
targeting molecule linked at the genetic level to a cell-killing toxin. In the
case of cancer, the targeting molecule binds to its receptor on the cancer cell,
the fusion toxin is then internalized, and the toxin destroys the cell. The
technology was invented by scientists at Hadassah Medical School of the Hebrew
University in Jerusalem, and was initially licensed to MTR by Yissum Research
Development Company of the Hebrew University in Jerusalem ("Yissum"). The
option expires in May 2000, during which period we will complete certain pre-
clinical studies to determine whether we want to acquire the licensed rights to
the technology.
In January 2000, we announced that the anti-cancer fusion toxin had
significantly inhibited experimental colon cancer growth in a well-recognized
animal model. The fusion toxin, comprised of an antigen-specific targeting
molecule coupled to a bacterial-derived cell killing toxin, is similar in
concept to a monoclonal antibody (Mab) in that it targets a specific antigen
present on a tumor cell's surface. In the case of this fusion toxin, the
targeting molecule is an analogue of Gonadotropin-releasing Hormone (GnRH) that
specifically targets and binds to the GnRH receptors that are present on
approximately 70% of adenocarcinomas which account for approximately 70% of all
solid tumors, including those of the colon, prostate and breast. Following
internalization by the tumor cell of the GnRH analogue, the bacterial toxin
attached to the GnRH targeting molecule is released into the cancer cell,
resulting in cell death. The targeting and cell killing ability of the fusion
toxin appears to be as efficient as that achieved by highly specific monoclonal
antibodies. In this model designed to simulate very rapid cancer growth, human
colon cancer cells were injected into nude mice and, after 5 days to allow for
the cells to develop into a solid tumor, the mice were treated with the GnRH
fusion toxin 4 times per day for 10 days. There was no apparent undesirable
toxicity seen in any of the animals. After 18 days of growth, the tumors were
removed and measured. The growth of the tumors in treated animals was
suppressed approximately 80% compared to the growth of tumors in the control
animals.
5. Parkinson's Disease Therapeutic
In June 1999, we acquired the licensing rights to a new therapeutic
compound, tentatively named BLS O-1369, from the same collaborating scientists
who developed Altropane. We believe that this compound represents a novel and
promising approach to the treatment of Parkinson's Disease (PD). Given the
growing depth of our experience in the CNS area, our ultimate goal is to provide
both reliable diagnosis and effective new therapies for PD, ADHD and other CNS
disorders.
In February 2000, we announced preliminary results of a primate study which
demonstrated that BLS O-1369 significantly improved the symptoms of experimental
PD. In these studies, monkeys with mild to moderate PD were injected with
either placebo or BLS O-1369. Movement was scored using vests containing
computer chips to quantify the gross movements of the animals. Prior to
treatment, the monkeys had extremely low scores due to the rigidity of the
induced PD. However, within one hour of drug injection, movement scores
increased to normal. The animals exhibited quantitative and qualitative normal
movement for up to 8 hours post-injection, and then reverted to their former
rigidity. We will be testing this compound more extensively in PD and will be
submitting the definitive results for publication following the completion of
dose-optimization studies.
OTHER PRODUCTS
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Therafectin(R)
Therafectin is a synthetic molecule developed for the treatment of
Rheumatoid Arthritis which affects approximately 2.5 million individuals in the
U.S. It is estimated that the total U.S. market for Rheumatoid Arthritis drug
sales is over $3 billion per year. Therafectin has undergone extensive
preclinical and clinical testing in which the molecule has been demonstrated to
be safe and well-tolerated. Our 20 week, double-blind, placebo-controlled Phase
III trial included approximately 220 patients, and was conducted at 25 centers
across the United States. Our trial was completed in August 1997, and on
September 30, 1997, we announced that a preliminary analysis of the results did
not demonstrate a statistically significant difference between Therafectin and
placebo in the percentage of patients achieving "Therapeutic Success". However,
upon complete evaluation of the trial data using more modern performance
criteria such as Paulus and ACR, 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. Based on
these results, we convened an advisory panel of clinical rheumatologists to seek
input and advice regarding our next course of action.
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In January 1998, following the recommendation of the panel, we announced
our plans to seek marketing approval for Therafectin based upon the cumulative
data obtained from the trial, and the overall opinion of the advisory panel 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. During 1998, we concluded agreements for
drug substance and tablet manufacturing, and commercial quantities of finished
tablets were manufactured and the related data was submitted to the FDA during
1999. In December 1999, we announced that we would be meeting with the FDA
during the first quarter of 2000 to informally discuss our application for the
approval of Therafectin. The Agency granted the meeting following its submission
of a letter wherein it informed us that our most recent trial for Therafectin
had not provided sufficient evidence of a statistically significant treatment
effect and that it consequently would not approve the drug at this time. We met
with the FDA in late March, at which time the Agency expressed the view that
Therafectin was not approvable on the successful Paulus results since that
criteria had not been originally selected before the trial commenced. The agency
suggested that we complete another clinical trial utilizing the Paulus or ACR
criteria and resubmit. We continue to believe that the established excellent
safety profile of Therafectin, combined with its apparent efficacy for certain
patients, justifies its use by clinicians looking for a safe alternative to
other more toxic drugs now being used to treat Rheumatoid Arthritis. However, we
do not plan to commit substantial additional financial resources on the
development of Therafectin.
LICENSING AGREEMENTS
We have entered into a number of exclusive worldwide licenses of patent
applications covering our technologies. These licenses are obtained from 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
reaching 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 products developed by us
or our sublicensees. We usually have a first option to license additional
technologies invented or discovered during the course of related research
programs funded by us. There can be no assurance that such research will lead to
the discovery of new technologies or that we will be able to obtain a license
for any newly discovered technologies on acceptable terms, if at all.
FORWARD-LOOKING STATEMENTS
This Item and other Items in this report contain "forward-looking" information
as that term is defined in the Private Securities Litigation Reform act of 1995
or by the Securities and Exchange Commission in its rules, regulations and
releases. This information includes statements on the prospects for our
pharmaceutical development activities and results of operations based on our
current expectations, such as statements regarding certain milestones with
respect to the our technologies and product candidates. Forward-looking
statements are statements that are not historical facts, and can be identified
by, among other things, the use of forward-looking language, such as "believe,"
"expect," "may," "will," "should," "seeks," "plans," "schedule to,"
"anticipates" or "intends" or the negative of those terms, or other variations
of those terms of comparable language, or by discussions of strategy or
intentions. We caution investors that such forward-looking statements are not
guarantees of future performance, and that known and unknown risks,
uncertainties and other factors, including those risks factors identified below,
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, and elsewhere in this report, may cause actual results to differ
materially from those forward-looking statements. In addition, we caution you
that forward-looking statements speak only as of the date they are made, and we
undertake no obligation to update them, even if our experience or future changes
make it clear that any projected results expressed or implied herein will not be
realized.
RISK FACTORS AND OTHER INFORMATION
WE ARE A DEVELOPMENT STAGE COMPANY, WE HAVE ALWAYS HAD LOSSES FROM OUR
OPERATIONS AND WE EXPECT FUTURE LOSSES.
We are a development stage company and have always had losses from our
operations. We have never generated revenues from product sales and we do not
currently expect to generate revenues from product sales for at least the next
eighteen months, and probably longer. There can be no guarantee that we will
ever generate revenues or operating profits, or that if we do generate revenues
or operating profits, that we will be able to continue to do so.
As of December 31, 1999, we have incurred total net losses since inception
of approximately $54 million. To date, we have dedicated most of our financial
resources to the research and development of our product candidates, preclinical
compounds, and other technologies (which we collectively refer to in this
prospectus as our "technologies"), general and administrative expenses and costs
related to obtaining and protecting patents. We expect to incur significant
operating losses for at least the next eighteen months, and probably longer, and
to generate little if any revenue from product sales during that time, primarily
due to the continued expenditures necessary to support progress of our research
and development programs, including preclinical studies and clinical trials, and
costs associated with making and selling our products.
Our ability to generate revenue and operating income in the future will
depend on many factors including:
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. Successfully completing the research and development of our
technologies;
. Protecting our patent and other intellectual rights, as well as the
ability of our licensors and collaborators to protect their patent
and other intellectual rights;
. The time, cost, and effort required to obtain regulatory approvals;
. Establishing collaborative arrangements for manufacturing, sales and
marketing capabilities for any of our products;
. Competing technologies and market developments; and
. Manufacturing costs and the market acceptance of our products at
prices sufficient to generate adequate profits.
WE WILL LIKELY REQUIRE ADDITIONAL FUNDING IN THE FUTURE IN ORDER TO CONTINUE OUR
BUSINESS AND OPERATIONS AS CURRENTLY CONDUCTED. IF WE ARE UNABLE TO SECURE SUCH
FUNDING ON ACCEPTABLE TERMS, WE MAY NEED TO SIGNIFICANTLY REDUCE OR EVEN CEASE
ONE OR MORE OF OUR RESEARCH OR DEVELOPMENT PROGRAMS, OR WE MAY BE REQUIRED TO
OBTAIN FUNDS THROUGH ARRANGEMENTS WITH OTHERS THAT MAY REQUIRE US TO SURRENDER
RIGHTS TO SOME OR ALL OF OUR TECHNOLOGIES.
We spend a significant amount for research and development, including
preclinical studies and clinical trials of our technologies. We expect that our
current cash, cash equivalents and investment balances will be sufficient to
fund our capital requirements through at least the next eighteen months.
Thereafter, we may need to raise substantial additional capital if we are unable
to generate sufficient revenue from product sales or through collaborative
arrangements with third parties. To date, we have always experienced negative
cash flows from operations and have funded our operations primarily from equity
financings. If adequate funds are not readily available, we may need to
significantly reduce or even cease one or more of our research or development
programs. Alternatively, to secure such funds, we may be required to enter
financing arrangements with others that may require us to surrender rights to
some or all of our technologies. If the results of our current or future
clinical trials are not favorable, it may negatively affect our ability to raise
additional funds. If we are successful in obtaining additional equity
financing, the terms of such financing will have the effect of diluting the
holdings and the rights of our common stockholders.
Our capital requirements will depend on many factors, including:
. The progress of our research and development activities and our
clinical trials, and the degree to which we encounter the problems,
delays, and other complications frequently experienced by development
stage biotechnology companies.
. Our ability to meet the terms of any current collaborative research,
manufacturing, marketing or other agreements, and to successfully
negotiate economically feasible, and meet the terms of, future
agreements.
. The cost and timing of, and success in, obtaining FDA and other
regulatory approvals of our products;
. The cost of protecting our patent claims and other intellectual
property rights; and
. Changes in economic, regulatory or competitive conditions of the
pharmaceutical and biotechnology industry.
Estimates about how much funding will be required are based on a number of
assumptions, all of which are subject to change based on the results and
progress of our research and development activities.
IF WE ARE UNABLE TO SECURE ADEQUATE PATENT PROTECTION FOR OUR TECHNOLOGIES, THEN
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AS A BIOTECHNOLOGY COMPANY.
At the present time, we do not have patent protection for all uses of our
technologies. There is significant competition in the Company's primary
scientific areas of research and development including arthritis, cancer, and
autoimmune diseases and allergies. Such competitors will seek patent protection
for their technologies and such patent applications or rights might conflict
with or infringe upon the patent protection coverage that we are seeking for our
technologies. If we do not obtain patent protection for our technologies, our
ability to compete and business prospects
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may be significantly and negatively affected. Further, even if patents can be
obtained, there can be no guarantee that these patents will provide us with any
competitive advantage.
Our patent strategy is to pursue patent protection, in the U.S. and in most
developed countries, for our technologies. Our goal is to obtain broad patent
protection for our technologies and their related medical indications. The
patent application and issuance process generally takes several years and is
usually very expensive without any guarantee that a patent will be issued. In
many cases, our know-how and technology may not be patentable. Risks associated
with protecting our patent and proprietary rights include the following:
. Our ability to protect our technologies could be delayed or
negatively affected if the United States Patent and Trademark Office
(the "USPTO") requires clinical evidence that our technologies work.
. Our competitors may develop similar technologies or products, or
duplicate any technology developed by us.
. If patents are issued to us, our competitors may develop products
which are similar to ours but which do not infringe on our patents or
products, or a third party may successfully challenge one or more of
our patents.
. Our patents may infringe on the patents or rights of other parties
which may decide not to grant a license to us. We may have to change
our products or processes, pay licensing fees or stop certain
activities because of the patent rights of third parties which could
cause additional unexpected costs and delays.
. Patent law in the fields of healthcare and biotechnology is still
evolving. Future changes in patent laws might conflict with our
existing or future patent rights, or the rights of others.
. We also rely on trade secrets and proprietary know-how. We seek to
protect this information primarily through confidentiality agreements
with our collaborators, employees and consultants, but there can be
no guarantee that these agreements will not be breached or that we
will have adequate remedies for such breach .
. If consultants, scientific advisors, or other third parties apply
technological information which they have developed separate from us
to our technologies, there may be disputes as to the ownership of
such information which may not be resolved in our favor.
IF WE ARE UNABLE TO MAINTAIN OUR KEY WORKING RELATIONSHIPS WITH HARVARD
UNIVERSITY AND ITS AFFILIATES, WE MAY NOT BE SUCCESSFUL SINCE SUBSTANTIALLY ALL
OF OUR CURRENT TECHNOLOGIES WERE LICENSED FROM, AND MOST OF OUR RESEARCH AND
DEVELOPMENT ACTIVITIES WERE PERFORMED BY, HARVARD UNIVERSITY AND ITS AFFILIATES.
Most biotechnology and pharmaceutical companies have established internal
research and development programs, including their own facilities and employees
which are under their direct control. By contrast, we have always outsourced
all of our research and development, preclinical and clinical activities.
Specifically, we have been heavily dependent on one such relationship because
substantially all of our technologies were licensed from, and most of our
research and development activities were performed by, Harvard University and
its affiliates. Now that most of our early-stage research at Harvard has
yielded an identified product in each area of research, we have begun and expect
to continue to conduct much of our later stage development work and all of our
formal preclinical and clinical programs outside of Harvard. Nevertheless, the
originating scientists still play important advisory roles.
Universities and other not-for-profit research 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 the use of technology that they have developed. Currently, an
important aspect of future new product identification and early development is
likely to depend upon:
. Our ability to obtain and maintain licenses for new technologies from
Harvard and its affiliates; and
. Harvard and its affiliates continuing to perform early-stage research
and development work under sponsored research agreements with us.
There can be no guarantee that we will be able to obtain new technologies
from Harvard and its affiliates or that we can continue to meet our obligations
under existing arrangements. Each of our collaborative research agreements is
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managed by a sponsoring scientist and/or researcher who has his or her own
independent affiliation with Harvard and its Affiliates. In addition, we may
enter into consulting, advisory, and related arrangements with other scientific,
research and development professionals whom we believe can assist us in the
development of our 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
IF WE ARE UNABLE TO RETAIN OUR KEY PERSONNEL AND/OR RECRUIT ADDITIONAL KEY
PERSONNEL IN THE FUTURE, THEN WE MAY NOT BE ABLE TO OPERATE EFFECTIVELY.
Our success depends significantly upon our ability to attract and retain
highly qualified scientific and management personnel who are able to formulate,
implement and maintain the operations of a biotechnology company such as ours.
As an example, Marc E. Lanser, our Chief Scientific Officer, was formerly on the
staff of, and maintains close affiliations with Harvard Medical School and its
affiliates. Substantially all of our technologies were licensed from Harvard.
Our past ability to secure these licenses and to enter into sponsored research
and development agreements with Harvard was enhanced by Dr. Lanser's
affiliations and familiarity with the Harvard Medical School and its affiliates.
We currently outsource all our research and development, preclinical and
clinical activities. If we decide to undertake internally the research and
development of any of our technologies, we may need to hire additional key
management and scientific personnel to assist the limited number of employees
that we currently employ. There is significant competition for such personnel
from other companies, research and academic institutions, government entities
and other organizations. If we fail to attract such personnel, it could have a
significant negative effect on our ability to develop our technologies. There
can be no guarantee that we will be successful in hiring or retaining the
personnel that may be required for such activities in the future.
IF WE ARE UNABLE TO ESTABLISH, MAINTAIN AND RELY ON NEW COLLABORATIVE
RELATIONSHIPS, THEN WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE
OUR TECHNOLOGIES.
To date, our operations have primarily focused on the pre-clinical
development of most of our technologies, as well as the completion of clinical
trials for two of our technologies. During the next eighteen months, we
currently expect that the continued development of our technologies will result
in the initiation of additional clinical trials, and if regulatory approval is
obtained, the market introductions of the two technologies for which clinical
trials are currently in process or have been completed. We expect that these
developments will require us to establish, maintain and rely on new
collaborative relationships in order to successfully develop and commercialize
our technologies. There is no certainty that:
. We will be able to enter into such collaborations on economically
feasible and otherwise acceptable terms and conditions.
. That such collaborations will not require us to undertake substantial
additional obligations or may require us to devote additional
resources beyond those we have identified at present.
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. That any of our collaborators will not breach or terminate their
agreement with us or otherwise fail to conduct their activities on
time, thereby delaying the development or commercialization of the
technology for which the parties are collaborating.
The parties will not dispute the ownership rights to any technologies
developed under such collaborations.
If we are not able to establish or maintain the necessary collaborative
arrangements, we will need more money to research and develop technologies on
our own and we may encounter delays in introducing our products.
BECAUSE THE CURRENT ENVIRONMENT OF RAPID TECHNOLOGICAL CHANGE REQUIRES
SIGNIFICANT FINANCIAL, TECHNICAL AND MARKETING RESOURCES TO SUCCESSFULLY DEVELOP
AND MARKET PRODUCTS, SOME OF OUR COMPETITORS MAY HAVE AN ADVANTAGE IN DEVELOPING
AND MARKETING PRODUCTS.
The biotechnology and pharmaceutical industries are highly competitive and
are dominated by larger, more experienced and better capitalized companies. Such
greater experience and financial strength may enable them to bring their
products to market sooner than us, thereby gaining the competitive advantage of
being the first to market. Research on the causes of, and possible treatments
for diseases for which we are trying to develop products, including rheumatoid
arthritis, cancer, Parkinson's Disease, central nervous system disorders and
autoimmune diseases, are developing rapidly, and there is a potential for
extensive technological innovation in relatively short periods of time. There
can be no assurance that we will be able to keep pace with any new technological
developments. Factors affecting our ability to successfully manage the
technological changes occurring in the biotechnology industry as well as our
ability to successfully compete include:
. Many of our potential competitors have significantly greater
experience than we do in completing preclinical and clinical testing
of new pharmaceutical products and obtaining Food and Drug
Administration ("FDA") and other regulatory approvals of products.
. We compete with a number of pharmaceutical and biotechnology
companies which have financial, technical and marketing resources
significantly greater than ours;
. Companies with established positions and prior experience in the
pharmaceutical industry may be better able to develop and market
products for the treatment of those diseases for which we are trying
to develop products;
IF OUR TECHNOLOGIES ARE UNABLE TO SUCCESSFULLY COMPLETE, OR ARE ADVERSELY
EFFECTED BY, THE EXTENSIVE REGULATORY PROCESS, THEN WE MAY NOT BE ABLE TO MARKET
OUR PRODUCTS AND TECHNOLOGIES.
Our technologies must undergo a rigorous regulatory approval process, which
includes extensive preclinical and clinical testing, to demonstrate safety and
efficiency before any resulting product can be marketed. To date, neither the
FDA nor any of its international equivalents has approved any of our
technologies for marketing. In the biotechnology industry, it is generally
accepted that less than 10 percent of the technologies for which preclinical
efforts are initiated ultimately result in an approved product. The clinical
trial and regulatory approval process can require many years and substantial
cost, and there can be no guarantee that our efforts will result in an approved
product.
Our activities are regulated 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. Data obtained from testing is
subject to varying interpretations which can delay, limit or prevent FDA
approval. Risks associated with the regulatory approval process include:
. Changes in existing regulatory requirements could prevent or affect
the timing of our ability to achieve regulatory compliance. Federal
and state laws, regulations and policies may be changed with possible
retroactive effect, and how these rules actually operate can depend
heavily on administrative policies and interpretations over which we
have no control or inadequate experience to assess their full impact
upon our business.
. Obtaining FDA clearances is time-consuming and expensive, and there
is no guarantee that such clearances will be granted or that the FDA
review process will not involve delays that significantly and
negatively affect our products. We may encounter similar delays in
foreign countries.
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. Regulatory clearances may have significant limitations on the uses
for which any approved products may be marketed.
. Any marketed product and its manufacturer are subject to periodic
review and any discovery of previously unrecognized problems with a
product or manufacturer could result in suspension or limitation of
approvals.
IF ANY OF OUR PRODUCTS ARE APPROVED AND ENTER THE MARKET, THEY MAY NOT BE
ACCEPTED BY PHYSICIANS AND PATIENTS IF ADEQUATE INSURANCE COVERAGE AND
REIMBURSEMENT LEVELS AREN'T AVAILABLE FOR THEM.
Substantially all biotechnology products are distributed to patients by
physicians and hospitals, and in most cases, such patients rely on insurance
coverage and reimbursement to pay for some or all of the cost of the product.
In recent years, the continuing efforts of government and third party payers to
contain or reduce health care costs have limited, and in certain cases
prevented, physicians and patients from receiving insurance coverage and
reimbursement for medical products, especially newer technologies. Our ability
to generate adequate revenues and operating profits could be adversely affected
if such limitations or restrictions are placed on the sale of our products.
Specific risks associated with medical insurance coverage and reimbursement
include:
. Significant uncertainty exists as to the reimbursement status of
newly approved health care products, and third-party payers are
increasingly challenging the prices charged for medical products and
services.
. There can be no guarantee that adequate insurance coverage will be
available to allow us to charge prices for products which are
adequate for us to realize an appropriate return on our cost for
developing these technologies. If adequate coverage and reimbursement
are not provided for use of our products, the market acceptance of
these products will be negatively affected.
. Health maintenance organizations and other managed care companies may
seek to negotiate substantial volume discounts for the sale of our
products to their members thereby reducing our profit margins.
In recent years, bills proposing comprehensive health care reform have been
introduced in Congress that would potentially limit pharmaceutical prices and
establish mandatory or voluntary refunds. There can be no guarantee that such
proposals will not negatively affect us. It is uncertain if any legislative
proposals will be adopted and how federal, state or private payers for health
care goods and services will respond to any health care reforms.
WE HAVE NO MANUFACTURING FACILITIES OR MARKETING EXPERIENCE AND EXPECT TO BE
DEPENDENT UPON THIRD PARTIES TO MANUFACTURE AND MARKET APPROVED PRODUCTS.
We currently have no manufacturing facilities for either clinical trial or
commercial quantities of any of our technologies and currently have no plans to
obtain them. To date, we have obtained the limited amount of quantities
required for preclinical and clinical trials from contract manufacturing
companies. We intend to continue using contract manufacturing arrangements with
experienced firms for the supply of material for both clinical trials and any
eventual commercial sale.
We will depend upon third parties to produce and deliver products in
accordance with all FDA and other governmental regulations. There can be no
guarantee that such parties will consistently perform their obligations in a
timely fashion and in accordance with the applicable regulations. There can be
no guarantee that we will be able to contract with manufacturers who can fulfill
our requirements for quality, quantity and timeliness, or that we would be able
to find substitute manufacturers, if necessary. The failure by any third party
to perform their obligations may delay clinical trials, the commercialization of
products, and the ability to supply product for sale.
We do not have any experience in marketing pharmaceutical products. In
order to earn a profit on any future product, we will be required to either
enter into arrangements with third parties with respect to marketing the
products or internally develop such marketing capability. There can be no
assurance that we will be able to enter into marketing agreements with others on
acceptable terms, or that we can successfully develop such capability on our
own.
WE HAVE OPTIONS, WARRANTS, PREFERRED STOCK AND CONVERTIBLE DEBENTURES
OUTSTANDING WHICH, WHEN EXERCISED OR CONVERTED, MAY CAUSE DILUTION TO OUR
STOCKHOLDERS.
As of December 31, 1999, we have stock options and warrants outstanding to
purchase approximately 6.7 million shares of our common stock at exercise prices
ranging from $0.63-$15.00 per share. Many of these previously granted
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options and warrants were issued at exercise prices below the current market
price of the common stock. As of December 31, 1999, we also have outstanding
$8,000,000 of convertible debentures convertible into 1,523,810 shares of our
common stock at a conversion price of $5.25. In addition, as of December 31,
1999, we have 4,983 and 53,669 outstanding shares of Series A convertible
preferred stock and Series C convertible preferred stock, respectively, which
are currently convertible into 87,390 and 268,345 shares of common stock,
respectively. The exercise price of our Class A and Class B warrants and the
conversion price of our convertible debentures contain provisions that will
decrease the exercise price and conversion price of these instruments if we
issue stock at a price below the conversion price of the convertible debentures
or exercise price of certain of our warrants, with some limited exceptions. In
addition, there could be a reduction of the conversion price of the convertible
debentures and the exercise price of certain warrants, subject to certain floors
and other limitations, on each of the first and second anniversaries of the
transaction if the market price of our common stock is less than the conversion
or exercise price on such dates. These adjustments to the exercise price of such
warrants and the conversion price of the convertible debentures could require us
to issue more shares of common stock on exercise or conversion than we currently
anticipate. The exercise of our stock options and warrants and the conversion of
our convertible debentures and preferred stock will dilute the percentage
ownership interest of our current stockholders. In addition, the terms upon
which we would be able to obtain additional money through the sale of our stock
may be negatively affected by the existence of these warrants, options,
convertible debentures and preferred stock because new investors may be
concerned about the impact upon the future market price of the stock if these
warrants, options, debentures and preferred stock were consistently exercised or
converted and the underlying stock sold.
THE FLOATING CONVERSION AND EXERCISE PRICES OF OUR CONVERTIBLE DEBENTURES AND
CERTAIN OF OUR WARRANTS COULD MOTIVATE THE HOLDERS OF THESE INSTRUMENTS TO SELL
OUR COMMON STOCK SHORT IN THE PUBLIC MARKET, WHICH COULD NEGATIVELY EFFECT OUR
STOCK PRICE.
Our convertible debentures and certain of our warrants contain provisions that
could decrease the conversion price and exercise price of these instruments if
our common stock price is less than the conversion price of the debentures and
exercise prices of the warrants on the first and second anniversary of the
issuance of these instruments, or if we issue stock at a price below the
conversion or exercise price of the debentures or warrants. These provisions
could motivate the holders of these instruments, to sell our common stock short
in the public market, which could negatively effect our stock price. Although a
securities purchase agreement between us and the holders of these instruments
prohibits them from selling our common stock short unless they convert the
debentures into common stock within seven days of initiating such short sale, we
cannot be certain that the holders of these instruments will honor this
contractual obligation, or that we will have an adequate remedy if they breach
this obligation.
THE PRICE CHANGES AND VOLATILITY OF OUR STOCK IS OFTEN UNRELATED TO OUR
OPERATING PERFORMANCE OR BUSINESS DEVELOPMENTS.
Historically, the trading volume of our common stock has fluctuated
significantly. At times our trading volume has been significant while at other
times our trading volume has been relatively low. The price changes and
volatility of our stock often appears to be unrelated to our operating
performance or business developments. Factors which may have a significant
effect on the market price of our common stock include:
. the discovery of new technologies by competitors in fields in which
we are developing products;
. the results of clinical trials, whether our own or those of
competitors;
. FDA approval of new products;
. Proposed government regulations and
. Issues relating to patents or proprietary rights.
EMPLOYEES
As of March 22, 2000, the Company employed 14 individuals full-time, of
whom five hold Ph.D. and/or M.D. degrees. None of the Company's employees is
covered by a collective bargaining agreement.
ITEM 2. PROPERTIES.
The Company's administrative offices are located in Boston, Massachusetts. The
lease on this 5,000 square foot facility expires in June 2002 and can be renewed
by the Company for an additional three-year period. In addition, the Company has
4,000 square feet of warehouse space in Horsham, Pennsylvania. This lease
terminates on March 31, 2001. The Company believes that its existing facilities
are adequate for its present and anticipated purposes, except that
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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 subject to legal proceedings in the normal course of
business. Management believes that these proceedings will not have a material
adverse effect on the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to the vote of its security holders
during the fourth quarter of 1999.
ITEM 4A. 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. . 60 Chairman of the Board of Directors, President
And Chief Executive Officer
Marc E. Lanser, M.D. . 51 Executive Vice President and Chief Scientific Officer
Joseph Hernon, CPA . 40 Chief Financial Officer, Secretary
</TABLE>
S. DAVID HILLSON, ESQ. Mr. Hillson served as President, Chief Executive
Officer and a member of the Board of Directors of Old BLSI from November 1994.
Mr. Hillson has been President and Chief Executive Officer and a member of the
Board since the Merger in June 1995. He also has served as Chairman of the Board
of Directors since September 1996. Prior to his responsibilities at Old BLSI,
Mr. Hillson was Senior Vice President of Josephthal, Lyon & Ross, Incorporated
in the research and investment banking divisions from January to November 1994
and was the Senior Managing Director, investment banking, at The Stamford
Company in New York City from November 1992 to January 1994. Mr. Hillson was an
Executive Vice President of the asset management division of Mabon Securities
from October 1990 until October 1992. Earlier in his 15-year 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.
JOSEPH P. HERNON, CPA. Mr. Hernon has been Chief Financial Officer since
August 1996, and Secretary since 1998. 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.
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. The following table sets forth the high and low sale prices for
the Company's Common Stock by quarter for 1999 and 1998, as reported by Nasdaq.
These prices reflect inter-dealer quotation, without retail mark-up, markdowns
or other fees or commissions, and may not necessarily represent actual
transactions.
14
<PAGE>
<TABLE>
<CAPTION>
High LOW
----------- ----------
1999
<S> <C> <C>
First Quarter ..................................................................... $ 10 3/4 $ 3 1/4
Second Quarter .................................................................... 8 3/32 5 1/4
Third Quarter ..................................................................... 6 11/16 3 5/8
Fourth Quarter .................................................................... 5 1/8 3 1/4
1998
First Quarter ..................................................................... $ 2 7/16 $1 11/16
Second Quarter .................................................................... 8 15/16 1 31/32
Third Quarter ..................................................................... 4 5/8 1 3/4
Fourth Quarter .................................................................... 4 1/32 4 25/32
</TABLE>
On March 22, 2000, the closing sales price for the Common Stock was $9 3/4
per share. The number of stockholders of record of Common Stock on March 22,
2000 was approximately 6,700. The Company has not paid any dividends and does
not expect to pay dividends in the foreseeable future.
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.
15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997 1998 1999
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues .......................................... $ 416,940 $ 200,000 $ 83,060 $ -- $ 200,000
Operating expenses ................................ 13,462,322 7,047,399 9,202,664 7,682,406 14,556,251
Net loss .......................................... (14,149,151) (5,996,147) (7,974,016) (6,897,024) (13,964,484)
Preferred stock preferences and other............... -- (34,387,953) -- -- (5,366,054)
Net loss available to common shareholders........... (14,149,151) (40,384,100) (7,974,016) (6,897,024) (19,330,538)
Basic and diluted net loss per share .............. $ (2.23) $ (0.61) $ (0.64) $ (0.52) $ (0.95)
Per share effect of preferred stock preferences
and other......................................... -- (3.48) -- -- (0.36)
----------- ----------- ----------- ----------- ------------
Basic and diluted net loss available to
common shareholders............................. $ (2.23) $ (4.09) $ (0.64) $ (0.52) $ (1.31)
Weighted average number of shares outstanding ..... 6,347,993 9,880,222 12,378,219 13,138,862 14,731,149
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996 1997 1998 1999
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets .................$6,585,101 $26,153,130 $18,578,969 $12,269,048 $16,072,212
Working capital .............. (297,303) 20,383,735 12,718,875 6,744,226 13,746,718
Long-term debt ............... 658,735 0 0 0 4,647,192
Stockholders' equity .......... 1,185,802 24,100,406 16,587,165 10,534,849 8,574,807
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
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 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
We are 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. Boston Life Sciences ("Old BLSI"), originally a privately-
held company founded in 1992, merged with a publicly held company effective June
15, 1995 (the "Merger"). The publicly-held company survived the merger and
changed its name to Boston Life Sciences, Inc. (the "Company"). However, all of
the employees of the public company (other than a caretaker management) ceased
employment six months prior to the merger, the company's facilities and
equipment were sold, and all directors resigned effective with the merger,
whereupon the management and directors of old BLSI assumed management of the
Company. During the period from inception through December 31, 1999, the Company
has devoted substantially all of its efforts to business planning, raising
financing, furthering the research and development of its technologies,
activites related to the clinical trials of Theracfectin and our discussion with
the FDA, and
16
<PAGE>
corporate partnering efforts. Accordingly, the Company is considered to be in
the development stage as defined in Statement of Financial Accounting Standards
No. 7.
YEAR ENDED DECEMBER 31, 1999 AND 1998
The Company's net loss was $13,964,484 during the year ended December 31,
1999 as compared with $6,897,024 during the year ended December 31, 1998. Net
loss per common share, excluding preferred stock preferences, totaled $0.95 per
share during 1999 as compared with $0.52 per share during 1998. The higher net
loss in 1999 is primarily related to increased research and development
expenses, higher Therafectin related expenses including a $3.5 million non-cash
charge recorded to write-off the Therafectin related intangible asset, and a
$1,725,000 non-cash charge related to certain purchased in-process research and
development.
The net loss available to common stockholders for the 1999 period,
including preferred stock preferences of $5,366,054 totaled $19,330,538. Net
loss per common share available to common stockholders for the year ended
December 31, 1999, including $0.36 attributable to preferred stock preferences,
totaled $1.31. In February 1999, the Company completed a private placement of
Series C 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 with an intrinsic value of approximately $1.9
million which is included in the preferred stock preferences. An additional $2.5
million of preferred stock preferences were recorded to accrete the Series C
stock to redemption value. In addition, in November 1999, the Company extended
an exchange offer to the Series C stockholders wherein it agreed to issue
certain consideration for each share of Series C Stock converted into common
stock. A charge of approximately $1.0 million, representing the fair value of
the consideration issued, is also included in the preferred stock preferences.
Revenue was $200,000 during the year ended December 31, 1999 as compared
with zero during the year ended December 31, 1998. In September 1999, the
Company announced that it had entered into a development and licensing agreement
with a major pharmaceutical company to further develop a major sector of the
Company's transcription factor technology. Under the terms of the agreement, the
pharmaceutical company will screen its small molecule collection for potential
inhibitors of the transcription factor, with the goal of developing a small
molecule therapeutic drug for the treatment of a wide range of allergies and
asthma. The Company will also receive royalties on eventual sales of any product
derived from the development effort. The Company received a one-time payment
upon the execution of the development and licensing agreement, which was
recognized as revenue because the Company has no remaining performance
obligations.
Research and development expenses were $5,758,433 during the year ended
December 31, 1999 as compared with $4,881,889 during the year ended December 31,
1998. The increase in 1999 principally related to the initiation and
substantial completion of a 160 patient Phase III clinical trial. The majority
of the Company's research and development expenses were, and will continue to be
in 2000, sponsored research obligations paid to Harvard University and its
affiliated hospitals.
Licensing fees were zero during the year ended December 31, 1999 as
compared with $80,000 during the year ended December 31, 1998. During 1998, the
Company paid $40,000 to license two new technologies as compared to none in
1999. 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 1998, the Company incurred a milestone
obligation of $40,000 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 that 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 $4,621,399 during the year ended December
31, 1999 as compared with $423,228 during the year ended December 31, 1998.
Expenses incurred during 1998 were primarily associated with the preparation of
the amendment to the previously filed NDA for Therafectin. Expenses incurred
during 1999 included approximately $1 million related to the manufacture of
commercial quantities of finished tablets as required to support our NDA filing,
and a $3.5 million charge to write off a related intangible asset. In December
1999, the Company announced that it would be meeting with the Food & Drug
Administration ("FDA") during the first quarter of 2000 to informally discuss
its application for the approval of Therafectin. The Agency granted the meeting
following its submission of a letter wherein it informed the Company that its
most recent trial for Therafectin had not provided sufficient evidence of a
statistically significant treatment effect and that it consequently would not
approve the drug at this time. The Company met with the FDA in late March, at
which time the agency expressed the view that Therafectin was not approvable
based on the successful Paulus results because that criteria had not been
originally selected before the trial commenced. The FDA suggested that the
Company complete another clinical trial utilizing the Paulus or ACR criteria and
resubmit. The
17
<PAGE>
Company continues to believe that the established excellent safety profile of
Therafectin, combined with its apparent efficacy for certain patients, justifies
its use by clinicians looking for a safe alternative to other more toxic drugs
now being used to treat Rheumatoid Arthritis. However, the Company does not plan
to commit substantial additional financial resources on the development of
Therafectin. As required under generally accepted accounting principles, the
Company has evaluated whether a portion of the carrying value of the technology
has been impaired by comparing anticipated undiscounted future net 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. Based on the
information currently available to the Company, and the indefinite plans with
respect to Therafectin, the carrying value of the technology has been written
down to zero by recording a non-cash charge of $3,500,000 which is included in
the amount reported as Therafectin related expenses in the Consolidated
Statement of Operations for the year ended December 31, 1999.
General and administrative expenses were $2,451,419 during the year ended
December 31, 1999 as compared with $2,297,289 during the year ended December 31,
1998. The increase in 1999 primarily related to higher professional services
costs which were partially offset by the absence of non-cash charges related to
certain changes in the provisions of the Company's stock option plans and the
issuance of warrants to a financial advisor, both of which occurred in 1998.
Purchased in-process research and development expenses were $1,725,000
during the year ended December 31, 1999 as compared with zero during the year
ended December 31, 1998. In September 1999, the Company finalized an agreement
with MTR Technologies, Inc. under which it obtained an option to acquire the
licensing rights to certain technology. The Company issued 232,000 shares of
common stock and 216,000 warrants exercisable to purchase the Company's common
stock at an exercise price of $4.25 per share as consideration for the option.
The fair value of such consideration of $1,725,000 has been recognized as
purchased in-process research and development in the Consolidated Statement of
Operations for the year-ended December 31, 1999.
Interest income was $837,525 during the year ended December 31, 1999 as
compared with interest income of $785,382 during the year ended December 31,
1998. Average cash and investment balances during 1999 were higher in
comparison to 1998 as the result of three private placements completed in 1999
which raised gross proceeds of $16.7 million. Interest expense totaled $445,758
in 1999 as compared to zero in 1998. In September 1999, the Company issued $8
million of 8% convertible debentures, and incurred $175,000 in interest on the
8% coupon and $247,192 in non-cash interest associated with the accretion of the
discounted carrying value of the debentures.
At December 31, 1999, the Company had net deferred tax assets of
approximately $27.5 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, 1998 AND 1997
The Company's net loss was $6,897,024 during the year ended December 31,
1998 as compared with $7,974,016 during the year ended December 31, 1997. Net
loss per common share totaled $0.52 per share during 1998 as compared with $0.64
per share during 1997. The lower net loss in 1998 was primarily due to reduced
costs associated with Therafectin. The Phase III clinical trial for Therafectin,
which began in March 1996, ended in August 1997. The effect of these lower costs
was partially offset by (i) higher licensing fees, (ii) an increase in general
and administrative expenses and (iii) a decrease in interest income.
Revenue was zero during the year ended December 31, 1998 as compared with
$83,060 during the year ended December 31, 1997. Revenue during 1997 was
attributable to an agreement with Zeneca that provided funds to support the
research and development of certain technology. Such funds were recognized
ratably over the original term of the agreement which expired in June 1997.
Research and development expenses were $4,881,889 during the year ended
December 31, 1998 as compared with $4,874,233 during the year ended December 31,
1997. The majority of the Company's research and development expenses were, and
will continue to be in 1999, sponsored research obligations paid to Harvard
University and its affiliated hospitals.
Licensing fees were $80,000 during the year ended December 31, 1998 as
compared with $20,000 during the year ended December 31, 1997. The increase
primarily related to an increase in the number of new technologies licensed to
the Company in 1998 as compared to 1997. During 1998, the Company paid $40,000
to license two new technologies as compared to $20,000 paid in 1997 for the
right to one new technology. During 1998, the Company also incurred a milestone
obligation of $40,000 related to the development of one of its technologies.
18
<PAGE>
Therafectin related expenses were $423,228 during the year ended December
31, 1998 as compared with $2,190,040 during the year ended December 31, 1997.
The level of expenses in 1997 related to the Company's Phase III clinical trial
for Therafactin which was completed in August 1997. Expenses incurred during
1998 were primarily associated with the preparation of the amendment to the
previously filed NDA for Therafectin.
General and administrative expenses were $2,297,289 during the year ended
December 31, 1998 as compared with $2,118,391 during the year ended December 31,
1997. This increase was primarily due to non-cash charges related to certain
changes in the provisions of the Company's stock option plans and the issuance
of warrants to a financial advisor. .
Interest income was $785,382 during the year ended December 31, 1998 as
compared with interest income of $1,148,025 during the year ended December 31,
1997. Average cash and investment balances during 1998 were lower as compared
to 1997.
At December 31, 1998, the Company had net deferred tax assets of
approximately $22 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities totaled $8,024,900 in 1999 as compared to
$6,265,151 in 1998. The increase in 1999 is principally related to increased
research and development expenses as well as higher Therafectin related costs.
Cash used in investing activities totaled $7,577,535 in 1999 while cash provided
by investing activities totaled $4,474,701 in 1998. The differences in investing
activities principally reflects the effect of the three following private
placements completed by the Company in 1999. In 1998, a portion of the Company's
investments were used to fund operating activities. In 1999, the amount of net
proceeds raised from the private placements, which were then invested, exceeded
the amount subsequently used during 1999 to fund operating activities. Cash
flows from financing activities totaled $15,790,735 in 1999 as compared to
$148,309 in 1998. The differences in financing activities principally reflects
the effect of the three following private placements completed by the Company in
1999.
Since its inception, the Company has primarily satisfied its working
capital requirements from the sale of the Company's securities through private
placements. These private placements have included the sale of preferred stock
and common stock, as well as notes payable and convertible debentures. Each
private placement has included the issuance of warrants to purchase common
stock. A summary of financings completed during the three years ended December
31, 1999 is as follows:
<TABLE>
<CAPTION>
Date Net Proceeds Raised Securities Issued
- ------------------------ ----------------------- ---------------------------------------------------------------------------
<S> <C> <C>
September 1999 $7.4 million Convertible debentures and warrants to purchase common stock
February 1999 $2.3 million Common stock and warrants to purchase common stock
February 1999 $5.6 million Preferred stock and warrants to purchase common stock
</TABLE>
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, 1999, the Company had available cash, cash equivalents, and
investments of approximately $15 million and working capital of approximately
$13.7 million. The Company believes that the level of financial resources
available at December 31, 1999 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.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which was amended by SFAS No.
137 and is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The statement requires that all derivative investments be
recorded in the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or comprehensive income
depending on whether a derivative is designated as part of a hedge transaction,
and the type of hedge transaction.
19
<PAGE>
The Company does not expect the adoption of the statement to have a material
effect on its financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which is effective for the Company's quarter ending June 30, 2000
and all future quarters. SAB 101 clarifies the SEC's views related to revenue
recognition and disclosure. The Company does not expect the provisions of SAB
101 to have a material effect on the Company's prior period results.
ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We currently own financial instruments that are sensitive to market risks
as part of our investment portfolio. Our investment portfolio is used to
preserve our capital until it is required to fund operations, including our
research and development activities. None of these market-risk sensitive
instruments are leveraged or held for trading purposes. Our investment portfolio
consists of United States agency bonds and corporate debt obligations. These
investments are subject to interest rate risk, and could decline in value if
interest rates fluctuate. Due to the conservative nature of these instruments,
we do not believe that we have a material exposure to interest rate risk.
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 consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Boston
Life Sciences, Inc. and its subsidiaries (the "Company") at December 31, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999 and for the period from
inception (October 16, 1992) through December 31, 1999 in conformity with
accounting principles generally accepted in the United States. 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 statements in accordance with
auditing standards generally accepted in the United States, 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.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 10, 2000
21
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................................................... $ 260,134 $ 71,834
Short-term investments ............................................................ 14,690,308 7,837,992
Other current assets .............................................................. 599,943 568,599
------------ ------------
Total current assets ........................................................... 15,550,385 8,478,425
Fixed assets, net ................................................................... 10,796 14,417
Acquired technology ................................................................. -- 3,500,000
Other assets ........................................................................ 511,031 276,206
------------ ------------
Total assets ................................................................... $ 16,072,212 $ 12,269,048
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ............................................. $ 1,803,667 $ 1,734,199
8% convertible redeemable debentures, due September 2003.............................. 4,647,192 --
Series C convertible redeemable preferred stock, $.01 par value; 475,000 shares
authorized and 53,669 shares issued and outstanding on December 31, 1999............. 1,046,546 --
Commitments and contingencies (Note 13)
Stockholders' equity:
Series A convertible preferred stock, $.01 par value; 15,000 and 1,000,000 shares
authorized at December 31, 1999 and 1998, respectively; 4,983 and 16,996 shares
issued and outstanding at December 31, 1999 and 1998, respectively ............... 50 170
Common stock, $.01 par value; 30,000,000 and 25,000,000 shares authorized at
December 31, 1999 and 1998 respectively; 16,280,473 and 13,276,978 shares issued
and outstanding at December 31, 1999 and 1998, respectively ....................... 162,805 132,770
Additional paid-in capital ....................................................... 63,093,089 50,489,202
Accumulated other comprehensive (loss) income .................................... (553,157) 76,203
Deficit accumulated during development stage ..................................... (54,127,980) (40,163,496)
------------ ------------
Total stockholders' equity ........................................................ 8,574,807 10,534,849
------------ ------------
Total liabilities and stockholders' equity ........................................ $ 16,072,212 $ 12,269,048
============ ============
</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>
For the Year Ended December 31,
---------------------------------------------------------
FROM INCEPTION
(OCTOBER 16,
1992) TO
1999 1998 1997 December 31, 1999
------------------ ----------------- ----------------- --------------------
<S> <C> <C> <C> <C>
Revenues .............................. $ 200,000 $ -- $ 83,060 $ 900,000
Operating expenses:
Research and development .................. 5,758,433 4,881,889 4,874,233 22,537,435
Licensing fees ............................ -- 80,000 20,000 733,683
Therafectin related (Note 4) .............. 4,621,399 423,228 2,190,040 8,781,458
General and administrative ................ 2,451,419 2,297,289 2,118,391 12,916,669
Purchased in-process research and
development .............................. 1,725,000 -- -- 12,146,544
------------ ----------- ----------- ------------
14,556,251 7,682,406 9,202,664 (57,115,789)
------------ ----------- ----------- ------------
Loss from operations ................... (14,356,251) (7,682,406) (9,119,604) (56,215,789)
Interest expense ............................ (445,758) -- (2,437) (1,907,587)
Interest income ............................. 837,525 785,382 1,148,025 3,995,396
------------ ----------- ----------- ------------
Net loss .................................. $(13,964,484) $(6,897,024) $(7,974,016) $(54,127,980)
============ =========== =========== ============
Calculation of net loss available to common
shareholders:
Net loss................................... $(13,964,484) $(6,897,024) $(7,974,016)
Preferred stock preferences and
other (Note 10)....................... (5,366,054) -- --
------------ ----------- -----------
Net loss available to common
shareholders.............................. $(19,330,538) $(6,897,024) $(7,974,016)
============ =========== ===========
Calculation of basic and diluted net loss per
share available to common shareholders:
Net loss per share ........................ $ (0.95) $(0.52) $(0.64)
Preferred stock preferences and
other per share (Note 10)............. (0.36) -- --
------------ ----------- -----------
Basic and diluted net loss per share
available to common shareholders....... $ (1.31) $ (0.52) $ (0.64)
============ =========== ===========
Weighted average shares outstanding ......... 14,731,149 13,138,862 12,378,219
============ =========== ===========
</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, 1999
<TABLE>
<CAPTION>
Common Stock
Series A Preferred Stock -------------------- Additional
Number of Number of Paid-in Deferred
Shares Par Value Shares Par Value Capital Compensation
------ --------- ------ --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders ............ 1,520,044 $ 15,200 $ 33,525
Net loss ........................................
---------- -------- -----------
Balance at December 31, 1992 .................... 1,520,044 15,200 33,525
Issuance of option to purchase common stock
to a licensor ................................... 62,433
Issuance of common stock to a consultant ........ 3,913 40 7,460
Issuance of common stock, net issuance costs
of $500,988 .................................... 1,545,713 15,457 2,458,545
Net loss ........................................
---------- -------- -----------
Balance at December 31, 1993 .................... 3,069,670 30,697 2,561,963
Issuance of common stock, net issuance costs
of $406,916 .................................... 987,355 9,873 1,638,211
Issuance of common stock upon exercise of option 95,378 954 (640)
Net loss ........................................ _
---------- -------- -----------
Balance at December 31, 1994 .................... 4,152,403 41,524 4,199,534
Issuance of common stock and warrants
related to bridge financing .................... 198,366 1,984 797,409
Issuance of common stock and warrants upon merger 3,519,736 35,197 14,568,751
Issuance of common stock in exchange for
minority interest in certain subsidiaries ...... 100,000 1,000 (1,000)
Issuance of common stock upon exercise of options 37,567 375 184,952
Issuance of common stock subject to redemption .. 324,675 3,247 (3,247)
Expiration of valuation periods for
common stock subject to redemption ............. 180,600
Issuance of convertible debt .................... 411,002
Deferred compensation related to stock
options and warrants granted ................... 327,146 $(327,146)
Compensation expense related to stock
options and warrants ........................... 60,783
Net loss ........................................
-------- ------- ---------- -------- ----------- ---------
Balance at December 31, 1995 .................... 8,332,747 83,327 20,665,147 (266,363)
Issuance of preferred stock, net issuance
costs of $3,397,158 ............................ 239,911 $ 2,399 20,591,443
Conversion of preferred stock into common stock . (106,301) (1,063) 1,864,276 18,643 (17,580)
Issuance of common stock, net issuance costs
of $42,537 ..................................... 547,274 5,473 5,001,490
Issuance of common stock upon conversion of
convertible debentures ......................... 156,605 1,566 576,023
Issuance of common stock upon exercise of
warrants and options ........................... 203,952 2,040 499,765
Expiration of valuation periods for
common stock subject to redemption ............. 1,764,872
Deferred compensation related to stock
options granted ................................ 439,607 (439,607)
Compensation expense related to stock options ... 465,680
Net loss ........................................
-------- ------- ---------- -------- ----------- ---------
Balance at December 31, 1996 .................... 133,610 1,336 11,104,854 111,049 49,520,767 (240,290)
Conversion of preferred stock into common stock . (105,238) (1,052) 1,845,634 18,456 (17,404)
Issuance of common stock upon exercise of
warrants and options ........................... 43,350 433 54,283
Expiration of valuation periods for
common stock subject to redemption............... 28,886
Deferred compensation related to stock
options granted ................................ 37,854 (37,854)
Compensation expense related to stock options ... 278,144
Unrealized gain on investments ..................
Net loss ........................................
Comprehensive loss................................
-------- ------- ---------- -------- ----------- ---------
Balance at December 31, 1997 ..................... 28,372 284 12,993,838 129,938 49,624,386 --
Conversion of preferred stock into
common stock ................................... (11,376) (114) 199,509 1,995 (1,881)
Issuance of common stock upon exercise of
warrants and options ........................... 83,631 837 147,472
Compensation expense related to stock
options and warrants ........................... 719,225
Unrealized loss on investments ..................
Net loss ........................................
Comprehensive loss................................
-------- ------- ---------- -------- ----------- ---------
Balance at December 31, 1998 .................... 16,996 170 13,276,978 132,770 50,489,202 --
Issuance of warrants in connection with
debentures, net issuance costs of $280,806 ..... 3,319,194
Issuance of warrants in connection with
preferred series C stock issuance and related
beneficial conversion feature, net issuance costs
of $590,890....................................... 3,736,789
Accretion of preferred series C stock............. (4,327,679)
Issuance of common stock and warrants,
net of issuance costs of $158,000 .............. 879,668 8,797 4,058,203
Conversion of preferred stock into common stock . (12,013) (120) 1,538,209 15,382 5,088,192
Issuance of common stock upon exercise of
warrants and options ........................... 585,618 5,856 1,108,347
Compensation expense related to stock
options and warrants ........................... 221,405
Preferred stock conversion inducement ........... (600,564)
Unrealized loss on investments ..................
Net loss ........................................
Comprehensive loss................................
-------- ------- ---------- -------- ----------- ---------
Balance at December 31, 1999 .................... 4,983 $ 50 16,280,473 $162,805 $63,093,089 $ --
======== ======= ========== ======== =========== =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated Total
Accumulated Other During Stockholders'
Comprehensive Development Equity
Income (Loss) Stage (Deficit)
--------- ----------------- ---------------
<S> <C> <C> <C>
Issuance of common stock to founders ........... $ 48,725
Net loss ....................................... $ (295,388) (295,388)
------------ ------------
Balance at December 31, 1992 ................... (295,388) (246,663)
Issuance of option to purchase common stock
to a licensor .................................. 62,433
Issuance of common stock to a consultant ....... 7,500
Issuance of common stock, net issuance costs
of $500,988 ................................... 2,474,002
Net loss ....................................... (2,254,898) (2,254,898)
------------ ------------
Balance at December 31, 1993 ................... (2,550,286) 42,374
Issuance of common stock, net issuance costs
of $406,916 ................................... 1,648,084
Issuance of common stock upon exercise of option 314
Net loss ....................................... (2,596,872) (2,596,872)
------------ ------------
Balance at December 31, 1994 ................... (5,147,158) (906,100)
Issuance of common stock and warrants
related to bridge financing ................... 799,393
Issuance of common stock and warrants upon merger 14,603,948
Issuance of common stock in exchange for
minority interest in certain subsidiaries ..... --
Issuance of common stock upon exercise of options 185,327
Issuance of common stock subject to redemption . --
Expiration of valuation periods for
common stock subject to redemption ............ 180,600
Issuance of convertible debt ................... 411,002
Deferred compensation related to stock
options and warrants granted .................. --
Compensation expense related to stock
options and warrants .......................... 60,783
Net loss ....................................... (14,149,151) (14,149,151)
------------ ------------
Balance at December 31, 1995 ................... (19,296,309) 1,185,802
Issuance of preferred stock, net issuance
costs of $3,397,158 ........................... 20,593,842
Conversion of preferred stock into common stock --
Issuance of common stock, net issuance costs
of $42,537 .................................... 5,006,963
Issuance of common stock upon conversion of
convertible debentures ........................ 577,589
Issuance of common stock upon exercise of
warrants and options .......................... 501,805
Expiration of valuation periods for
common stock subject to redemption ............ 1,764,872
Deferred compensation related to stock
options granted ............................... --
Compensation expense related to stock options .. 465,680
Net loss ....................................... (5,996,147) (5,996,147)
------------ ------------
Balance at December 31, 1996 ................... (25,292,456) 24,100,406
Conversion of preferred stock into common stock --
Issuance of common stock upon exercise of
warrants and options .......................... 54,716
Expiration of valuation periods for
common stock subject to redemption.............. 28,886
Deferred compensation related to stock
options granted ............................... --
Compensation expense related to stock options .. 278,144
Unrealized gain on investments ................. $ 99,029 99,029
Net loss ....................................... (7,974,016) (7,974,016)
Comprehensive loss............................... (7,874,987)
--------- ------------ ------------
Balance at December 31, 1997 .................... 99,029 (33,266,472) 16,587,165
Conversion of preferred stock into
common stock .................................. --
Issuance of common stock upon exercise of
warrants and options .......................... 148,309
Compensation expense related to stock
options and warrants .......................... 719,225
Unrealized loss on investments ................. (22,826) (22,826)
Net loss ....................................... (6,897,024) (6,897,024)
Comprehensive loss............................... (6,919,850)
--------- ------------ ------------
Balance at December 31, 1998 ................... 76,203 (40,163,496) 10,534,849
Issuance of warrants in connection with
debentures, net issuance costs of $280,806 .... 3,319,194
Issuance of warrants in connection with
preferred series C stock issuance and
related beneficial conversion feature, net
issuance costs of $590,890...................... 3,736,789
Accretion of preferred series C stock............ (4,327,679)
Issuance of common stock and warrants,
net of issuance costs of $158,000 ............. 4,067,000
Conversion of preferred stock into common stock 5,103,454
Issuance of common stock upon exercise of
warrants and options .......................... 1,114,203
Compensation expense related to stock
options and warrants .......................... 221,405
Preferred stock conversion inducement .......... (600,564)
Unrealized loss on investments ................. (629,360) (629,360)
Net loss ....................................... (13,964,484) (13,964,484)
------------
Comprehensive loss............................... (14,593,844)
--------- ------------ ------------
Balance at December 31, 1999 ................... $(553,157) $(54,127,980) $ 8,574,807
========= ============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
25
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------
FROM INCEPTION
(OCTOBER 16,
1992) TO
DECEMBER 31,
1999 1998 1997 1999
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................................. $(13,964,484) $ (6,897,024) $(7,974,016) $(54,127,980)
Adjustments to reconcile net loss to net cash used for
operating activities:
Purchased in-process research and development ............ 1,725,000 -- -- 12,146,544
Compensation charge related to options and warrants ...... 221,405 719,225 278,144 1,815,170
Write-off of acquired technology ......................... 3,500,000 -- -- 3,500,000
Accretion of discount on convertible debentures .......... 247,192 -- -- 247,192
Amortization and depreciation ............................ 39,566 80,644 79,946 1,491,382
Changes in current assets and liabilities:
Decrease in other current assets ........................ 136,953 89,609 371,408 63,882
Increase (decrease) in accounts payable and accrued
expenses ................................... 69,468 (257,605) 83,892 856,002
Decrease in deferred revenue ............................ -- -- (83,060) --
------------ ------------ ----------- ------------
Net cash used for operating activities .................... (8,024,900) (6,265,151) (7,243,686) (34,007,808)
------------ ------------ ----------- ------------
Cash flows from investing activities:
Cash acquired through the Merger. ......................... -- -- -- 1,758,037
Purchase of fixed assets .................................. (12,379) -- (74,010) (269,080)
Increase in other assets.................................... (83,480) (2,977) (157,555) (349,886)
Short term investments:
Purchases ................................................ (12,828,190) (13,340,276) (8,984,893) (57,726,420)
Sales and maturities ..................................... 5,346,514 17,817,954 9,740,448 42,482,955
------------ ------------ ----------- ------------
Net cash (used for) provided by investing activities ...... (7,577,535) 4,474,701 523,990 (14,104,394)
------------ ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock .................... 3,614,203 148,309 83,602 16,772,257
Proceeds from issuance of preferred stock ................. 6,150,000 -- -- 27,022,170
Preferred stock conversion inducement ..................... (600,564) -- -- (600,564)
Proceeds from issuance of notes payable ................... -- -- -- 2,585,000
Proceeds from issuance of convertible debentures .......... 8,000,000 -- -- 9,000,000
Principal payments of notes payable ....................... -- -- (61,752) (2,796,467)
Payment of note issuance costs ............................ -- -- -- (399,702)
Payment of convertible debenture issuance cost.............. (343,208) -- -- (343,208)
Payment of stock issuance and merger transaction costs .... (1,029,696) -- -- (2,867,150)
------------ ------------ ----------- ------------
Net cash provided by financing activities ................. 15,790,735 148,309 21,850 48,372,336
------------ ------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents ....... 188,300 (1,642,141) (6,697,846) 260,134
Cash and cash equivalents, beginning of period ............. 71,834 1,713,975 8,411,821 --
------------ ------------ ----------- ------------
Cash and cash equivalents, end of period ................... $ 260,134 $ 71,834 $ 1,713,975 $ 260,134
============ ============ =========== ============
Supplemental cash flow disclosures:
Interest paid ............................................. $ -- $ -- $ 2,437
Non cash transactions (see notes 8, 10 and 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
We are 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. Boston Life Sciences ("Old BLSI"), originally a privately-
held company founded in 1992, merged with a publicly held company effective June
15, 1995 (the "Merger"). The publicly-held company survived the
merger and changed its name to Boston Life Sciences, Inc. (the "Company").
However, all of the employees of the public company (other than a caretaker
management) ceased employment six months prior to the merger, the company's
facilities and equipment were sold, and all directors resigned effective with
the merger, whereupon the management and directors of old BLSI assumed
management of the Company. During the period from inception through December 31,
1999, the Company has devoted substantially all of its efforts to business
planning, raising financing, furthering the research and development of its
technologies, activities related to the clinical trials of Theracfectin and our
discussion with the FDA, 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. For the period from inception (October 16, 1992)
through December 31, 1999, 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,
1999 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 in the
Consolidated Statement of Operations but are reflected in the Consolidated
Statement of Stockholders' Equity (Deficit) as a component of accumulated other
comprehensive income (loss) until realized. Realized gains (losses) are
determined based on the specific identification method. Investments consist of
United States agency bonds, and corporate debt obligations (Note 2). 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 current assets include approximately $168,000 invested in a
certificate of deposit. In April 1997, the Company's primary banking institution
(the "Bank") 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 an amount equal to the Loan to the Bank. Such funds, including the
accumulated interest thereon, were held by the Bank in a restricted escrow
account until the Loan was repaid. In February 2000, the officer repaid the
entire loan balance, and the Bank released the Company from its pledge
commitment.
Financial Instruments
The carrying amounts of the Company's financial instruments, which include
cash equivalents, short-term investments, accounts payable and accrued expenses,
and convertible redeemable debentures, approximate their fair values.
27
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition and Concentration of Customers
Since inception, the Company has entered into two separate licensing and
development agreements with certain pharmaceutical companies related to the
development of certain of its technologies. Under the terms of the agreements,
the pharmaceutical companies have been provided with a specified period during
which they have the right to evaluate the Company's technology. The Company
received cash payments from the pharmaceutical companies, and will also receive
royalties on eventual sales of any product derived from the development effort.
One agreement provided for periodic payments over a three-year period which were
recognized ratably over the original term of the agreement. The other agreement
provided for an initial, non-recurring payment which was recognized in full upon
receipt because the Company had no remaining performance obligation.
Fixed Assets
Fixed assets are stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets, ranging from three to five
years. Leasehold improvements are stated at cost and amortized using the
straight-line method over the term of the lease or the estimated useful lives of
the assets, whichever is shorter.
Licensing Fees, Research and Development Expenses, Concentration of Outside
Researchers, and Therafectin-related expenses
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 the Merger, the Company acquired
technology related to Therafectin, a treatment for rheumatoid arthritis, which
had previously been administered in 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 net
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.
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 financial reporting
and income tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to be in effect when the
differences reverse. A valuation allowance is established to reduce net deferred
tax assets to the amount expected to be realized.
28
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net Loss Per Share
Basic and diluted net loss per share available to common shareholders has
been calculated by dividing net loss, adjusted for preferred stock preferences
and other preferred stock-related adjustments, by the weighted average number of
common shares outstanding during the period. All potential common shares have
been excluded from the calculation of weighted average common shares outstanding
since their inclusion would be antidilutive.
The following common stock equivalents, on an as exercised or converted
basis, were excluded from the computation of diluted net loss per common share
because they were anti-dilutive.
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Stock options 1,836,311 1,368,528 1,039,668
Warrants 4,934,858 1,832,530 1,767,258
Preferred stock 355,735 298,141 497,563
Convertible debentures 1,523,810 -- --
--------- --------- ---------
8,650,714 3,499,199 3,304,489
========= ========= =========
</TABLE>
The exercise of these stock options and warrants, or the conversion of the
preferred stock or convertible debentures, could potentially dilute earnings per
share in the future.
Accounting for Stock-Based Compensation
The Company adopted the disclosure-only alternative permitted under
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" (Note 11). The Company applies APB Opinion No. 25
Accounting for Stock Issued to Employees and related interpretations in
accounting for its stock-based compensation plans and related equity issuances.
Options and warrants issued to non-employees are subject to a fair value based
method of accounting, using the Black-Scholes pricing model, and compensation
cost is recognized over the vesting period.
Preferred Stock
The Company has, at certain times, issued preferred stock which was
convertible into common stock at a discount from the common stock market price
at the date of issuance. The discounted amount associated with such conversion
rights represents an incremental yield, i.e. a "beneficial conversion feature,"
which is recognized as a return to the preferred shareholders. Such amounts are
included in preferred stock preferences in the Consolidated Statement of
Operations, and represent a non-cash charge in the determination of net loss
available to common shareholders.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported and disclosed in the financial
statements and accompanying footnotes. Actual results could differ from those
estimates.
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, (v) the outcome of any current or future collaborations or
alliances with pharmaceutical or other biotechnology companies and universities,
and (vi) dependence on key personnel.
29
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reclassifications
Certain reclassifications have been made to the 1998, 1997 and period from
inception (October 16, 1992) through December 31,1999 financial statements to
conform to the 1999 presentation.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which was amended by SFAS No.
137 and is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000. The statement requires that all derivative investments be
recorded in the balance sheet at fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or comprehensive income
depending on whether a derivative is designated as part of a hedge transaction,
and the type of hedge transaction. The Company does not expect the adoption of
the statement to have a material effect on its financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which is effective for the Company's quarter ending June 30, 2000
and all future quarters. SAB 101 clarifies the SEC's views related to
revenue recognition and disclosure. The Company does not expect the provisions
of SAB 101 to have a material effect on the Company's prior period results.
2. INVESTMENTS CONSIST OF THE FOLLOWING AT DECEMBER 31:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
U.S. agency obligations . $14,190,588 $7,084,374
Corporate debt obligations . 499,720 753,618
----------- ----------
$14,690,308 $7,837,992
=========== ==========
</TABLE>
The contractual maturities of the Company's investments at December 31, 1999 are
as follows: less than one year--$6,903,810; one to five years--$1,470,010; six
to ten years--$5,231,301; ten to fifteen years--$1,085,187. Actual maturities
may differ from contractual maturities because the issuers of these securities
may have the right to prepay obligations without penalty. Gross unrealized
gains and (losses) at December 31, 1999 totaled $481 and ($553,638),
respectively. Net realized gains (losses) totaled $21,487, $2,484 and ($3,768)
in 1999, 1998 and 1997, respectively, and are included in interest income in the
Consolidated Statement of Operations.
3. FIXED ASSETS CONSIST OF THE FOLLOWING AT DECEMBER 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Office furniture and equipment .................................. $116,007 $112,006
Leasehold improvements .......................................... 8,379 59,424
Computer equipment .............................................. 58,510 58,510
Laboratory equipment ............................................ 33,018 33,018
-------- --------
215,914 262,958
Less accumulated depreciation and amortization .................. 205,118 248,541
-------- --------
$ 10,796 $ 14,417
======== ========
</TABLE>
Depreciation expense on fixed assets for the years ended December 31, 1999, 1998
and 1997 was approximately $16,000, $81,000 and $80,000, respectively, and
$265,000 for the period from inception (October 16, 1992) through December 31,
1999.
30
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. ACQUIRED TECHNOLOGY
In connection with the Merger, a $3.5 million asset was established
representing the appraised value assigned to acquired technology related to
Therafectin, a treatment for rheumatoid arthritis. In December 1999, the Company
announced that it would be meeting with the Food & Drug Administration ("FDA")
during the first quarter of 2000 to informally discuss its application for the
approval of Therafectin. The Company met with the FDA in late March, at which
time the Agency confirmed that Therafectin was not approvable at this time. The
Company has not determined its next course of action but does not presently plan
to commit substantial additional financial resources on the development of
Therafectin. As required under generally accepted accounting principles, the
Company has evaluated whether a portion of the carrying value of the technology
has been impaired by comparing anticipated undiscounted future net 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. Based on the
information currently available, and the indefinite plans with respect to
Therafectin, the carrying value of the technology has been written down to zero
by recording a non-cash charge of $3,500,000 which is included in the amount
reported as Therafectin related expenses in the Consolidated Statement of
Operations for the year ended December 31, 1999.
5. Purchased In-Process Research and Development
In September 1999, the Company finalized an agreement with MTR
Technologies, Inc. ("MTR") under which it obtained an option to acquire the
licensing rights to certain technology covering fusion toxins for the treatment
of a wide variety of solid tumors, as well as multiple sclerosis and allergies.
The technology was invented by scientists at Hadassah Medical School of the
Hebrew University in Jerusalem, and was initially licensed to MTR by Yissum
Research Development Company of the Hebrew University in Jerusalem ("Yissum").
The option expires in May 2000, during which period the Company will complete
certain pre-clinical studies to determine whether it wants to acquire the
licensed rights to the technology. The Company issued 232,000 shares of common
stock and 216,000 warrants exercisable to purchase the Company's common stock at
an exercise price of $4.25 per share as consideration for the option. The fair
value of such consideration of $1,725,000 has been recognized as purchased
in-process research and development in the Consolidated Statement of Operations
for the year ended December 31, 1999. If the Company elects to exercise its
option to acquire the licensing rights to the technology, it will assume certain
existing obligations of MTR, and may have to pay additional consideration to MTR
(in the form of cash or additional shares, to the extent that the fair-market
value of the 232,000 shares originally issued is less than $1.4 million at the
date on which the option is exercised), as well as milestone payments upon the
completion of clinical trials and royalties on any future product sales related
to the technology.
6. RESEARCH AND DEVELOPMENT AGREEMENTS
In June 1995, the Company entered into a two-year research and development
agreement with a pharmaceutical company. Under the terms of the agreement, which
expired in June 1997, the pharmaceutical company provided funds to support the
research and development of one of the Company's technologies. These funds were
recognized as revenue ratably over the term of the Agreement which included
$83,060 in 1997.
In September 1999, the Company entered into a development and licensing
agreement with a pharmaceutical company to develop one of the Company's
technologies. The Company received an initial, non-recurring payment of
$200,000, and will also receive royalties on eventual sales of any product
potentially derived from the development effort.
31
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Accounts Payable and Accrued Expenses consist of the following at December
31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Accrued research and development ............................ $ 819,000 $ 600,000
Accounts payable and other operating expenses ............... 310,255 448,558
Accrued professional fees ................................... 421,080 652,961
Accrued interest ............................................ 175,000 --
Accrued payroll related ..................................... 78,332 32,680
---------- ----------
$1,803,667 $1,734,199
========== ==========
</TABLE>
8. NOTES PAYABLE AND DEBT
8% Convertible Debentures
In September 1999, the Company issued $8 million in convertible debentures
due September 2003 and warrants to purchase a total of 1,690,000 shares of the
Company's common stock to two institutional investment funds, both managed by
the same institutional investment firm. The warrants were issued in two classes,
the first, or "class A" warrants, are exercisable to purchase 970,000 shares of
common stock at an exercise price of $5.75 per share. The second, or "class B"
warrants, are exercisable to purchase 720,000 shares of common stock at an
exercise price of $8.25 per share. In connection with the financing, the Company
paid $480,000 in cash and issued 182,000 warrants exercisable at $5.75 per share
and 108,000 warrants exercisable at $8.25 per share to the placement agent.
The debentures accrue interest at 8% per annum, payable semi-annually, and
are convertible by the holders into common stock at a conversion price of $5.25
per share, subject to certain anti-dilution adjustments. The conversion price
will be adjusted to the then market price of the Company's common stock on the
first and second anniversary dates, provided however that such adjustments can
only reduce the conversion price subject to certain maximum adjustments. The
Company may elect to pay interest accrued on the debentures in shares of common
stock, subject to certain limitations.
The net proceeds of $7.4 million have been allocated between the warrants
(approximately $3.3 million) and the convertible debentures (approximately $4.1
million) based on their relative fair values. The initial carrying value of the
debentures is being accreted ratably, over the term of the debenture, to the $8
million amount due at maturity. Interest expense totaled $445,758 in 1999, and
included $175,000 in interest accrued on the 8% coupon and $247,192 in discount
accretion. Debt issuance costs totaling $343,208 have been capitalized and will
be amortized over the life of the debentures.
9. COMMON STOCK
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 were retroactively restated to reflect the terms of the split.
Common Stock Issuances
In February 1999, the Company completed a private placement of 647,668
shares of common stock which raised approximately $2.3 million in net proceeds.
The investor also received warrants to purchase 97,150 shares of common stock at
a price of $4.81 per share. The Company is obligated to issue additional shares
to the investor if the Company issues common stock in a capital raising
transaction at a price per share less than that paid by the investor. Certain
issuances, including those related to the exercise of outstanding warrants and
options, are not subject to this provision which expires in October 2002.
32
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. PREFERRED STOCK
The Company has authorized 1,000,000 shares of preferred stock of which
15,000 shares have been designated as Series A convertible preferred stock and
475,000 shares have been designated as Series C convertible preferred stock. The
remaining authorized shares have not been designated.
Series A Preferred Stock
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 210,681, 199,509, and
1,845,634 shares of common stock during 1999, 1998 and 1997, respectively,
related to the conversion of 12,013, 11,376, and 105,238 shares of preferred
stock, respectively.
Series C Preferred Stock
In February 1999, the Company completed a private placement of Series C
convertible preferred stock ("Series C Stock") which raised approximately $5.6
million in net proceeds. In connection with the financing, the Company issued
(i) 315,416 shares of Series C Stock and (ii) 569,248 warrants to purchase
common stock at $5.06 per share and 219,234 warrants to purchase common stock at
$6.09 per share. In connection with this financing, the Company paid $372,725
to the placement agent and issued 162,307 warrants to purchase common stock at
$5.06 per share and 54,808 warrants to purchase common stock at $6.09 per share
to the placement agent.
Each share of the Series C Stock is convertible at any time at the option
of the holder into shares of common stock pursuant to a ratio of five shares of
common stock for each share of Series C Stock. The Company is required to issue
up to one additional share of common stock for each share of common stock
underlying Series C Stock still held by an investor on the date that was 270
days after the closing, if the market price of the common stock is below a
specified level on such date. However, the investor's right to receive
additional shares terminates if the market price of the common stock is above a
specified level for a certain period, as defined. The initial conversion price
of the Series C Stock was at a discount to the market price on the date of
issuance and the terms provided for a minimum return of 25%. The intrinsic value
of this beneficial conversion of approximately $1.9 million is recognized as a
preferred stock preference in the Consolidated Statement of Operations in 1999,
and represents a non-cash charge in the determination of net loss available to
common shareholders. The net proceeds of $5.6 million have been allocated
between the warrants and the Series C Stock based on their relative fair values.
Because the redemption of the Series C Stock is not within the control of the
Company, the amount allocated to the Series C Stock is reflected outside of
stockholders' equity as "mezzanine" financing. The Series C Stock has been
accreted to its redemption value of $6,150,000, resulting in the recognition of
an additional $2.5 million of preferred stock preferences.
In November 1999, the Company extended an exchange offer to the Series C
stockholders wherein it agreed to issue certain consideration for each share of
Series C Stock converted into common stock, pursuant to the then applicable
ratio of five shares of common stock for each share of Series C Stock. Such
consideration consisted of $4 for each share of Series C Stock converted, as
well as one warrant (for each share of Series C Stock converted) to purchase
stock at an exercise price of $6 per share. In connection with the exchange
offer, the Company paid $600,564 and issued 150,141 warrants in exchange for the
conversion of a total of 150,141 shares of Series C Stock into 750,705 shares of
common stock. A charge of $1,038,375 representing the fair value of the
warrants issued ($437,811) and the cash paid ($600,564) has been directly
recorded as a preferred stock preference in the Consolidated Statement of
Operations in 1999.
In addition to the shares converted in connection with the exchange offer,
111,606 shares of Series C Stock were converted into 576,824 shares of common
stock during 1999. During the first quarter of 2000, 51,104 shares of Series C
Stock were converted into 287,789 shares of common stock. A balance of 2,565
shares of Series C Stock remains outstanding as of March 31, 2000.
33
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. Stock Options and Warrants
Omnibus Plans
The Amended and Restated Omnibus Stock Option 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 1998 Omnibus Plan provides for the issuance of options
to purchase up to 1,000,000 shares of the Company's common stock through April
2008. Both plans provide for the issuance of both nonqualified stock options and
incentive stock options to employees, officers, consultants and scientific
advisors of the Company. The Company's Board of Directors determines the term of
each option, vesting provisions, 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 1996 and 1995, 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. The total 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 was charged to
operations over the vesting period of the options which management believed
fairly approximates the service period. The charge to operations for the year
ended December 31, 1997 totaled approximately $182,000.
Directors' Plan
The Directors' Plan allows for the issuance of up to 600,000 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 issued pursuant to the automatic yearly
grant 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. Compensation expense related to
the intrinsic value of options issued in connection with the annual grant in
1999, 1998 and 1997 totaled approximately $25,000, $19,000 and $18,000,
respectively. 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. During 1998, the Directors' Plan was amended to provide for the
granting of options to employees of the Company. All options granted under the
Directors' Plan have a term of ten years.
Stock-Based Compensation
If the Company had valued awards to qualified employees using the fair
value methodology prescribed by SFAS 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>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net loss.........................................................
As reported.................................................... $(13,964,484) $(6,897,024) $(7,974,016)
Pro forma...................................................... $(16,398,389) $(7,900,270) $(8,711,431)
Basic and diluted loss per share available to common
shareholders...................................................
As reported.................................................... $ (0.95) $ (0.52) $ (0.64)
Pro forma...................................................... $ (1.11) $ (0.60) $ (0.70)
</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 ranging from 80 to 100 percent; risk-
free interest rates, based on the date of grant, ranging from 4.61% to 6.46%;
and expected lives of 5 years.
34
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the status of the Company's stock option plans as of December 31,
1999, 1998, and 1997 and changes during the years ending on those dates is
presented below. In January 1998, the Company issued 372,000 options to
employees and directors at a price that was $0.13 less than the market price of
the Company's stock on the date of grant, for which the Company recorded a non-
cash charge of approximately $48,000. During 1998, the Company amended its
Stock Options Plans to provide employees and directors with extended exercise
rights upon termination subject to the option holder meeting certain
requirements, including minimum terms of employment. In connection with these
changes the Company recorded a non-cash charge of approximately $410,000.
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- ----------------------------- -------------------------
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 ....... 1,368,528 $3.74 1,039,668 $4.33 716,008 $4.30
Granted ................................ 712,850 3.25 503,204 2.13 409,640 4.43
Exercised .............................. (235,067) 1.25 (10,770) 1.10 (28,280) 0.82
Forfeited and expired .................. (10,000) 2.00 (163,574) 2.69 (57,700) 7.03
--------- --------- ---------
Outstanding at end of year ............. 1,836,311 3.88 1,368,528 3.74 1,039,668 4.33
========= ========= =========
Options exercisable at year-end ........ 1,514,705 3.91 1,077,212 3.72 690,720 4.12
========= ========= =========
Weighted-average fair value of
options granted during the year ....... $3.83 $1.46 $3.07
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- --------------------------------------------- ----------- --------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
$.63--$2.20 ............................... 462,836 7.2 years $1.77 460,305 $1.77
$3.25--$3.63 .............................. 657,500 9.1 years 3.29 438,875 3.27
$4.47--$4.53 .............................. 395,400 7.5 years 4.47 305,150 4.47
$5.75--$9.38 .............................. 320,575 6.3 years 7.39 310,375 7.42
--------- ---------
1,836,311 7.8 years $3.88 1,514,705 $3.91
========= =========
</TABLE>
At December 31, 1999, 559,175 shares are available for grant under the
Company's Option Plans.
Warrants
In January 1997, the Company issued 20,000 warrants pursuant to a letter
agreement between the Company and a shareholder.
In January 1998, the Company issued 225,000 warrants to a financial advisor
which represented a substantial portion of the compensation paid by the Company
for the advisor's services. The Company recorded a non-cash charge of
approximately $290,000 representing the fair value of the warrants at the date
of issuance.
In February 1999, the Company issued 1,014,987 warrants in connection with
a private placement of Series C Convertible Preferred Stock (Note 10) and
101,150 warrants in connection with a private placement of common stock (Note
9).
In the first quarter of 1999, the Company issued 33,187 warrants to certain
consultants and business advisors. The Company recorded a non-cash charge of
$110,317 representing the fair value of these warrants.
In September 1999, the Company issued 1,980,000 warrants in connection with
the issuance of its 8% Convertible Debentures (Note 8).
In September 1999, the Company issued 216,000 warrants in connection with
the acquisition of an option to acquire certain technology (Note 5).
35
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In November 1999, the Company issued 150,141 warrants in connection with an
exchange offer to the Series C stockholders (Note 10).
At December 31, 1999, warrants outstanding were as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE
DATE OF ISSUE PER SHARE WARRANTS OUTSTANDING EXPIRATION DATE
- ------------------------------------------ ------------------- ----------------------- ---------------------------------
<S> <C> <C> <C>
November 1999............................. $ 6.00 150,141 November 2004
September 1999............................ 4.25 216,000 September 2004
September 1999............................ 5.75 - 8.25 1,980,000 September 2004
January 1999 - March 1999................ 2.50 - 6.00 30,687 January 2004 - March 2004
February 1999............................. 4.81 - 6.09 1,116,137 February 2004
January 1998 ............................ 2.13 - 4.00 171,450 January 2003
January 1997 ............................ 15.00 20,000 January 2007
September 1996 .......................... 6.30 5,000 September 2006
June 1996 ............................... 11.00 32,749 June 2006
February 1996 ........................... 6.71 634,978 February 2006
December 1995 ........................... 3.50 3,900 December 2000
August 1995 ............................. 6.81 24,923 July 2005
June 1995 ............................... .13 - 9.41 548,893 March 2000
---------
4,934,858
=========
</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. A total of 371,159 and 21,978 warrants were exercised and
cancelled, respectively, in 1999.
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. 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>
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
Federal .............................................. $ 3,633,000 $ 2,326,000 $ 2,543,000
State ................................................ 1,233,000 794,000 1,346,000
----------- ----------- -----------
4,866,000 3,120,000 3,889,000
Valuation allowance .................................. (4,866,000) (3,120,000) (3,889,000)
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
36
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred tax assets (liabilities) consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
Net operating loss carryforwards ................... $ 23,981,000 $ 19,676,000 $ 15,817,000
Capitalized research and development expenses ...... 1,792,000 2,812,000 3,637,000
Research and development credit carryforwards ...... 987,000 961,000 717,000
Other ............................................... 736,000 616,000 774,000
------------ ------------ ------------
Gross deferred tax assets .......................... 27,496,000 24,065,000 20,945,000
Acquired technology ................................ -- (1,435,000) (1,435,000)
------------ ------------ ------------
Net deferred tax assets ............................ 27,496,000 22,630,000 19,510,000
Valuation allowance ................................ (27,496,000) (22,630,000) (19,510,000)
------------ ------------ ------------
$ -- $ -- $ --
============ ============ ============
</TABLE>
The Company has provided a full valuation allowance for its deferred tax
assets since it is more likely than not that the future benefits related to
these assets will not be realized. In the event the Company achieves
profitability, these deferred tax assets will be available to offset future
income tax liabilities and expense.
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>
1999 1998 1997
------------------ ------------------ ----------------
<S> <C> <C> <C>
Benefit at statutory rate ................................. $(4,888,000) $(2,417,000) $(2,825,000)
State taxes, net of federal benefit ....................... (877,000) (504,000) (587,000)
Research and development credit ........................... (243,000) (180,000) (206,000)
In process research and development costs acquired
for stock and warrants 484,000 - -
Other ..................................................... 658,000 (19,000) (271,000)
----------- ----------- -----------
(4,866,000) (3,120,000) (3,889,000)
Benefit of loss not recognized, increase in valuation
allowance ............................................... 4,866,000 3,120,000 3,889,000
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
As of December 31, 1999, the Company has federal net operating loss
carryforwards of $58,407,000 which expire beginning in 2007 and ending in 2020.
In addition, the Company has federal and state research and development credits
of $714,000 and $421,000, respectively, which expire beginning in 2009 and 2012,
respectively, and ending in 2020 and 2015, respectively. These net operating
loss carryforwards and research and development credits may be used to offset
future federal and state taxable income and tax liabilities. A portion of the
net operating loss carryforwards totaling approximately $884,000 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, 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.
37
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. Approximate future
minimum lease commitments at December 31, 1999 are as follows: 2000--$183,000,
2001--$184,000, and 2002--$93,000.
Total rent expense under noncancelable operating leases was approximately
$161,000, $124,000, and $131,000 during the years ended December 31, 1999, 1998,
and 1997, respectively, and approximately $642,000 for the period from inception
(October 16, 1992) through December 31, 1999.
Litigation
The Company is subject to legal proceedings in the normal course of
business. Management believes that these proceedings will not have a material
adverse effect on the consolidated financial statements.
14. RELATED PARTY TRANSACTIONS
Loan to Officer
In April 1997, the Bank loaned $150,000 to Dr. Lanser, the Company's
Executive Vice President and Chief Scientific Officer (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 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 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. In February
2000, Dr. Lanser repaid the Bank loan. In connection therewith, the Bank
released the Company from its pledge obligation and the Company released Dr.
Lanser from his contingent note obligation and returned the 50,000 shares of
common stock that had been pledged to the Company.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
38
<PAGE>
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 2000 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 2000 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
2000 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 2000
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of its fiscal year.
39
<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, 1999 and 1998
Consolidated Statements of Operations for the fiscal years ended
December 31, 1999, 1998 and 1997 and for the period from inception
(October 16, 1992) through December 31, 1999
Consolidated Statements of Stockholders' Equity (Deficit) for the
fiscal years ended December 31, 1999, 1998 and 1997 and for the period
from inception (October 16, 1992) through December 31, 1999
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 1999, 1998 and 1997, and for the period from inception
(October 16, 1992) through December 31, 1999
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,
and by the Certificate of Designations, Rights and Preferences of Series B Convertible Preferred
Stock filed on February 5, 1999, the Certificate of Decrease of Series B Convertible Preferred Stock
filed on February 18, 1999, and the Certificate of Designations, Rights and Preferences of Series C
Convertible Preferred Stock filed on February 18, 1999. (6)
3.2 Amended and Restated By Laws, effective as of June 26, 1995 (5)
3.3 Certificate of Decrease and Elimination of Series B Convertible Preferred Stock filed
on June 29, 1999. (7)
3.4 Certificate of Decrease of Series A Convertible Preferred Stock filed on June 29, 1999. (7)
3.5 Certificate of Correction filed on February 18, 1999. (7)
3.6 Certificate of Amendment of Amended and Restated Certificate of Incorporation filed on June 29, 1999. (7)
3.7 Form of 8% Convertible Debenture dated as of September 22, 1999, Form of Class A
Warrant dated as of September 22, 1999, Form of Class B Warrant dated as of September 22, 1999.
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 Boston Life Sciences, Inc. Amended and Restated Omnibus Stock Option Plan. (6)
10.2 Boston Life Sciences, Inc. Amended and Restated 1990 Non-Employee Directors' Non Qualified Stock
Option Plan. (6)
10.3 Boston Life Sciences, Inc. 1998 Omnibus Stock Option Plan. (6)
10.4 Purchase Agreement dated February 5, 1999 between the Tail Wind Fund, Ltd. ("Tail Wind") and the
Company. (6)
10.5 Registration Rights Agreement dated February 5, 1999 between Tail Wind and the Company. (6)
10.6 Form of Subscription Agreement for Series B Preferred Stock. (6)
10.7 Form of Exchange Agreement between the Company and Holders of Series B Preferred Stock. (6)
10.8 Supplement to Subscription Agreement for Series B Preferred Stock. (6)
10.9 Securities Purchase Agreement among the Company and the purchasers listed therein dated as of
September 22, 1999. (8)
10.10 Registration Rights Agreement among the Company and the purchasers dated as of September 22, 1999. (8)
21.1 Subsidiaries of the Registrant (10)
23.1 Consent of Independent Accountants (10)
27.1 Financial Data Schedule (10)
</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) Incorporated by reference to BLSI's Annual Report on Form 10-K for the year
ended December 31, 1998
(7) Incorporated by reference to BLSI's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999.
(8) Incorporated by reference to BLSI's Report on Form 8-K dated September 27,
1999.
(9) Incorporated by reference to BLSI's proxy statement in connection with
its 1998 Annual Meeting of Stockholders
(10) Filed herewith
40
<PAGE>
(b) REPORTS ON FORM 8-K: The Registrant filed the following Reports on Form
8-K during the fourth quarter of 1999 and through March 22, 2000:
<TABLE>
<CAPTION> Item
Date of Report Reported
- -------------- ------------
<S> <C>
November 9, 1999 5,7
November 15, 1999 5,7
November 29, 1999 5,7
December 13, 1999 5,7
December 29, 1999 5,7
January 11, 2000 5,7
January 21, 2000 5,7
February 1, 2000 5,7
</TABLE>
41
<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)
March 30, 2000 By /s/ S. DAVID HILLSON
---------------------------------------
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------- ------------------------------------ ---------------------
<S> <C> <C>
/s/ S. David Hillson
- ----------------------------------------------------------- Chairman, President & Chief March 30, 2000
S. DAVID HILLSON Executive Officer
(Principal Executive
Officer)
/s/ Joseph P. Hernon
- ---------------------------------------------------------- Chief Financial Officer March 30, 2000
JOSEPH P. HERNON (Principal Financial and
Accounting Officer)
/s/ Marc E. Lanser
- ---------------------------------------------------------- Executive Vice President & March 30, 2000
MARC E. LANSER, M.D. Chief Scientific Officer
/s/ Colin B. Bier
- ---------------------------------------------------------- Director March 30, 2000
COLIN B. BIER, M.D.
/s/ Edson D. de Castro
- ---------------------------------------------------------- Director March 30, 2000
EDSON D. DE CASTRO
/s/ Adrian M. Gerber
- ---------------------------------------------------------- Director March 30, 2000
ADRIAN M. GERBER
/s/ Robert Langer
- ---------------------------------------------------------- Director March 30, 2000
ROBERT LANGER, SC.D.
/s/ Ira W. Lieberman
- ---------------------------------------------------------- Director March 30, 2000
IRA W. LIEBERMAN, PH.D.
/s/ E. Christopher Palmer
- ---------------------------------------------------------- Director March 30, 2000
E. CHRISTOPHER PALMER
</TABLE>
42
<PAGE>
EXHIBIT INDEX
[talk to Dave McIntosh about what is required here]
<TABLE>
<CAPTION>
Exhibit
Number DESCRIPTION AND METHOD OF FILING Page 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,
and by the Certificate of Designations, Rights and Preferences of Series B Convertible Preferred
Stock filed on February 5, 1999, the Certificate of Decrease of Series B Convertible Preferred Stock
filed on February 18, 1999, and the Certificate of Designations, Rights and Preferences of Series C
Convertible Preferred Stock filed on February 18, 1999. (6)
3.2 Amended and Restated By Laws, effective as of June 26, 1995 (5)
3.3 Certificate of Decrease and Elimination of Series B Convertible Preferred Stock filed
on June 29, 1999. (7)
3.4 Certificate of Decrease of Series A Convertible Preferred Stock filed on June 29, 1999. (7)
3.5 Certificate of Correction filed on February 18, 1999. (7)
3.6 Certificate of Amendment of Amended and Restated Certificate of Incorporation filed on June 29, 1999. (7)
3.7 Form of 8% Convertible Debenture dated as of September 22, 1999, Form of Class A
Warrant dated as of September 22, 1999, Form of Class B Warrant dated as of September 22, 1999.
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 Boston Life Sciences, Inc. Amended and Restated Omnibus Stock Option Plan. (6)
10.2 Boston Life Sciences, Inc. Amended and Restated 1990 Non-Employee Directors' Non Qualified Stock
Option Plan. (6)
10.3 Boston Life Sciences, Inc. 1998 Omnibus Stock Option Plan. (6)
10.4 Purchase Agreement dated February 5, 1999 between the Tail Wind Fund, Ltd. ("Tail Wind") and the
Company. (6)
10.5 Registration Rights Agreement dated February 5, 1999 between Tail Wind and the Company. (6)
10.6 Form of Subscription Agreement for Series B Preferred Stock. (6)
10.7 Form of Exchange Agreement between the Company and Holders of Series B Preferred Stock. (6)
10.8 Supplement to Subscription Agreement for Series B Preferred Stock. (6)
10.9 Securities Purchase Agreement among the Company and the purchasers listed therein dated as of
September 22, 1999. (8)
10.10 Registration Rights Agreement among the Company and the purchasers dated as of September 22, 1999. (8)
21.1 Subsidiaries of the Registrant (10)
23.1 Consent of Independent Accountants (10)
27.1 Financial Data Schedule (10)
</TABLE>
- ---------
43
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
- -------------------------------------------------------------------------------------------- -----------------------
<S> <C>
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
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-3 (File Nos. 330-02730, 333-08993, 333-74775, 333-75175
and 333-89159) and S-8 (File Nos. 33-98104, 33-98138, 333-80065, 333-80067 and
333-80069) of Boston Life Sciences, Inc. and its subsidiaries (the "Company") of
our report dated March 10, 2000 relating to the financial statements, which
appears in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AS REPORTED ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 260,134
<SECURITIES> 14,690,308
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,550,385
<PP&E> 215,914
<DEPRECIATION> 205,118
<TOTAL-ASSETS> 16,072,212
<CURRENT-LIABILITIES> 1,803,667
<BONDS> 4,647,192
1,046,546
50
<COMMON> 162,805
<OTHER-SE> 8,411,952
<TOTAL-LIABILITY-AND-EQUITY> 16,072,212
<SALES> 0
<TOTAL-REVENUES> 200,000
<CGS> 0
<TOTAL-COSTS> 14,356,251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 445,758
<INCOME-PRETAX> (13,964,484)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,964,484)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,964,484)
<EPS-BASIC> (0.95)
<EPS-DILUTED> (0.95)
</TABLE>
