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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 2000
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or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number 0-24972
INKINE PHARMACEUTICAL COMPANY, INC.
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(Exact name of registrant as specified in its charter.)
New York 13-3754005
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1720 Walton Road, Suite 200
Blue Bell, Pennsylvania 19422
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 260-9350
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Securities registered pursuant to Section 12(b) of the Act:
(Title of each class) (Name of each exchange on which registered)
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value per share
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(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 Regulations S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is approximately $299,478,000. Such aggregate market value was
computed by reference to the closing price of the Common Stock as reported on
the NASDAQ SmallCap Market of The Nasdaq Stock Market on September 22, 2000. For
purposes of this calculation only, the registrant has defined affiliates as
including all directors and executive officers. In making such calculation,
registrant is not making a determination of the affiliate or non-affiliate
status of any holders of shares of Common Stock. The number of shares of the
registrant's Common Stock outstanding as of September 22, 2000 was 33,293,027.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the
registrant's 2000 Annual Meeting of Shareholders to be filed within 120 days
after the end of the fiscal year covered by this Annual Report on Form 10-K are
incorporated by reference into Part III of this Form 10-K.
INKINE PHARMACEUTICAL COMPANY, INC.
INDEX TO FORM 10-K
Page
References
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PART I
ITEM 1. BUSINESS.......................................................................1
ITEM 2. PROPERTIES....................................................................25
ITEM 3. LEGAL PROCEEDINGS.............................................................25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS...........................................................26
ITEM 6. SELECTED FINANCIAL DATA.......................................................27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..........................................27
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK...................................................................30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE...........................................30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................30
ITEM 11. EXECUTIVE COMPENSATION........................................................30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT....................................................................30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K...................................................................31
EXHIBITS......................................................................31
SIGNATURES....................................................................33
INDEX TO FINANCIAL STATEMENTS.................................................F-1
-i-
PART I
ITEM 1. BUSINESS.
OVERVIEW
InKine Pharmaceutical Company, Inc., formerly Panax Pharmaceutical
Company, Ltd., was incorporated in May 1993 to focus on the development of new
pharmaceutical compounds identified in and isolated from plants. In early 1996,
we modified our strategy, reducing our natural product discovery activities and
redirecting our principal efforts toward expanding our pipeline of commercially
viable pharmaceutical products by licensing or acquiring specifically-targeted
products developed for the treatment of certain diseases.
In February 1997, we acquired the rights to develop and commercialize a
novel purgative tablet ("Visicol(TM)", formerly Diacol(TM)) to clean the colon
for any medical purpose and for use as a laxative, with respect to which a Phase
IIb clinical trial for use prior to colonoscopy had been completed at that time.
Simultaneously with the consummation of a private placement in November 1997, we
also acquired the rights to develop and commercialize two additional
technologies: (i) a Thrombospondin Technology (defined below) for the treatment
of cancer, specifically, the inhibition and prevention of tumor metastasis and
(ii) technologies to down or up-regulate the Fc receptors on macrophages and
other cells to treat serious autoimmune disorders and other diseases, including
asthma/allergy and certain serious infectious diseases (the "Fc Receptor
Technology"). The compounds and technologies making up the Fc Receptor
Technology and the Thrombospondin Technology are currently either in clinical
trials or earlier stages of development. Additionally, simultaneous with the
private placement in November 1997, Panax changed its name to InKine
Pharmaceutical Company, Inc. and the management and Board were restructured.
Visicol(TM). On February 14, 1997, we entered into a License Agreement
(the "ALW License") with a partnership (the "ALW Partnership") whose partners
include Craig A. Aronchick, M.D. Dr. Aronchick is an attending
gastroenterologist and Head of the Endoscopy Unit at Pennsylvania Hospital in
Philadelphia and Associate Clinical Professor of Medicine at the University of
Pennsylvania School of Medicine. Pursuant to the ALW License, we acquired the
worldwide exclusive rights to sell, manufacture and sub-license Visicol(TM). On
April 1, 1997, a patent covering Visicol(TM) issued in the United States to the
ALW Partnership.
Visicol(TM) is a tablet form of the aqueous sodium phosphate purgative
formula used to clean the colon for any medical purpose with respect to which a
Phase I, Phase IIb dose ranging study and Phase III clinical trials for use
prior to colonoscopy have been completed. We believe that over 10 million
procedures, which require the use of products like Visicol(TM), will be
performed annually in the United States by the year 2003. All ethical colonic
cleansing products currently on the market are in liquid form, require the
ingestion of between one to four liters of fluid, and have either a very salty
taste or a taste so foul that patients are often unable to consume the required
dosage and/or nausea and vomiting occurs. Failure to ingest the required amount
of liquid could result in incomplete cleansing, and, in turn, an adenoma or
benign polyp could be overlooked during colonoscopy. Two Phase III clinical
studies conducted by us found that Visicol(TM) is as effective a colonic
cleanser, and better tolerated by patients, than the most commonly prescribed
liquid preparation. With respect to tolerance of each preparation, over twenty
times the number of the patients taking the liquid purgative found the taste
"bad, barely tolerable" or "very bad, not tolerable." Most patients taking
Visicol(TM) found that the tablets had no taste or a pleasant taste. We
submitted a New Drug Application or NDA, for Visicol(TM) on November 23, 1999 to
the United States Food and Drug Administration or FDA.
On September 21, 2000, we received notification from the FDA that
Visicol(TM) tablets (brand of sodium phosphate) for cleansing of the bowel as a
preparation for colonoscopy was approved for marketing. The approval occurred in
ten months from the NDA submission and included full labeling of the product as
agreed to by the FDA and us. We have projected January 2001 as the date on which
we intend to make Visicol(TM) available to patients undergoing colonoscopy.
Visicol(TM), our lead product, is the first and only tablet purgative
preparation indicated for bowel cleansing prior to colonoscopy.
-1-
The Thrombospondin Technology. In November 1997, we acquired an
exclusive worldwide license to the Thrombospondin Technology, a cancer treatment
technology previously owned by MCP Hahnemann University or MCP.
Dr. George Tuszynski, Professor of Surgery, Medicine and Pathology at
MCP has found a specific amino acid sequence in Thrombospondin ("TSP-1") that is
believed to be responsible for promoting the effects of this molecule on tumor
cell adhesion and metastasis. From this discovery, Dr. Tuszynski invented a
series of peptide molecules for which a patent has been allowed in the United
States. These molecules significantly reduced metastasis of a mouse tumor cell
line and a human tumor cell line when injected into athymic mice.
Dr. Tuszynski has also developed a murine polyclonal antibody against
the TSP-1 receptor, which was also shown to prevent or significantly reduce
metastasis in athymic mice. We filed a patent application directed to a novel
sequence of the thrombospondin receptor and antibodies directed to the same in
June 1999. More recently, Dr. Tuszynski has invented a novel soluble protein,
Angiocidin, which is a potent inhibitor of new blood vessel formation
(angiogenesis). Dr. Tuszynski discovered that Angiocidin is a receptor (docking
site) for TSP-1, and that Angiocidin specifically breaks up and kills blood
vessels in culture and when administered intravenously to animals bearing an
aggressive lung tumor implanted in their flank, inhibited the growth of the
tumor by approximately 560%. A patent application was filed in January 2000
directed to the composition of matter for the novel soluble protein. (The
peptide molecules, the polyclonal antibody, the TSP-1 receptor and Angiocidin
are referred to as the "Thrombospondin Technology"). Traditional methods of
cancer treatment include surgery, radiation therapy and chemotherapy, all of
which remove or kill cancer cells (and normal cells), but do not specifically
prevent or inhibit metastasis.
The Fc Receptor Technology. The focus of our research in the Fc
Receptor Technology area is to discover and develop pharmaceuticals designed to
modulate the immune system by manipulating macrophage and mast cell function.
Specifically, we are focused on developing treatments in three therapeutic
areas: autoimmune disease, serious infections and asthma/allergy. Millions of
patients in the United States suffer from serious autoimmune diseases, including
rheumatoid arthritis, inflammatory bowel disease ("IBD"), systemic lupus
erythematosus ("lupus"), Graves Disease, idiopathic thrombocytopenic purpura
("ITP") and others. The therapeutic agents which have traditionally constituted
the mainstay for the treatment of autoimmune disorders are glucocorticoid
hormones (typically prednisone), which inhibit macrophage Fc receptor expression
but which must be administered in high dosages and/or for extended periods of
time and which are accompanied by substantial side effects, including
exacerbation of diabetes, hypertension, electrolyte imbalance, weight gain,
osteoporosis and increased susceptibility to infection. In the case of the
autoimmune disease ITP, from which over 100,000 patients in the United States
suffer, most patients relapse after glucocorticoid treatment is tapered, and in
a number of such cases, surgical removal of the spleen is ultimately required.
The Fc Receptor Technology, developed under the guidance of Alan D. Schreiber,
M.D., Professor of Medicine and Assistant Dean for Research at the University of
Pennsylvania School of Medicine, consists of progesterone derivatives which do
not appear to have the toxic side effects of glucocorticoid hormone treatments
and many of which also do not have the potentially undesirable hormonal effects
normally associated with traditional progesterone and other sex hormone
treatments.
The most advanced product in the family of compounds comprising the Fc
Receptor Technology is CBP-1011, a potential treatment for ITP and IBD. For the
indication ITP, the compound is expected to receive protection under an orphan
drug application to be made under the Orphan Drug Act, as amended. The results
from two Phase II clinical studies completed to date suggest that CBP-1011
appears safe and effective in the treatment of patients with ITP. In March 1998,
Phase III pivotal trials of CBP-1011 at 38 sites in the United States were
initiated under a revised protocol. In June 1999 we announced, after reviewing
unaudited interim Phase III efficacy and safety data with the FDA that CBP-1011
appeared to benefit certain patients with ITP without the high incidence of side
effects that would normally be seen with the chronic administration of
"classical steroids," such as prednisone. Discussions with the FDA regarding the
data to date were favorable and we decided to commence a human pharmacokinetic
study comparing the original capsule formulation to a new commercially viable
tablet formulation. Preliminary results indicate that there is no significant
difference between the two.
-2-
Due to the unique action of CBP-1011 on inflamatory mediators, Dr.
Schreiber conducted preclinical testing of CBP-1011 in an accepted animal model
of IBD. The results demonstrated that CBP-1011 was effective in decreasing
lymphocyte infiltration into the bowel compared to the buffer control. Due to
good long term safety data obtained in the ITP clinical trials, we submitted a
Phase II protocol to the FDA to evaluate CBP-1011 for the treatment of IBD,
specifically Crohn's and ulcerative colitis. In early 2000, we initiated two
Phase II multicenter clinical trials to determine if CBP-1011 was effective in
treating both Crohn's and ulcerative colitis.
On September 11, 2000, we announced positive results of our Phase II
multicenter open-labeled, clinical trial of CBP-1011 in the treatment of
patients with mild or moderate Crohn's disease. Key results of the study
included the following: 80% of patients who completed the study responded to
treatment with CBP-1011 using endpoints that were previously defined by the FDA
for a recently approved drug indicated for Crohn's disease, 70% of the patients
were in remission at the completion of the study and 73% of the patients
responded after 4 weeks, with a remission rate of 64%. We intend to initiate
dialogue with the FDA to determine the appropriate course to advance CBP-1011 to
later stage clinical trials for Crohn's disease.
Results from our Phase II multicenter trial of CBP-1011 for ulcerative
colitis are expected by the end of calendar year 2000.
Since commencing operations, we have not generated any sales revenue.
FORWARD LOOKING STATEMENTS
Our disclosure and analysis in this report contains some
forward-looking statements. Forward-looking statements give our current
expectations or forecasts of future events. You can identify these statements by
the fact that they do not relate strictly to historical or current facts. Such
statements may include words such as "anticipate," "estimate," "expect,"
"project," "intend," "plan," "believe," and other words and terms of similar
meaning in connection with any discussion of future operating or financial
performance. In particular, these include statements relating to present or
anticipated scientific progress, development of potential pharmaceutical
products, future revenues, capital expenditures, research and development
expenditures, future financing and collaborations, personnel, manufacturing
requirements and capabilities, and other statements regarding matters that are
not historical facts or statements of current condition.
Any or all of our forward-looking statements in this report may turn
out to be wrong. They can be affected by inaccurate assumptions we might make,
or by known or unknown risks and uncertainties. Many factors mentioned in the
discussion below will be important in determining future results. Consequently,
no forward-looking statement can be guaranteed. Actual future results may vary
materially.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our filings with the Securities and Exchange Commission or SEC. Also
note that we provide cautionary discussion of risks and uncertainties relevant
to our business. These are factors that we think could cause our actual results
to differ materially from expected results. Other unanticipated occurrences
besides those listed could also adversely affect us. This discussion is provided
as permitted by the Private Securities Litigation Reform Act of 1995.
-3-
PRODUCT DEVELOPMENT AND RESEARCH PROGRAMS
The following table describes the major diseases upon which we intend to
focus our research and product development efforts at least through calendar
year 2000, and also sets forth the current development status of products or
product candidates in each area:
PROGRAM THERAPEUTIC INDICATIONS DEVELOPMENT STATUS
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Cancer Detection and Treatment (Visicol(TM) and Thrombospondin Technology)
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Visicol(TM) o Cleansing of colon prior to colonoscopy FDA Approved
(formerly Diacol) Phase I completed
Phase IIb dose ranging completed
Phase III completed
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o Cleansing of colon prior to sigmoidoscopy Phase I completed
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o Constipation Phase I completed
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Thrombospondin o Prevention of metastatic cancer including Preclinical (lead compound identified)
Technology but not limited to breast, lung, prostate, Receptor cloned
pancreas and squamous cell cancer
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Fc receptor regulation (Fc Receptor Technology)
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CBP-1011 Capsule o Idiopathic Thrombocytopenic Purpura Phase III (on hold)
- ------------------------------------------------------------------------------------------------------------------------
CBP-1011 Tablet o Crohn's and Ulcerative Colitis Single dose PK study complete
Phase II Crohn's disease complete
Phase II ulcerative colitis in
progress
- ------------------------------------------------------------------------------------------------------------------------
CBP-2011 series of o Autoimmune Hemolytic Anemia Preclinical
compounds
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o Systemic Lupus Erthematosus Early Preclinical
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o Rheumatoid Arthritis Preclinical
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- ------------------------------------------------------------------------------------------------------------------------
Gene Therapy o Serious Infection Early Preclinical
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Oligonucleotides o Asthma/Allergy Early Preclinical
- ------------------------------------------------------------------------------------------------------------------------
We spent $5,731,000, $6,565,000 and $2,270,000 for research and
development during the years ended June 30, 2000, 1999 and 1998, respectively.
We incurred a $3,952,000 expense for purchased research and development for the
year ended June 30, 1998.
Visicol(TM)
Colorectal Cancer and Colonoscopies; Background and Statistics.
According to the American Cancer Society, 2000 Cancer Facts and Figures,
colorectal cancer is the second leading cause of cancer related deaths in the
United States, with approximately 130,200 new cases and 56,300 deaths estimated
for 2000. The incidence of colorectal cancer has increased on a yearly basis and
is higher in women (51% of all colorectal cancer cases in the United States are
in women) than men (49% of all cases). Other statistics suggest that
age-specific incidence and mortality rates show that most cases are diagnosed in
patients over 50 years of age with most patients (63% of all cases diagnosed)
being diagnosed with advanced disease. The 5-year case fatality rate is 35%;
however, if the disease can be diagnosed in an earlier localized stage the
survival rate approaches 90%.
Published estimates taken from scientific literature state that 5% to 7% of
Americans will develop colorectal cancer. The reported risk of colorectal cancer
-4-
increases after age 40, rises sharply at ages 50-55, and doubles with each
succeeding decade until it peaks at age 75. It is fairly well established that
colorectal cancer begins as a benign polyp or adenoma and that a benign adenoma
may exist for five or ten years before degenerating into cancer. Therefore, with
colonoscopic and sigmoidoscopic surveillance, along with excision of the benign
polyp or adenoma, colorectal cancer appears to be a preventable disease. Many
physicians believe that screening colonoscopy is essential for high risk groups,
which include those with a family or personal history of colorectal cancer. High
risk groups account for 20-30% of all colorectal cancers.
The American Cancer Society and other professional groups have
published a joint guideline for colon cancer screening, which recommends
periodic screening for all persons over the age of 50 years. More intensive
screening, often starting at an earlier age, is recommended for various groups
of persons at high risk of colon cancer, including those with a family history
or personal history of colon cancer. Colonoscopy is one of several methods used
to screen persons over 50 who are not at high risk for colon cancer, but many
physicians believe it is the best method. This belief has been strengthened by
several large, recently published studies showing that colonoscopy is better at
detecting cancer than several other common screening methods. Colonoscopy is
widely used to screen patients at high risk for colon cancer and is used to
follow up most patients who have had suspicious findings with other screening
methods.
Estimates from the National Cancer Institute suggest that between
65-75% of early cancers can be detected by screening asymptomatic individuals
over 50 years of age with a 60-cm flexible sigmoidoscope, and the detection rate
increases dramatically when a 165-cm colonoscopy device is utilized. As a result
of such recommendations, colonoscopies have increased in the United States. We
believe that a trend of increasing numbers of procedures will continue and
estimate that, by the year 2003, over 10 million procedures will be performed
annually in the United States. Gastroenterologists and colorectal surgeons
comprise the substantial majority of professionals who perform colonoscopy.
However, we believe that flexible sigmoidoscopy is now routinely done by many
generalists (i.e., internists and family practitioners) in the United States.
Existing Colon Cleansing Products. Cleansing the colon is necessary
prior to colonoscopy or sigmoidoscopy, especially when the procedure is being
used to screen for pre-cancerous lesions which may be 1 cm or smaller in size.
Ineffective cleansing can result in poor visualization, which in turn can cause
the screening physician to miss an adenoma or benign polyp.
The most frequently used products for cleansing the colon in the United
States contain either polyethylene glycol salt solution ("PEG") or sodium
phosphate. Both types of products work by drawing water from the body into the
gut via an osmotic effect. The accumulated fluid then passes through and flushes
the intestine causing a cleansing effect. Over the last 15 years, patient
intolerance to these methods of cleansing the colon has become a substantial
problem.
Purgative products are currently administered in liquid form. There are
three dominant products which use PEG: Golytely(R) and NuLYTELY(R), which are
manufactured by Braintree Laboratories, Inc. and Colyte(R) which is manufactured
by Schwarz Pharma, Inc. Each product requires the ingestion of 4 liters (over 1
gallon) of PEG in roughly 2.5 hours. Additionally, PEG has an extremely salty
taste. More recently, aqueous sodium phosphate solution (Fleet's Phospho-soda,
manufactured by C.B. Fleet Company, Inc.) has been used as a purgatory
alternative. Aqueous sodium phosphate solution has been demonstrated to be as
effective as the PEG-electrolyte purge as a colonic cleanser. However, although
a smaller volume of liquid is required to be ingested for effective colonic
cleansing with aqueous sodium phosphate (between 1 and 2 liters of water), the
taste of the solution is so foul that nausea and vomiting frequently occur.
Claimed Advantages of Tablet for Cleaning Colon Prior to Colonoscopy or
Sigmoidoscopy. Craig A. Aronchick, M.D., Scott H. Wright, M.D. and William H.
Lipshutz, M.D., (the "Partners") developed a tablet form of the aqueous sodium
phosphate purge formulation which we believe avoids the two major problems
associated with the current purgatives.
In 1994, Dr. Aronchick and his colleagues conducted a Phase IIb
clinical study at the Pennsylvania Hospital in Philadelphia to evaluate the
-5-
efficacy of the sodium phosphate tablet as compared to Fleet's Phospho-soda and
Colyte. The study was designed as a single blinded evaluation of colon cleansing
in outpatients undergoing elective colonoscopy. The study enrolled 342 patients
who were randomized to one of three purgative methods (Colyte, Fleet's
Phospho-soda or sodium phosphate tablets). The goals of the study were to: (i)
determine the efficacy of cleansing, (ii) determine the adverse effects of the
preparation, and (iii) evaluate patient tolerance of the preparation.
Quality of colon cleansing was evaluated by the physician performing
the colonoscopy in a semi-quantitative fashion. Physicians were blinded from
knowing which preparation the patient had received. The responses indicated that
all three preparations, when patients completed assigned doses, had equal
efficacy with respect to the quality of cleansing of the bowel surface.
With respect to patient tolerance of the preparations, over 40% of
patients taking Fleet's Phospho-soda and over 10% of the patients taking Colyte
found the taste unacceptable. Adverse effects included nausea and moderate to
severe vomiting occurring in greater than 6% of patients taking a liquid
preparation. All patients taking the sodium phosphate tablets found that the
tablets had no taste or a pleasant taste, and none experienced nausea or
vomiting. Almost all patients who took tablets during this study and had
previously taken liquid Colyte or liquid Fleet's Phospho-soda preferred the
tablets for future colonoscopies. Eighty percent (80%) of patients who took the
sodium phosphate tablets found the tablet satisfactory, which was statistically
superior to the patients who took the Colyte preparation (50% found it
satisfactory) and the Fleet's Phospho-soda preparation (20% found it
satisfactory).
Results of Phase IIb Dose Ranging Study. In September 1998, we
concluded a Phase IIb dose ranging study of Visicol(TM) to assess the safety and
efficacy of three different doses of Visicol(TM). The results of the study were
as follows:
A total of 97 patients were randomized to receive 24, 42, or 60 grams
of Visicol(TM) prior to colonoscopy to prepare their colon for examination. Half
the assigned dose was self-administered the evening prior to, and half the
morning of the colonoscopy. Physicians assessed efficacy by direct visualization
of the colon using a 4-point scale (excellent, good, fair, inadequate/reprep).
Patients assessed tolerance and compliance using a self-administered
questionnaire.
A dose-response effect was observed for the efficacy of Visicol(TM). Of
patients who had a colonoscopy procedure, one hundred percent of patients
receiving the high dose, 88% of patients receiving the mid-dose and 70% of
patients receiving the low dose were observed to have an "excellent" or "good"
rating in their colon cleansing. The high dose group was the only group in which
no patient had an "inadequate or repreparation required" rating. In the "high
dose" group over 87% of patients preferred Visicol(TM) tablets compared to
ethical liquid preparations available as an alternative for colonoscopy
preparation.
Clinically insignificant changes in serum electrolytes which almost
always returned to normal, or baseline values, within 48 to 72 hours were
observed at all dose levels. No serious adverse events were reported in any dose
group.
We met with the FDA regarding the results of the Phase IIb study.
Following the meeting, we submitted a protocol for a Phase III clinical study of
Visicol(TM) at a dose of 60 grams.
Results of Phase III Clinical Study. In April 1999, we concluded two
pivotal Phase III trials of Visicol(TM). In each trial, Visicol(TM) tablets were
as effective as cherry flavored NuLYTELY(R) liquid in the quality of colonic
cleansing prior to colonoscopy. With a high degree of statistical significance,
each trial also indicated that Visicol(TM) tablets were greatly preferred by
patients and were better tolerated than NuLYTELY.
Two identical, randomized, single blind, nationwide multicenter pivotal
trials compared the safety, efficacy, and patient preference of Visicol(TM)
tablets with NuLYTELY, the leading prescription purgative agent, in patients
requiring colon cleansing prior to colonoscopy. Each trial included over 400
adults undergoing colonoscopy. Patients were randomized to receive either
Visicol(TM) tablets at a total dose of 60 grams or NuLYTELY at the usual total
dose of 4 liters, as in the prescribing information. The gastroenterologist
performing the colonoscopy was not aware of which drug the patient received.
Using a validated questionnaire, the gastroenterologist assessed the quality of
colon cleansing.
-6-
The pivotal trials were designed to demonstrate equivalence of
Visicol(TM) tablets to NuLYTELY, not the superiority of Visicol(TM) tablets. In
each trial, Visicol(TM) tablets demonstrated equivalence to NuLYTELY using the
statistical test that had been agreed to by the FDA. The vast majority of
patients in each trial were rated as having "excellent" or "good" colon
cleansing. In each trial, patients who took Visicol(TM) tablets had a slightly
better mean cleansing score than those who took NuLYTELY, but these differences
were not statistically significant.
In patients undergoing colonoscopy, the most commonly reported clinical
adverse events associated with colonic purgation are bloating, nausea, abdominal
pain and vomiting. In each pivotal trial, according to investigator documented
adverse events, Visicol(TM) tablets produced statistically significantly lower
incidences of nausea, vomiting and bloating when compared to NuLYTELY. For the
fourth symptom, abdominal pain, there was a statistically significant difference
favoring Visicol(TM) tablets in one trial, and equivalence in the other trial.
There was no significant difference in the rate of serious adverse
events between Visicol(TM) tablets and NuLYTELY in either trial or in each trial
combined. The overall rate of serious adverse events was less than 0.2% among
patients who took study drug.
In each pivotal trial, after ingesting their study medication and prior
to their colonoscopy, patients completed a questionnaire evaluating their study
medication. Analysis of patient questionnaires also yielded a number of
statistically significant advantages for Visicol(TM) tablets compared to
NuLYTELY. In each trial, at least seven times as many NuLYTELY patients were
unable to complete the prescribed dose compared to patients given Visicol(TM)
tablets. In each trial, if given a choice of a purgative product for future
colonoscopy, 90% of those taking Visicol(TM) tablets and over 75% of those
taking NuLYTELY liquid would prefer to take Visicol(TM) tablets. Over three
times as many patients reported that NuLYTELY was 'moderately' or 'extremely'
difficult to ingest compared to patients ingesting Visicol(TM) tablets.
Additionally, over twenty times as many patients found the taste of cherry
flavored NuLYTELY 'bad, barely tolerable' or 'very bad, not tolerable' when
compared to patients who took Visicol(TM) tablets. Finally, in each trial, to a
high degree of statistical significance, patients taking Visicol(TM) tablets
reported less nausea, bloating and vomiting.
Results of NDA Submission. Following such favorable clinical results,
we submitted an NDA to the FDA in November 1999. On September 21, 2000, we
received notification from the FDA that Visicol(TM) tablets (brand of sodium
phosphate) for cleansing of the bowel as a preparation for colonoscopy was
approved for marketing. The approval occurred in ten months from the NDA
submission and included full labeling of the product as agreed to by the FDA and
us. We have projected January 2001 as the date on which we intend to make
Visicol(TM) available to patients undergoing colonoscopy. Visicol(TM), our lead
product, is the first and only tablet purgative preparation indicated for bowel
cleansing prior to colonoscopy. Once marketing efforts are underway, we will
conduct additional studies to determine the dosing regimen that best combines
efficacious colon cleaning and patient satisfaction.
Other Applications for Visicol(TM). We believe there are several other
potential indications for the use of Visicol(TM). Colonic purgation is required
in all pre-operative colonic surgical procedures and therefore could be used as
a pre-operative preparation in lieu of NuLYTELY which is currently used a
majority of the time. Colonic purgation is also required prior to other
visualization procedures such as barium enema examinations and flexible
sigmoidoscopy. We similarly believe that Visicol(TM) may be effective as a
laxative for chronic constipation.
Acquisition of Proprietary Rights to Visicol(TM) Pursuant to License
Agreement. On February 14, 1997, we entered into the ALW License with the ALW
Partnership formed by the Partners, pursuant to which we obtained an exclusive
worldwide license, in perpetuity (subject to expiration of underlying patents
and rights of termination in the event of breach by a party), to develop, use,
market, sell, manufacture, have manufactured and sub-license, in the field of
colonic purgatives or laxatives (the "Field of Use"), Visicol(TM) along with ALW
Partnership's body of proprietary technical information, trade secrets and
know-how related thereto. A U.S. patent Non-Aqueous Colonic Purgative
Formulations--as to Visicol(TM) (covering any solid form of administration of
sodium phosphate for use as a colonic cleansing agent or as a laxative) was
issued on April 1, 1997. Patents on Visicol(TM) are pending in applications
designating Europe and Canada. In January 2000 we received notice of allowance
from the U.S. Patent and Trademark Office for an application that we filed for
numerous solid-dose colonic cleansing agents.
-7-
Our rights under the ALW License automatically extend to improvements
developed by us and/or the ALW Partnership which are derivative of Visicol(TM),
and we have a right of first refusal with respect to any new products which
relate to the Field of Use but which are not derivative of Visicol(TM).
Thrombospondin Technology
Cancer and Metastasis; Background and Statistics. Cancerous tumors are
believed to form when cancer cells multiply at a rate that is greater than the
rate at which the host defense system can destroy the cells. Traditional methods
of treating cancer generally include surgery, radiation therapy and
chemotherapy. Presently, chemotherapeutic approaches to cancer generally involve
the use of broad-based cytotoxic agents which kill many rapidly growing normal
cells in addition to cancer cells. Significant side effects result from
cytotoxic therapy. Most cancer will spread beyond its original site and invade
surrounding tissue, and may also metastasize to more distant sites and
ultimately cause death in the patient unless effectively treated. To be
effective, cancer treatment must not only target the primary site but also its
metastasis.
Tumor metastasis is a multi-step process involving cell adhesion,
migration, invasion, colonization of distant organs and angiogenesis. TSP-1 is a
large glycoprotein secreted by platelets and synthesized by many cell types,
including endothelial and tumor cells. TSP-1 has been implicated as a promoter
of tumor progression and angiogenesis. A number of studies have demonstrated
that TSP-1 can bind to multiple surface receptors on the same cell or bind to
different receptors on different cells, including carcinoma cells. We believe
that blocking the TSP-1 receptor may represent a novel approach for the
treatment and prevention of metastasis by uniquely acting on certain steps of
the metastatic cascade. By antagonizing TSP-1, cancer cell adhesion, migration,
invasion and angiogenesis may all be inhibited.
The Thrombospondin Technology and its Applications. Dr. George
Tuszynski has performed laboratory studies suggesting that TSP-1 promotes tumor
progression. In 1987, it was first shown that TSP-1 functioned as a tumor cell
and platelet adhesive protein. Subsequently, four adhesive domains in the TSP-1
molecule were identified. Several laboratories have demonstrated that TSP-1
stimulated the migration of several types of human cancer. The interpretation
that TSP-1 promotes tumor metastasis is further supported by the observation
that TSP-1 injected intravenously into mice enhanced lung tumor colony formation
three-fold.
Dr. Tuszynski has found a specific amino acid sequence in TSP-1 that is
believed to be responsible for promoting the effects of this molecule on tumor
cell adhesion and metastasis. From this discovery, Dr. Tuszynski invented a
series of peptide molecules, and a patent for the molecules has been allowed in
the United States. These molecules significantly reduce metastasis of a mouse
tumor cell line and a human tumor cell line when injected into athymic mice. Dr.
Tuszynski has also developed a murine polyclonal antibody against the TSP-1
receptor which was also shown to prevent or significantly reduce metastasis in
athymic mice. In June 1999 we filed a patent application directed to a novel
sequence of the thrombospondin receptor and monoclonal antibodies directed to
the same. Dr. Tuszynski investigated the pattern of distribution of the TSP-1
receptor in breast carcinoma and squamous cell carcinomas of the head and neck.
His laboratory study showed strong localization of TSP-1 in the stroma of
malignant tumors with little or none in benign tissue. Importantly, the receptor
was expressed in carcinoma cells but was absent in normal cells. More recently
similar observations were made in prostate, pancreatic and hepatocellular
carcinomas.
To determine if the presence or the amount of the specific TSP-1
receptor correlated directly to the capacity of tumor cells to invade and
metastasize, immunostained carcinoma specimens from humans were subjected to
computer-assisted image analysis with the purpose of quantifying the receptor
density on tumor cells. Dr. Tuszynski's results found that those patients with a
high positive stain score for specific receptors had a decreased overall
survival rate and all developed metastatic disease within sixteen months of
initial diagnosis. Patients with a low positive stain for the receptor were
found to be disease-free for at least two years. These studies, coupled with
preliminary studies using labeled peptides administered to animals, suggest that
several diagnostic products and therapies may be derived from this technology.
-8-
TSP-1 has been shown to modulate the behavior of endothelial and
non-endothelial cells involved in the regulation of angiogenesis. Antagonists of
the TSP-1 receptor appear to have effects on different steps of the angiogenic
process including, endothelial cell proliferation, migration and adhesion.
Research and Development Activities. Dr. Tuszynski has identified a
hexapeptide structure which appears to prevent the spread of human tumors in
animals by blocking the TSP-1 receptor. Preclinical testing is to be conducted
to determine if the pharmacokinetics and safety profile warrant the introduction
of this molecule into humans. We believe that because the lead compound contains
a hexapeptide, manufacturing would be inexpensive relative to other peptide
therapies. The prevention of the spread of small cell lung carcinoma has been
tentatively chosen as the initial target cancer. The survival term (generally
six months) for this type of cancer is extremely poor and should provide us with
an early indication of the compound's effectiveness.
More recently, Dr. Tuszynski has invented a novel soluble protein,
Angiocidin, which is a potent inhibitor of new blood vessel formation
(angiogenesis). Dr. Tuszynski discovered that Angiocidin is a receptor (docking
site) for TSP-1, and that Angiocidin specifically breaks up and kills blood
vessels in culture. When administered intravenously to animals bearing an
aggressive lung tumor implanted in their flank, Angiocidin inhibited the growth
of the tumor by approximately 560%.
Additionally, we intend to conduct an intensive program using
combinatorial chemistry capabilities to identify small organic molecules which
block the TSP-1 receptor. We are in a position to accomplish this since Dr.
Tuszynski cloned the TSP-1 receptor, thus providing us with chemical screening
capability which did not previously exist.
To develop this product, we intend to explore corporate partnerships
because of the expense involved in developing an agent used to treat or prevent
the spread of cancer. We have begun preliminary discussions with several
multinational pharmaceutical companies but there can be no assurance that a
corporate partnership or any cooperative agreement will be consummated.
License of Proprietary Rights. We have licensed the rights to all the
U.S. and foreign patents and patent applications relating to Thrombospondin
Technology and the rights to all future research and development of the
Thrombospondin Technology conducted in Dr. Tuszynski's laboratory from Dr.
Tuszynski and MCP. The patents, pending patent applications and future patent
applications cover or are expected to cover areas such as composition of matter
for a number of peptides with anti-metastatic activity, a novel cell surface
receptor which is important to the metastatic process, monoclonal antibodies to
such cell surface receptor and cancer diagnostic applications, a soluble protein
which is a potent inhibitor of angiogenesis, in addition to potential
applications and methods of inhibiting thrombotic activity and enhancing wound
healing, among other indications.
Fc Receptor Technology
Autoimmune and Inflammatory Diseases: Background and Statistics. Millions of
patients in the United States suffer from a variety of serious autoimmune
disorders such as rheumatoid arthritis, IBD, lupus, Graves Disease and others,
including ITP. All of these disorders are antibody-mediated and involve
antibody-coated complexes which are central to disease pathophysiology. In
almost all cases, the current therapy of choice is to administer
glucocorticoids, such as prednisone, at high doses and/or for extended periods
of time. Unfortunately there are many complications of glucocorticoid treatment;
adverse events are common and involve many major organ systems.
In autoimmune diseases such as ITP, there is an increased clearance of
platelets by macrophages in the spleen. ITP is caused by antiplatelet
antibodies, frequently of the IgG class, which form IgG-containing complexes
with the platelets. In the spleen, these IgG-coated platelets bind to the
macrophage at Fc receptor sites on the macrophage surface. Observations of
patients having ITP, lupus and autoimmune hemolytic anemia suggest that
interactions of IgG-containing complexes with the macrophage Fc (IgG) receptors
lead to tissue destruction in these immunologic disorders.
-9-
Diseases characterized by interactions of IgG-containing immune
complexes with macrophage Fc receptors are often chronic, involve much suffering
and are generally treated with agents having serious side-effects.
The following is the estimated U.S. population for select autoimmune
diseases in the disease categories noted below:
Estimated U.S. Patient Population
-------------------------------------------------------------------
Disorder Number of
Patients
-------------------------------------------------------------------
ITP 117,000
-------------------------------------------------------------------
IBD (both Crohn's and Ulcerative Colitis) 1,000,000
-------------------------------------------------------------------
Autoimmune Hemolytic Anemia 41,000
-------------------------------------------------------------------
Systemic Lupus Erthematosus 500,000
-------------------------------------------------------------------
Rheumatoid Arthritis 2,100,000
-------------------------------------------------------------------
Treatment Options; Glucocorticoid; Progesterone. We believe that a
number of autoimmune diseases may be treated by modulation of the Fc receptor.
For example, ITP, autoimmune hemolytic anemia, lupus and other systemic
vasculitis disorders (such as polyarteritis nodosa, Wegener's granulomatosis,
lymphomatoid granulomatosis and Sjogren's Syndrome) and rheumatoid arthritis are
all antibody-mediated and generally responsive to steroids. We further believe
that by concentrating on careful elucidation of mechanisms of autoimmune
diseases and the role of macrophage Fc receptors in the pathophysiology of these
disorders, a series of useful therapeutic agents can be identified.
Glucocorticoid hormones are small molecules which rank among the most
effective therapeutic agents in the treatment of autoimmune disorders. It has
been established that one important mechanism for their efficacy is their
ability to inhibit macrophage Fc receptor expression by down-regulating the
transcription of these receptors. While glucocorticoids are used widely in
autoimmune diseases, substantial side effects limit their overall effectiveness.
Toxic effects observed include exacerbation of diabetes, hypertension,
electrolyte imbalance, weight gain, osteoporosis and increased susceptibility to
infection.
We have focused our development efforts on a search for agents which inhibit
the clearance of antibody complexes without the accompanying toxicities observed
for many glucocorticoids. In that context, we have observed that some
progesterones may demonstrate the desired down-regulatory effect on macrophage
Fc receptor expression and antibody clearance but some may exert potentially
undesirable hormonal effects. Estrogens, meanwhile, enhance macrophage Fc
receptor expression and immune clearance. For treatments of diseases
characterized by interactions of IgG-containing immune complexes with macrophage
Fc receptors, we have concentrated on progesterone derivatives which do not
cause the toxicities seen with glucocorticoids.
ITP. ITP is one of several autoimmune disorders in which (a) the
pathophysiology involves the deposition of immune complexes in key organs and
(b) patients respond to treatment with glucocorticoids such as prednisone.
ITP, an orphan disease (a disease with less than 200,000 cases), is a
disorder which stems from Fc receptor-mediated macrophage phagocytosis of
antibody-coated platelet complexes. The purpura, when produced, is severe and
marked by copious hemorrhage from mucus membranes. If platelets are severely
depleted, hemorrhage into the brain can occur, which is often fatal. ITP is seen
alone (i.e., without concomitant autoimmune disease) as well as in up to 20% of
lupus patients and in HIV-infected patients.
-10-
Treatment of ITP typically begins with prednisone for variable periods
of one month or longer. A substantial portion of patients respond to treatment.
Patient tolerance is limited and most patients relapse as prednisone treatment
is tapered. Eventually the majority of patients advance to splenectomy to which,
again, a substantial portion respond.
Intravenous immunoglobulin ("IVIG") is used occasionally in very ill
patients or those refractory to prednisone, either before or following
splenectomy. IVIG treatment is believed to cause an antibody blockade of the Fc
receptor, inhibiting the clearance of IgG-coated platelets. Response rates are
similar to glucocorticoid therapy but immunoglobulin treatment is expensive and
relapse typically follows discontinuation of treatment. WinRho SD, a polyclonal
antibody product launched in 1995 which appears to work by inhibiting macrophage
Fc receptor mediated clearance of the IgG-coated platelet, is intended to be a
more convenient option to IVIG treatment in that WinRho SD can be rapidly
infused while IVIG cannot. WinRho SD still must be repeatedly administered
parenterally for this chronic disease, thus offering only modest benefit over
IVIG as well as continuing to raise certain safety issues regarding the product.
CBP-1011's mechanism of action for ITP is similar to that of
glucocorticoids on the regulation of macrophage Fc receptor production and
results in diminution of IgG-containing complex engulfment. Given this insight,
we believe that exploring related compounds with an improved safety profile over
glucocorticoids and progestins in lupus and rheumatoid arthritis has merit.
Upon successful development of CBP-1011, we anticipate that it will be
more readily accepted by ITP patients because it will be better tolerated and
available as an oral formulation with a reduced side effect profile as compared
to IVIG, WinRho, or prednisone, although no assurance as to successful
development or patient acceptance can be given. CBP-1011 is a steroid analog,
demonstrating steroid-like properties but without the side-effect profile
commonly associated with glucocorticoids. An extensive body of experience in
human use exists and the drug is well characterized. No significant estrogenic
activity has been observed to date with CBP-1011.
Summary of Clinical Data. To date there have been two studies completed
that have assessed the effects of CBP-1011 on the platelet count of patients
with ITP. The results of the two studies indicate that CBP-1011 appears safe and
effective in the treatment of patients with ITP. A positive response, as
indicated by an increase in platelet count of at least 20,000/mm3 over baseline
was noted in 14 of 19 treated patients, while adverse events were transient in
nature and did not, with few exceptions, cause the patients to discontinue from
the trial.
Phase III (Pivotal) Trials Program; Trial Design. The United States
pivotal trial being conducted calls for 100 evaluable ITP patients to be
enrolled at approximately 38 sites in the United States. Patients must be newly
diagnosed or previously responsive to prednisone. Patients will be required to
have a mean platelet count between 15,000 and 75,000/mm3 at entry. The primary
efficacy endpoint was defined as an increase in baseline platelet count of at
least 20,000/mm3. Dosing in this open-label, historically controlled, 42-day
course of treatment, commenced in March 1998.
Responders in the active disease phase will then be randomized in a
double-blind fashion, to one of three groups for an additional 42 days to assess
maintenance of effect: placebo, CBP-1011 at half-strength and CBP-1011 at full-
strength. The primary efficacy endpoint in this phase is maintenance of the
therapeutic effect, e.g., by a sustained increase in baseline platelet count of
> 20,000/mm3.
Interim Results of Phase III Data of CBP-1011. In June 1999, we
announced after reviewing unaudited interim Phase III efficacy and safety data
with the FDA that CBP-1011 appeared to benefit certain patients with ITP without
the side effects that would normally be seen with the chronic administration of
"classical steroids," such as prednisone. Discussions with the FDA regarding the
data to date were favorable and we decided to commence a human pharmacokinetic
study comparing the original capsule formulation to a new commercially viable
tablet formulation. The study enrolled 24 healthy volunteers, each of whom
received a single dose of each formulation of CBP-1011, separated by 21 days.
Preliminary results from the study indicate that the bioavailability of the
tablet formulation does not differ significantly from that of the capsule
formulation.
-11-
The results of this study will need to be reviewed by the FDA before
continuing our Phase III ITP clinical program with tablets. The new tablet
formulation is currently being used in our two Phase II studies in patients with
Crohn's disease and ulcerative colitis.
IBD (Crohn's Disease and Ulcerative Colitis).
Crohn's Disease. Crohn's disease is a serious inflammatory disease of
the gastrointestinal (GI) tract. It predominates in the intestine (ileum) and
the large intestine (colon), but may occur in any section of the GI tract.
Crohn's disease usually causes diarrhea, crampy abdominal pain, often fever, and
at times rectal bleeding. Loss of appetite and subsequent weight loss also may
occur.
Crohn's disease is chronic. Its cause is not known. Medication
currently available decreases inflammation and usually controls the symptoms,
but does not provide a cure. Because Crohn's disease behaves similarly to
ulcerative colitis, from which it may be difficult to differentiate, the two
disorders are grouped together as inflammatory bowel disease (IBD). Crohn's
disease affects all layers of the intestine in which there can be normal healthy
bowel in between patches of diseased bowel. Depending on where the involvement
occurs, Crohn's disease may be referred to as Ileitis, regional enteritis, or
colitis, etc. It is referred to as Crohn's disease because Burrill B. Crohn was
the first name in a three-author landmark paper published in 1932, which
described the disease.
According to the Crohn's & Colitis Foundation of America, it is
estimated that there may be up to 500,000 Americans with Crohn's. Males and
females appear to be affected equally. While Crohn's disease afflicts people of
all ages, it is primarily a disease of the young. Most cases are diagnosed
before age 30, but the disease can occur in the sixth, seventh and later
decades. Because no medical cure for Crohn's disease exists, the goals of
medical treatment are to suppress the inflammatory response, permit healing of
tissue and relieve the symptoms of fever, diarrhea and abdominal pain. Several
groups of drugs form the mainstay of therapy for Crohn's disease today. They
are:
1. Aminosalicylates: aspirin-like drugs, which include
sulfasalazine and messalamine, given both orally and rectally.
2. Corticosteroids: prednisone and methylprednisolone, available
orally and rectally.
3. Immune modifiers: azathioprine, 6MP, methotrexate.
4. Antibiotics: metronidazole, ampicillin, ciprofloxacin and
others.
Surgery becomes necessary in Crohn's disease when medication can no
longer control the symptoms, or when there is an intestinal obstruction or other
complication. In most cases, the diseased segment of bowel is removed and the
two ends of healthy bowel are joined together. It is not considered a cure for
Crohn's disease because the disease frequently recurs at or near the site of
anastomosis (i.e., the surgical reconnection of the bowel).
Research has shown that in IBD the body's defenses are operating
against some substances in the body, perhaps in the digestive tract, which they
recognize as foreign. These foreign substances (antigens) may themselves cause
the inflammation, or may stimulate the body's defenses to produce an
inflammation that continues without control.
Ulcerative Colitis. Ulcerative colitis is an inflammatory disease of
the colon, the large intestine, which is characterized by inflammation and
ulceration of the innermost lining of the colon. Symptoms characteristically
include diarrhea with or without rectal bleeding and often abdominal pain.
Ulcerative colitis differs from Crohn's disease since ulcerative colitis affects
only the colon. The inflammation is maximal in the rectum and extends up the
colon in a continuous manner without any "skip" areas of normal intestine.
Ulcerative colitis affects only the innermost lining of the colon,
whereas Crohn's disease can affect the entire thickness of the bowel wall. It is
estimated that there are up to 500,000 Americans with ulcerative colitis.
Ulcerative colitis is predominantly a disease of the young with most cases
generally beginning before age 30, although the disease can also occur in the
sixth, seventh and later decades of life.
-12-
Currently, no medical cure for ulcerative colitis exists, but effective
medical treatment can suppress the inflammatory process, permit healing of the
colon, and relieve the symptoms of diarrhea, rectal bleeding and abdominal pain.
As such, the treatment of ulcerative colitis involves medicines that decrease
the abnormal inflammation in the colon lining and thereby control the symptoms.
Three major classes of medication are used today to treat ulcerative
colitis. They are:
1. Aminosalicylates: These medications include aspirin-like
medications such as 5-aminosalicylic acid (5-ASA, mesalamine,
olsalazine) and sulfasalazine. These medications are effective
in the treatment of mild to moderate epsiodes of ulcerative
colitis.
2. Corticosteroids: These medications include prednisone,
methyprednisolone and budesonide. These medications are used for
patients with moderate to severe disease.
3. Immunomodulatory medicines: These medications include
azathioprine, 6-mercaptopurine (6-MP) and recently cyclosporine.
As a group, they alter the body's immune cells from interacting
with the inflammatory process. However, these medications can
take as long as three months to begin their beneficial effects.
In a small proportion of patients, medical therapy is not completely
successful or complications arise. Under these circumstances, surgery may be
considered. This surgery involves the removal of the entire colon and rectum
with the creation of an ileostomy or external stoma. Differing from Crohn's
disease, which can recur after surgery, ulcerative colitis is "cured" once the
colon is removed.
Researchers do not know what causes this disease. They do not believe
it is caused by emotional stress, or by food, or that it is transmitted directly
from one person to another. Research has shown that in ulcerative colitis, the
body's defenses are operating against some substances in the body, perhaps in
the digestive tract, which the body recognizes as foreign. These foreign
substances (antigens) may themselves cause the inflammation to begin or to
stimulate the inflammatory process to continue without control.
CBP-1011 and IBD. CBP-1011 is also being evaluated for the treatment of
IBD, specifically, Crohn's disease and ulcerative colitis. CBP-1011 inhibits
pro-inflammatory mediators while possibly offering distinct safety advantages
over traditional steroid therapy. In early 2000, we initiated two Phase II
multi-center clinical trials to determine if CBP-1011 was effective in treating
both Crohn's and ulcerative colitis.
Summary of Clinical Data. To date there has been one study completed
which has assessed the effects of CBP-1011 on Crohn's disease. The results of
the Phase II study indicate that CBP-1011 appears safe and effective in the
treatment of patients with Crohn's disease. The results of the study were as
follows:
A multicenter open-labeled, clinical trial of CBP-1011 was conducted in
the treatment of patients with mild or moderate Crohn's disease. Patients with
an established diagnosis of Crohn's disease, currently taking medications such
as aminosalicylates, cyclosporine, 6-mercaptopurine, azathioprine and/or
systemic corticosteroids (less than or equal to 20 mg/day), and experiencing
increased gastrointestinal symptoms confirmed by a baseline Crohn's Disease
Activity Index (CDAI) between 200 and 400 were eligible to receive CBP-1011
tablets in a loading dose of 4 grams per day for the first two days followed by
a daily maintenance dose of 1000 mg (500 mg every 12 hours) for up to 2 months.
Ninety-one percent (10 of 11) of patients completed 2 months of treatment and 1
additional patient remained on therapy and is included on the 4-week analysis.
Of the 12 patients enrolled, only 1 patient discontinued therapy, and this was
due to "fatigue."
Key results of the study included:
o 80% of patients who completed the study responded to treatment
with CBP-1011 using endpoints that were previously defined by the
FDA for a recently approved drug indicated for Crohn's (defined
as a decrease in the CDAI at 8 weeks compared to baseline greater
than or equal to 70 or a CDAI score of less than or equal to
150).
-13-
o 70% of the patients were in remission (CDAI less than or equal to
150) at the completion of the study.
o 73% of the patients responded after 4 weeks, with a remission
rate of 64%.
o Response at two months was accompanied by a decrease in
C-reactive protein in every case where this protein could be
detected at baseline, consistent with reduced inflammation.
o No serious adverse events occurred during the study.
o Transient elevations in serum transaminases were observed in some
patients but all values returned to normal while patients
remained on therapy.
To put our results in perspective, published studies of currently
marketed products for acute flares of Crohn's disease have produced remission
rates ranging from 25% to 80%. The upper range of remission rates were seen with
traditional glucocorticoids (e.g., prednisone), which are poorly tolerated when
chronically administered.
We intend to initiate dialogue with the FDA to determine the
appropriate course to advance CBP-1011 to later stage clinical trials for
Crohn's disease.
Results from our Phase II multicenter trial of CBP-1011 for ulcerative
colitis are expected by the end of calendar year 2000.
We also filed a patent describing the novel activity of CBP-1011 and
related analogs on IBD. With a large U.S. market potential we may choose an
out-licensing partner for Phase III development of these indications.
Additional Therapeutic Opportunities Identified in the Fc Receptor
Program. In addition to the autoimmune program, we are pursuing two other novel
programs: serious infection and asthma/allergy. The relationship of the Fc
receptor to these disease areas has been identified and a number of preclinical
studies have been performed.
Alan D. Schreiber, M.D., who is conducting sponsored research for us,
demonstrated and published in peer-reviewed journals the feasibility of
conferring engulfment (phagocytic) properties to cells which are not normally
capable of phagocytosis by nature. In collaboration with a leading gene therapy
researcher, this conversion was possible by administering Fc receptor gene cDNA
to the cells of interest. The feasibility of converting a non-phagocytic cell to
a phagocytic cell could represent a critical step in the body's fight against
infectious microorganisms. Dr. Schreiber has developed novel therapeutic
strategies to facilitate the removal of bacteria from the lung and from the
systemic circulation (via the liver). Such new therapies might be used in
association with antibiotics for the treatment of serious pulmonary or systemic
infections and in the prevention of the onset of infection in disorders
predisposed to bacterial or opportunistic infections.
Cellular receptors in the lung, (the IgE receptors), induce the release
of histamine and other biologically active products important in the
pathophysiology of asthma and other allergic disorders. Dr. Schreiber has
developed strategies for the local and systemic administration of therapies to
potentially prevent and treat these disorders. Two distinct novel targets which
have been characterized in detail are: (1) the Fc receptor domain responsible
for initiating the downstream signaling events resulting in mast cell histamine
release and subsequent bronchoconstriction and (2) the kinase responsible for an
initial step in the signal transduction process. A peptide inhibitor which binds
to the intracellular Fc receptor domain has been made and delivery issues are
currently being addressed. Several oligonucleotide inhibitors of the second
signal kinase have been made and can suppress histamine release in-vitro and
in-vivo. Animal feasibility efficacy studies have commenced for oligonucleotide
therapies.
A number of United States and foreign patent applications have been
filed, eight of which have been allowed in the United States which describe
methods of inhibiting or stimulating phagocytosis and methods of modulating
clearance of immune complexes. If the patents are issued, they will relate to
therapies for infectious diseases, inflammation, asthma/allergy and autoimmune
diseases.
-14-
License of Proprietary Rights. Rights to the Fc Receptor Technology are
owned by the University of Pennsylvania, pursuant to which we have obtained an
exclusive worldwide license for the term of the patents covered thereunder, to
make, have made, use, sell and to exploit all patent and other rights under this
license.
MANUFACTURING
We do not have the resources, facilities or capabilities to manufacture
any of our proposed products. We have no current plans to establish a
manufacturing facility. We expect that we will be dependent to a significant
extent on contract manufacturers for commercial scale manufacturing of our
proposed products in accordance with regulatory standards. Our dependence on
third parties for manufacturing may adversely affect operating results as well
as our ability to develop and deliver products on a timely and competitive
basis.
Contract manufacturers may utilize their own technology, technology
developed by us, or technology acquired or licensed from third parties. When
contract manufacturers develop proprietary process technology and have ownership
of the Drug Master File, our reliance on such contract manufacturer is
increased, and we may have to obtain a license from such contract manufacturer
to have our products manufactured by another party. Technology transfer from the
original contract manufacturer may be required. There can be no assurance that
any such license will be available on terms acceptable to us, or, if available,
that such technology will be successfully transferred to us. Any such technology
transfer may also require transfer of requisite data for regulatory purposes,
including information contained in a proprietary Drug Master File held by a
contract manufacturer. FDA approval of the new manufacturer and manufacturing
sight would also be required.
We have contracted with Pharmaceutical Manufacturing Research Services,
or PMRS, a manufacturing development company, to supply commercial quantities of
Visicol(TM) in a manner which meets FDA requirements. Recently, the FDA has
approved the manufacturing processes of PMRS. Standards set by the FDA must be
maintained at all times, since the failure to do so could result in the loss of
"approved status" at PMRS. Any such loss would have a significant negative
impact on us since we do not have an approved secondary manufacturer for
Visicol(TM). We are currently seeking an appropriate manufacturer to produce
CBP-1011 and other proposed products.
MARKETING & SALES
In order to market any of our products directly, we must develop a marketing
and sales organization. We have not marketed, distributed or sold pharmaceutical
products under the InKine name. We have recently hired an internal sales and
marketing management team which will set our strategies for the sales and
marketing organization. Since Visicol(TM) will be the first of our proposed
products to be sold, the following strategy for the launch of Visicol(TM) has
been initiated:
1. To minimize our internal infrastructure and the cost required
for product commercialization while maximizing product exposure
and reach, we are establishing numerous outsourced agreements
with experienced suppliers. These suppliers will assist us in
developing the sales, customer service and distribution arms of
our commercial operations, allowing us to realize certain
efficiencies and expertise we would not realize with start-up
internal operations. Our internal management structure will
oversee and support these outsourced operations, maintain
control over all marketing and strategic planning issues and
eventually manage the transition to an internal risk-minimizing
structure.
2. A Letter of Intent has been executed with Innovex, the leading
provider of contract sales and marketing solutions to the
healthcare industry. Innovex will be responsible for hiring and
training a dedicated sales force that will launch and promote
Visicol(TM), and any of our other products which may be approved
by the FDA. These sales representatives will spend their entire
day promoting our products, and will in all ways be perceived as
InKine sales reps. The sales force will cover the top 60% of
colonoscopy preparation prescribers, the majority of whom are
gastroenterologists.
-15-
3. We have authorized Integrated Commercialization Solutions, Inc.
or ICS, a leader in supply chain management for the
pharmaceutical industry, to implement third-party logistics.
This will involve handling customer service, order management,
distribution, accounts receivables, contract charge back
administration and promotional material distribution for
Visicol(TM). Like the sales force, ICS will in all ways be
represented to the customer as InKine.
4. Market Development Group is working on the medical marketing
side of Visicol(TM) to help translate the advantages of
Visicol(TM) into appropriate marketing messages. Goals of this
relationship include building a market and increasing early
adoption of the product.
5. Med Tier, a leading medical communications company, is helping
us develop advertising strategies and tactics for the promotion
of Visicol(TM).
COLLABORATIVE ARRANGEMENTS; RESEARCH AND LICENSE AGREEMENTS
Collaborations may allow us to leverage our scientific and financial
resources and gain access to markets and technologies that would not otherwise
be available to us. In the long term, development and marketing arrangements
with established companies in the markets in which potential products will
compete may allow our products more efficient access to intended markets and
may, accordingly, conserve our resources. We expect that we will enter into
development and marketing arrangements for some of the products we may develop.
From time to time, we hold discussions with various potential partners.
We have rights under license agreements to several patents and patent
applications under which we expect to owe milestone payments and royalties on
sales of certain of our proposed products. Additionally, certain of these
agreements also provide that if we elect not to pursue the commercial
development of any licensed technology, or do not adhere to an acceptable
schedule of commercialization, then our exclusive rights to such technology
would terminate. We also fund research at certain institutions, and these
relationships may provide us with an option to license any results of the
research.
GOVERNMENT REGULATION
The production and marketing of our products and our research and
development activities are subject to regulation by numerous governmental
authorities in the United States and other countries. In the United States,
biological products, drugs and diagnostic products are subject to rigorous
review by the FDA. The Federal Food, Drug, and Cosmetic Act, the Public Health
Service Act and other federal statutes and regulations govern or influence the
testing, manufacture, safety, efficacy, labeling, storage, recordkeeping,
approval, advertising and promotion of such products. Noncompliance with
applicable requirements can result in fines, recall or seizure of products,
refusal of the government to approve product and/or license applications or to
allow us to enter into government supply contracts, the withdrawal of previously
approved applications and criminal prosecution.
In order to obtain FDA approval of a new drug product, we must submit
proof of safety and efficacy. Such proof entails extensive and time-consuming
preclinical and clinical testing. The results of preclinical studies are
submitted to the FDA as part of an Investigational New Drug Application or IND.
Preclinical studies involve laboratory evaluation of product characteristics and
animal studies to assess the efficacy and safety of the product. Once the IND is
reviewed, human clinical trials may be conducted. Human clinical trials are
typically conducted in three sequential phases, but the phases may overlap.
Phase I trials consist of testing the product in a small number of patients or
healthy volunteer subjects primarily for safety at one or more doses. During
Phase II, in addition to safety, the efficacy of the product is evaluated in a
patient population somewhat larger than Phase I trials. Phase III trials
typically involve additional testing for safety and clinical efficacy in an
expanded population at geographically dispersed test sites. A clinical plan, or
"protocol," accompanied by the approval of the Institutional Review Board
reviewing and monitoring the trials, must be submitted to the FDA prior to
commencement of each clinical trial. Various reports must be submitted to the
FDA during the course of the trials, and the FDA may order the temporary or
permanent discontinuation of a clinical trial at any time.
-16-
The results of the clinical trials are submitted to the FDA as part of
an NDA. Following extensive review of an NDA, the FDA may grant marketing
approval, require additional testing or information, or deny the application.
Sales of a new drug may commence following FDA approval of an NDA and
satisfactory completion of a pre-approval review of the manufacturing facility
and pertinent production records. If there are any modifications to the drug,
including any changes in indication, manufacturing process, labeling or
manufacturing facility, an NDA supplement may be required by the FDA.
The FDA may also require post-marketing testing and surveillance to
monitor the effects of approved products or place conditions on any approvals
that could restrict the commercial applications of such products. Product
approvals may be withdrawn if compliance with regulatory standards is not
maintained. Continued compliance with all FDA requirements and conditions in an
approved application, including those concerning product specification,
manufacturing process, validation, labeling, promotional material, recordkeeping
and reporting requirements, is necessary for all products. Failure to comply
could lead to product recall or other FDA-initiated actions, which could delay
further marketing until the products are brought into compliance. Even after any
approval by the FDA and foreign regulatory authorities, products may later
exhibit adverse effects that could prevent their widespread use or necessitate
their withdrawal from the market.
Sales of pharmaceutical products outside the United States are subject
to foreign regulatory requirements that vary widely from country to country.
Whether or not FDA approval has been obtained, approval by comparable regulatory
authorities of foreign countries must be obtained prior to the commencement of
marketing in those countries. The time required to obtain such approval may be
longer or shorter than that required for FDA approval.
COMPETITION
The biopharmaceutical industry is highly competitive, including the
industry segments related to (i) receptor based technologies, which include the
Fc Receptor Technology, (ii) purgative agents for clearing the colon, which
include Visicol(TM), and (iii) the treatment and prevention of cancer, which
includes the Thrombospondin Technology. We are likely to encounter significant
competition with respect to Visicol(TM)and our product candidates currently
under development, including, but not limited to, competition from: (a)
Braintree Laboratories, Inc., Schwarz Pharma Inc. and C.B. Fleet Company, Inc.
with respect to the product applications targeted by Visicol(TM); (b) La Jolla
Pharmaceutical Company, AstraZeneca, Salix Pharmaceuticals, GeneLabs
Technologies, Inc., IDEC Pharmaceuticals Corporation, Immune Response
Corporation, Autoimmune, Inc. and Anergen, Inc. with respect to the treatment of
diseases targeted by the Fc Receptor Technology; and (c) Boston Life Sciences,
Inc., Entremed, Inc. and Human Genome Sciences, among others with respect to the
treatment of diseases targeted by the Thrombospondin Technology. Most of these
entities have substantially greater financial, technical, manufacturing,
marketing, distribution and other resources. We may also face competition from
companies using different or advanced technologies that could render our
products obsolete.
OTHER FACTORS TO BE CONSIDERED
If we do not obtain required approvals from the government, then we may
not successfully market or sell our products.
The FDA requires multiple stages of tests, known as phase I, II and III
clinical trials, on all pharmaceutical products. In addition, the FDA must
confirm that our drug manufacturers are complying with applicable federal
regulations. The process to obtain government approvals of a pharmaceutical
product takes many years and requires substantial resources.
The FDA may delay or halt the clinical development of our proposed
products at any stage, or may deny us approval to market a product. If any of
these adverse actions are taken by the FDA, we may delay or stop the development
of a product or may be unable to commercialize such product. We do not believe
we are subject to risks which are materially different than other pharmaceutical
companies seeking FDA approval, but the process of obtaining FDA approval is
-17-
expensive, time-consuming and often filled with unexpected problems. Even if we
receive approval of a product candidate, the FDA may limit and restrict the
drug's use and may subject our products to continuous review. If we fail to
comply with any applicable regulatory requirements, the FDA could impose
penalties on us, including:
o warning letters;
o fines;
o withdrawal of regulatory approval;
o product recalls;
o operating restrictions;
o injunctions; and
o criminal prosecution.
1. FDA marketing approval:
We submit the results of our scientific studies, commonly referred to
as preclinical studies, to the FDA as part of an investigational new drug
application, commonly referred to as an IND. An IND is a summary document
describing the drug product, the safety of the drug product and the filer's
proposed use of the drug product. After the FDA allows the IND to become
effective, we conduct human clinical trials (phase I, II and III). We then
submit the results of these trials to the FDA as part of an NDA. The FDA
requires the filing of the NDA, which summarizes all human clinical and
manufacturing experiences of the drug. The FDA approves a drug on the basis of
the NDA. After we file the NDA, the FDA may approve the product for marketing,
require additional testing or deny the application.
2. FDA manufacturing approval:
The FDA requires pharmaceutical companies to include detailed
manufacturing information in an NDA. The FDA has mandated that all manufacturing
facilities and processes comply with good manufacturing practices, or GMP. GMP
is a body of federal regulations and guidelines that govern the manufacture of
drugs for human use. For example, all manufacturers must pass manufacturing
plant inspections and provide records of detailed manufacturing processes. Among
other things, drug manufacturers must demonstrate that:
o the drug product can be consistently manufactured at the same
quality standard;
o the drug product is stable over time; and
o the level of chemical impurities in the drug product are under a
designated level.
For example, the FDA has approved our manufacturing process for
Visicol(TM). Visicol(TM) is one of our proposed products that is taken in tablet
form and used to clean the colon for medical purposes. Even after obtaining
manufacturing approval, the FDA may delay or prevent us from marketing
Visicol(TM) if we do not continue to consistently manufacture appropriate
amounts of Visicol(TM) or cannot continue to repeat the manufacturing process
used to manufacture the phase III clinical trial batches of Visicol(TM). We
currently have only one approved manufacturer of Visicol(TM), and we have
initiated the process to obtain a qualified secondary manufacturer of
Visicol(TM).
3. FDA oversight after product approval:
The FDA will regulate us after a product has been approved. The FDA may
require post-marketing testing and surveillance to monitor the effects of an
approved drug product. The FDA may also place conditions on any approvals that
could restrict the sale or use of a product.
-18-
4. Status of our products in the FDA approval process:
Our proposed products are in various stages of development and in
various stages of the FDA approval process, as set forth below:
o Visicol(TM). We have completed a phase I, IIb, and two phase III
clinical trials for Visicol(TM). We submitted an NDA for
Visicol(TM) to the FDA on November 23, 1999 and obtained FDA
approval to begin marketing Visicol(TM) on September 21, 2000. We
are currently putting in place the manufacturing and marketing
plans for Visicol(TM) with an anticipated product launch in
January 2001.
o CBP-1011. We developed CBP-1011 as a compound for the treatment
of idiopathic thrombocytopenic purpura, or ITP, an autoimmune
disease which causes spontaneous bleeding. CBP-1011 is currently
in phase III clinical trials for ITP. In December 1999, we began
enrolling patients in a phase II trial for the treatment of
patients with inflammatory bowel disease using CBP-1011.
Inflammatory bowel disease consists of both Crohn's disease and
ulcerative colitis, both of which are inflammation disorders of
the bowel. On September 11, 2000, we announced positive results
of our Phase II study on Crohn's disease and anticipate the
results of our Phase II study in ulcerative colitis by the end of
the calendar year 2000. We refer to CBP-1011 and certain related
products as the FcReceptor technology.
o Thrombospondin technology products. We have acquired an
exclusive worldwide license to a cancer treatment technology
known as the thrombospondin technology. We are evaluating a
number of product opportunities utilizing the thrombospondin
technology in the area of cancer treatment, which are in the
early stages of development (before phases I, II and III). We
have not begun human clinical trials for these products.
We may never receive FDA approval for any of these products (other than
Visicol(TM)), and without FDA approval, we may not manufacture, market or sell
these products.
We have not generated any revenue to date. If we continue to incur substantial
losses, then the value of our common stock is likely to be reduced. Also, we may
never achieve a profitable level of operation.
To date, we have engaged solely in the research and development of
proposed drug products. We have not generated any revenue from product sales or
royalties and will not do so until we manufacture and market them successfully.
We have incurred losses in each year since our inception on July 1, 1993. As of
June 30, 2000, we had an accumulated deficit of approximately $32.8 million.
Our proposed products are in various stages of marketing or development
and require significant research, development and testing. We must obtain all of
the necessary government approvals for our products before we can sell any
proposed product. As a result, we believe our losses will continue in the
foreseeable future as we develop our products.
If our research spending in the foreseeable future is greater than
potential Visicol(TM) sales revenue, then we may never conduct our operations at
a profit. Our common stock is likely to decrease in value if we fail to generate
profits or if the market believes that we are unable to do so.
We have granted or committed to grant shares and options to founding
scientists and consultants when we achieve agreed upon product development
goals. These goals relate to our filing applications with the FDA, and achieving
agreed upon sales targets. As a result, our potential earnings per share will
decrease because of the necessary accounting treatment of these shares and
options.
-19-
If we do not develop and maintain relationships with manufacturers, then we may
not successfully manufacture and sell our products.
We do not possess the capabilities, resources or facilities to
manufacture any of our proposed products. We must contract with manufacturers to
produce our proposed products according to government regulations. Our future
development and delivery of our products on a timely, profitable and competitive
basis depends on the performance of these manufacturers. A limited number of
manufacturers exist which are capable of manufacturing our proposed products. We
may fail to contract with the necessary manufacturers or we may contract with
manufacturers on terms which may not be entirely acceptable to us.
Manufacturers may utilize their own technology, our technology or
technology obtained from others in developing a manufacturing process for our
products. We may pay a fee to the manufacturer if we utilize the manufacturing
process that the manufacturer has developed or if we seek a third party to
participate in the development process.
We have contracted with Pharmaceutical Manufacturing Research Services,
or PMRS, a manufacturing development company, to supply commercial quantities of
Visicol(TM) in a manner which meets FDA requirements. Recently, the FDA has
approved the manufacturing processes of PMRS. Standards set by the FDA must be
maintained at all times, since the failure to do so could result in the loss of
"approved status" at PMRS. Any such loss would have a significant negative
impact on us since we do not have an approved secondary manufacturer for
Visicol(TM). We are currently seeking an appropriate manufacturer to produce
CBP-1011 and other proposed products.
If we do not develop and maintain either internal or external marketing
capabilities, then we may not successfully sell our products.
We have not marketed, distributed or sold pharmaceutical products under
the InKine name. We may contract with third parties which specialize in
marketing, selling and distributing pharmaceutical products or try to build an
internal sales and marketing operation. If we choose to utilize third parties
for sales and marketing, then we may exert limited control over these third
parties and the amount and timing of resources which they devote to our
products. We may not achieve our desired amount of revenue from product sales if
these third parties fail to market and sell our products effectively.
We may establish an internal sales and marketing force or convert from
an external sales force after a few years of selling Visicol(TM). If we choose
to follow this strategy, then we will have to spend significant additional funds
and devote significant resources and time to establish this internal sales and
marketing force. Because of our inexperience in these areas, however, we may not
successfully implement an internal sales and marketing force which is
competitive or cost effective.
We may choose to license our products to others to market, or
circumstances may force us to license our products if we do not develop adequate
manufacturing and marketing capabilities. If we license our products, we will
receive less revenue and may realize less profit.
-20-
If we cannot develop and market our products as rapidly or cost-effectively as
our competitors, then we will not be able to conduct our operations at a profit.
We are developing products that will compete in three very competitive
segments of the pharmaceutical industry. The three segments are those which
include (i) Visicol(TM), (ii) CBP-1011, and (iii) the thrombospondin technology.
Based on total assets and revenues, we are significantly smaller than the
majority of our competitors in these segments. Therefore, we may encounter
significant competition with respect to each of our potential products,
primarily from the following competitors:
Product Candidates
------------------
Thrombospondin
Visicol(TM) CBP-1011 Technology
----------- -------- ----------
Competitors Braintree Laboratories, Inc. La Jolla Pharmaceutical Company Boston Life Sciences, Inc.
- ----------- C.B. Fleet Company, Inc. AstraZeneca Entremed, Inc.
Schwarz Pharma Inc. Salix Pharmaceuticals Human Genome Sciences
GeneLabs Technologies, Inc.
IDEC Pharmaceuticals Corporation
Immune Response Corporation
Autoimmune, Inc.
Anergen, Inc.
The financial strength of our competitors is particularly important in
the pharmaceutical industry, where technological innovations occur rapidly.
These technological innovations can dramatically affect the price and
effectiveness of a product line and they can render a competing product line
obsolete. Our competitors that have strong financial resources may develop
competitive products that are cheaper and more effective than our products.
These competitive products may render our products unmarketable or
non-competitive. Even if our competitors do not develop better and more cost
effective products, they may manufacture and market their products more
successfully than us. Therefore, our competitors may capture all or a large
segment of our market, severely restricting our ability to achieve a profitable
level of product sales.
In addition to our competitors in the pharmaceutical industry, colleges
and universities, hospitals, government agencies and other research
organizations are conducting research and seeking patent protection for a
variety of products which may compete with our products. Any of these
organizations could develop products which could render our products obsolete or
non-competitive.
If the owners of technology licensed to us terminate our license agreements,
then these owners could prevent us from developing, manufacturing or selling
that product covered by that license.
We have acquired the worldwide exclusive right to market Visicol(TM),
the Fc receptor technology and the thrombospondin technology under various
license agreements. Each of the owners of the technology licensed to us may
terminate the license prior to its expiration date under certain circumstances,
including our failure to comply with commitments related to the development of
the products specified in the licenses. For example, some of our licensing
agreements require us to spend specific amounts for research and development of
our products. If we do not comply with the terms of these agreements, the owners
of the licensed technology could demand the return of all rights to the licensed
technology, and force us to cease developing, manufacturing or selling the
products covered by that license.
If we are unable to protect our intellectual property, then our competitors may
develop similar products which could render our products obsolete.
Our success depends, in part, on our ability to develop and maintain a
strong patent position for our products and technologies both in the United
-21-
States and other countries. As with most biotechnology and pharmaceutical
companies, our patent position is highly uncertain and involves complex legal
and factual questions. Without patent and other protections, other companies
could offer substantially identical products for sale without incurring the
sizeable development and testing costs that we have incurred. Our ability to
recoup these expenditures and realize profits upon sale of product could be
diminished.
The process of obtaining patents can be time consuming and expensive.
Even if we spend the necessary time and money, a patent may not issue or it may
insufficiently protect the technology it was intended to protect. We can never
be certain that we were the first to develop the technology or that we were the
first to file a patent application for the particular technology because U.S.
patent applications are maintained in secrecy until a patent issues and
publications in the scientific or patent literature lag behind actual
discoveries.
Even after the U.S. Patent and Trademark Office issues patent rights to
us, our competitors may develop similar or duplicate technologies or design
around the patented aspects of our technology, which may decrease sales of our
prospective products, therefore causing a negative impact on our profit.
Competitors may also challenge our patent rights in court by alleging patent
infringement. If we lose a patent infringement suit, third parties may claim
significant damages, require us to license the disputed technology or require us
to cease using the disputed technology.
In 1997, the U.S. Patent and Trademark Office issued a patent covering
the use of Visicol(TM) as a colonic cleansing agent or as a laxative. In January
2000 we received notice of allowance from the U.S. Patent and Trademark Office
for an application that we filed for numerous solid-dose colonic cleansing
agents. We have also filed applications for Visicol(TM) under the Patent
Cooperation Treaty which designate Europe and Canada.
One of our products, CBP-1011 (within the Fc receptor technology), is
not patentable for use in ITP. Instead of a patent, we expect that CBP-1011 will
receive protection based on FDA designation of Orphan Drug Status for ITP, which
means the FDA has determined that the number of people affected by the disease
to be treated by the drug is less than 200,000, and that having numerous
companies compete for the market is unrealistic and likely to harm, rather than
help, prospective users of the product. If we receive this designation, we will
have an exclusive right to sell CBP-1011 for ITP for seven years. In October of
1999, we filed a U.S. patent application to treat inflammatory bowel disease
with CBP-1011 and other similar compounds. The U.S. Patent and Trademark Office
has not yet issued this patent.
Patents or patent applications are pending for our TSP-1 peptide and
angiocidin, two of the thrombospondin technology compounds. The area of cancer
technology is complex and the patents covering our TSP-1 peptide may not be
adequate.
We have also obtained the rights to foreign patents, and intend to
apply for additional foreign patents, for other products and technologies.
Competitors could challenge or develop around the patents, or the scope of the
patents may not be adequate to protect the patented product from competitors.
The commercial success of our products will also depend upon our ability to make
sure the products do not infringe on patents issued to competitors. We have not
conducted a search to determine if there are any patents similar to those
covering Visicol(TM) or the TSP-1 peptide and angiocidin.
Our employees or scientific consultants may develop inventions or
processes independently that may be related to our products. These employees or
consultants could claim ownership of these inventions or processes, and these
claims could succeed. We may need to enter into protracted and costly litigation
to enforce or determine the scope of our proprietary rights.
Government agencies and academic institutions have funded the
development of some of our patented technologies, in particular the
thrombospondin technology and the Fc receptor technology. Although we have
acquired the rights to use such technology, these agencies or institutions may
have rights to the technology or inventions, including rights to the
royalty-free use, but not sale, of the invention or technology for our own
purposes.
-22-
If we do not receive adequate reimbursement from the government, managed care
organizations and private insurance plans, then some patients may be unable or
unwilling to purchase our products and we will achieve less revenue from product
sales.
Successful sales of our products in the United States and other
countries depend on the availability of adequate reimbursement from the
government, managed care organizations and private insurance plans.
Pharmaceutical companies often use reimbursement as the basis for determining
their sales. In the pharmaceutical industry, unlike other consumer product
industries, insurance companies, including managed care organizations, often pay
drug manufacturers and distributors directly for their products. In fact,
pharmaceutical companies make a majority of their sales to insurance companies
and not to consumers. These organizations provide for reimbursement only after
considering a number of factors, including product features such as safety,
medical necessity, cost and the experimental nature of the product. We will
spend significant amounts of time and other resources to obtain reimbursement
for our products. The organizations which provide reimbursement routinely limit
reimbursement and attempt to exert significant pressure on medical suppliers to
lower their prices.
We cannot predict the amounts or reliability of reimbursement because
reimbursement for pharmaceutical products incorporating new technology is
historically unpredictable in the pharmaceutical industry. Additionally,
reimbursement varies from country to country. We do not know whether our
products will qualify for reimbursement from domestic or foreign reimbursement
sources.
If we do not obtain debt financing or additional capital in the future, then we
may not be able to continue our operations beyond December 31, 2001.
We need additional capital to develop, manufacture and market our
proposed products. Specifically, we will spend funds for the following:
o Researching and developing our proposed products, including
participating in human clinical trials and animal studies
conducted before clinical trials;
o Seeking necessary approvals from the government;
o Developing manufacturing and distribution capabilities; and
o Funding our growth as a company.
We believe that our current capital resources will fund our operations
through December 31, 2001. Our future capital requirements will depend on a
variety of factors. For example, if we experience continued progress in our
research and development activities, or if we determine that it is necessary to
prosecute and enforce our patents, we will require additional capital. In
addition, our future marketing activities will affect our future capital
requirements. Because we have no experience in marketing our products, we have
no experience in predicting how much capital will be necessary to successfully
complete our marketing plans. If we fail to accurately predict our future
capital requirements, we may be unable to continue our operations.
We regularly seek funding for our operations from a variety of sources,
including public and private securities offerings, loans and joint arrangements
with partners. We currently do not possess a commitment to obtain additional
funding, and we may never receive additional funding in the future. If we fail
to obtain additional funding, we will delay, scale back or eliminate our
research and development activities or enter into arrangements with others to
develop and market certain proposed products that we may otherwise have
developed ourselves.
If the holders of our outstanding options and warrants exercise such options and
warrants, then the market price of the common stock may drop.
We have a total of approximately 7.6 million options and warrants
outstanding at June 30, 2000. Options and warrants give the holder the right to
purchase shares of a company's stock in the future for a predetermined price
which may or may not be below the current market value of such company's stock
at the time the option or warrant is exercised. In addition, we can issue an
additional 900,000 options pursuant to our option plans. To date, option and
-23-
warrant holders have exercised approximately 4,900,000 options and warrants in
the aggregate at prices ranging from $0.50 to $2.16. We believe that option
holders and warrant holders may exercise options and warrants when we are able
to obtain additional financing on more favorable terms. The exercise of these
outstanding warrants and options and the sale of the related shares may cause
our common stock price to drop.
If our common stock continues to be volatile and thinly traded, then our
shareholders may not be able to sell their shares when desired.
The market price of our common stock, similar to other development-stage
public pharmaceutical or biotechnology companies, has been volatile and may
remain volatile for the foreseeable future. Our shareholders may not sell their
shares when they desire because the stock price is highly volatile and the stock
is not widely traded. For example, the number of our shares theoretically
available for sale in any one day is approximately 33,000,000 shares and our
average daily trading volume has historically been approximately 479,000 shares.
If our stock continues to trade thinly, our shareholders may not be able to sell
their shares when desired.
If we do not have adequate insurance for product liability claims, we may be
subject to significant expenses relating to these claims.
We are subject to significant product liability risks relating to the
testing, manufacturing and sale of the products we are developing. These risks
include:
o Our proposed products could cause undesirable side effects or
injury during clinical trials;
o Our products could cause undesirable side effects or injury when
sold; or
o We may agree to reimburse others that incur liability relating to
our product.
We currently maintain insurance for product liability claims in the
amount of $10,000,000 per occurrence and $10,000,000 in the aggregate. We have
no way of knowing if these amounts will be adequate to cover any product
liability claims filed against us. If we do not or cannot maintain adequate
insurance coverage, we may incur a significant liability if a product liability
claim arises.
If our certificate of incorporation and New York law continue to contain
provisions that discourage potential takeovers, then our shareholders may not
receive a premium for their shares in a takeover situation and will be subject
to certain restrictions on voting and other rights.
Our board of directors has the right, granted under our certificate of
incorporation, to authorize certain preferred stock which may have a variety of
terms, commonly known as blank check preferred stock. The board of directors may
designate the rights and preferences of this stock without shareholder approval.
If the directors authorize and issue this stock, potential purchasers may be
unable to purchase the common stock at a premium over our market price. In
addition, the board of directors issuing this stock could have a negative impact
on the market price of the stock, and the voting rights and other rights of the
holders of the common stock.
New York corporate law places restrictions on transactions with
beneficial owners of 20% or more of the outstanding voting shares of a
corporation. These restrictions could reduce the potential that a third party
will attempt a takeover of us and therefore reduce the chances of shareholders
receiving a premium for their shares over the market price.
EMPLOYEES
As of June 30, 2000, we had 16 full-time employees. No employees are
covered by collective bargaining agreements, and we consider relations with our
employees to be good.
-24-
SUBSEQUENT EVENTS
On September 11, 2000, we announced positive results of our Phase II
multicenter open-labeled, clinical trial of CBP-1011 in the treatment of
patients with mild or moderate Crohn's disease. Key results of the study
included the following: 80% of patients who completed the study responded to
treatment with CBP-1011 using endpoints that were previously defined by the FDA
for a recently approved drug indicated for Crohn's, 70% of the patients were in
remission at the completion of the study and 73% of the patients responded after
4 weeks, with a remission rate of 64%.
On September 21, 2000, we received notification from the FDA that
Visicol(TM) tablets (brand of sodium phosphate) for cleansing of the bowel as a
preparation for colonoscopy was approved for marketing. The approval occurred in
ten months from the NDA submission and included full labeling of the product as
agreed to by the FDA and us. We have projected January 2001 as the date on which
we intend to make Visicol(TM) available to patients undergoing colonoscopy.
Visicol(TM), our lead product, is the first and only tablet purgative
preparation indicated for bowel cleansing prior to colonoscopy.
ITEM 2. PROPERTIES.
We occupy an aggregate of approximately 5,200 square feet of space in
Blue Bell, Pennsylvania, which is used as office space. We lease this space
pursuant to a lease expiring in January 2001, which provides for minimum annual
rent payments of approximately $62,000 for the remaining term of the lease. We
have recently signed a lease for new office space of approximately 8,000 square
feet, also in Blue Bell, Pennsylvania. This new lease will not take effect at
least until November 1, 2000 and will expire five years after the effective
date.
ITEM 3. LEGAL PROCEEDINGS.
We are not a party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
-25-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Our common stock trades on the Nasdaq SmallCap Market under the symbol
INKP. The quarterly range of high and low closing sales prices of our common
stock, as reported on the Nasdaq Stock Market, are shown below. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.
Year Ended June 30, 2000 High Low
------------------------ ---- ---
1st Quarter................................ $ 2.19 $1.56
2nd Quarter................................ $ 3.19 $1.50
3rd Quarter................................ $10.00 $3.06
4th Quarter ............................... $ 6.28 $3.81
Year Ended June 30, 1999 High Low
------------------------ ---- ---
1st Quarter................................ $1.75 $0.88
2nd Quarter................................ $1.78 $0.84
3rd Quarter................................ $2.00 $1.06
4th Quarter................................ $1.88 $1.13
Dividends
We have not paid any cash dividends since our inception and do not
anticipate paying any cash dividends in the foreseeable future. It is the
present policy of the Board of Directors to retain all earnings, if any, to
finance the development of our business.
Number of Holders of Common Stock
At September 12, 2000 there were approximately 318 shareholders of
record and approximately 19,390 beneficial holders of our Common Stock.
Recent Sales Of Unregistered Securities
On May 5, 2000, we completed a private offering of 2,838,871 shares of
our common stock to certain investors and issued a warrant to purchase 283,887
shares of common stock priced at $5.13 per share to our placement agent. After
expenses, we realized approximately $9.9 million of the approximately $10.8
million in proceeds from the offering. In connection with this offering we filed
a registration statement of Form S-3 covering both the common stock and the
shares issuable upon the exercise of the warrant.
-26-
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data. The
selected financial data is derived from, and is qualified by reference to, our
financial statements included herein.
July 1, 1993
Year Ended June 30, (Inception)
-------------------------------------------------- to June 30,
2000 1999 1998 1997 1996 2000
---- ---- ---- ---- ---- ----
(in thousands, except per share amounts)
Statement of Operations Data:
Cost and expenses:
Research and development................. $5,731 $6,565 $ 2,270 $ 743 $644 $ 16,474
Purchased research and development....... --- --- 3,952 --- --- 3,952
General and administrative............... 3,506 3,593 3,782 1,011 812 13,312
Separation agreement and accelerated
vesting of options..................... 835 --- --- --- --- 835
Write-off debt discount.................. --- --- --- --- --- 75
------- -------- ------- ------- ------- ---
Loss from operations..................... 10,072 10,158 10,004 1,754 1,456 34,648
Interest income............................... (399) (525) (515) (104) (239) (1,867)
Interest expense.............................. 39 --- --- --- --- 46
------- -------- ------- ------- ------- --------
Loss..................................... $(9,712) $ (9,633) $(9,489) $(1,650) $(1,217) $(32,827)
------- -------- ------- -------- ------- -------
Loss per share - basic and diluted....... $ (0.36) $ (0.42) $ (0.60) $ (0.51) $ (0.38)
======= ======== ======= ======= =======
Weighted average shares outstanding...... 27,300 22,762 15,783 3,260 3,231
As of June 30,
----------------------------------------------------
Balance Sheet Data: 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Cash and investments..................... $16,025 $ 6,862 $12,962 $ 1,176 $ 3,057
Total assets............................. 16,435 7,162 13,366 1,785 3,192
Long-term liabilities.................... --- --- --- --- 141
Total liabilities........................ 1,561 1,449 246 188 212
Accumulated deficit...................... (32,827) (23,115) (13,482) (3,993) (2,342)
Shareholders' equity..................... 14,874 5,713 13,120 1,597 2,980
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Report contains, in addition to historical information, our
statements with regard to our expectations as to financial results and other
aspects of our business that involve risks and uncertainties and may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements reflect management's current
views and are based on certain assumptions. Actual results could differ
materially from those currently anticipated as a result of a number of factors,
including, but not limited to, the risks and uncertainties discussed under the
caption "Other Factors to be Considered" in Part I of this Report. Given these
uncertainties, current or prospective investors are cautioned not to place undue
reliance on any such forward-looking statements. Furthermore, we disclaim any
obligation or intent to update any such factors or forward-looking statements to
reflect future events or developments.
-27-
General
We are a biopharmaceutical company engaged in the research and
development of products which may be used in the diagnosis and treatment of
cancer and autoimmune diseases. We pursue these objectives through a technology
platform consisting of the Fc Receptor Technology, the Thrombospondin Technology
and Visicol(TM). We acquired these technologies in 1997. See Note 3 of the Notes
to Financial Statements.
Since commencing operations in 1993, we have not generated any sales
revenue. We have funded operations primarily from the proceeds of public and
private placements of securities. We have incurred net losses in each year since
our inception, and expect to incur additional losses in the foreseeable future.
We expect that losses will fluctuate from quarter to quarter, and that such
fluctuations may be substantial. At June 30, 2000, our accumulated deficit was
approximately $33 million.
Results of Operations
We incurred losses of $9,712,000, $9,633,000 and $9,489,000, for the
years ended June 30, 2000, 1999 and 1998, respectively. We expect to incur
additional losses in the foreseeable future. The basic and diluted per share
loss was $0.36, $0.42 and $0.60, for the years ended June 30, 2000, 1999 and
1998, respectively. Losses are expected to increase in the forthcoming short
year as we continue to develop the Thrombospondin Technology and Fc Receptor
Technology, and also incur significant commercialization costs of Visicol(TM).
Research and development expenses fluctuated on an annual basis from
fiscal year 1998 through fiscal year 2000 due to changes in manufacturing
development expenses and clinical and preclinical testing costs associated with
Visicol(TM), CBP-1011 and the Thrombospondin program. The decrease in research
and development expenses from fiscal year 1999 to fiscal year 2000 of $834,000
is principally due to the reduction in clinical development costs being
partially offset by increases in costs associated with manufacturing development
and NDA submission costs for Visicol(TM). The increase in research and
development expenses from fiscal year 1998 to fiscal year 1999 of $4,295,000 was
principally due to conducting a Phase I, Phase IIb dose ranging and Phase III
clinical trial of Visicol(TM) along with manufacturing costs associated with
Visicol(TM). Research and development expenses are expected to continue to
fluctuate in the future as we continue towards commercialization of Visicol(TM).
Additional research and development expenses will include hiring personnel to
direct the clinical and manufacturing activities with respect to Visicol(TM) and
CBP-1011 and additional personnel to direct the research and development
activities on the Thrombospondin Technology and other technologies. Substantial
resources will continue to be expended on the Phase II and Phase III trials
currently underway with respect to CBP-1011 in the areas of IBD and ITP.
Purchased research and development amounted to $3,952,000 for the year
ended June 30, 1998 as a result of InKine's acquisition of the Fc Receptor
Technology and the Thrombospondin Technology in November 1997, along with
additional costs associated with the earlier purchase of Visicol(TM) in fiscal
year ended June 30, 1997. A majority of the purchase price ($2,742,000) was a
non-cash charge to earnings related to the issuance of Common Stock and options
for the technologies.
General and administrative expenses amounted to $3,506,000, $3,593,000
and $3,782,000 for the years ended June 30, 2000, 1999 and 1998 respectively.
The decrease in general and administrative expenses from fiscal year 1999 to
fiscal year 2000 was due to reduced amortization of deferred compensation from
options previously granted to certain executive officers of $1,273,000 in fiscal
year 2000, as compared to $1,616,000 for the same period a year ago. This
decrease was offset by an increase in marketing costs and an increase in head
count in fiscal year 2000. The decrease in general and administrative expenses
in fiscal year 1999 versus fiscal year 1998 is due to reduced amortization of
options in connection with our restructuring in fiscal year 1998. General and
administrative expenses will continue to increase with the addition of other
administrative personnel, amortization of deferred compensation and an expanded
scale of operations associated with the development of multiple technologies.
-28-
A one-time charge resulted from a separation agreement with the former
President and Chief Operating Officer due to his resignation from InKine in
November 1999. His employment contract provided for certain benefits upon
resignation prior to the completion of the terms of the contract. The contract
required the immediate vesting of all outstanding unvested options which
resulted in a non-cash charge of $535,000 and the continuation of his salary and
other benefits for a period of several months. This resulted in an additional
charge of approximately $300,000.
The decrease in interest income of $126,000 from fiscal year 1999 to
fiscal year 2000 was due to earnings on a lower investment balance as compared
to the previous year, partially offset by an increase in the effective interest
rate earned during 2000. The increase in interest income in the year ended June
30, 1999 as compared to the year ended June 30, 1998 is principally due to the
earnings on an increased investment balance.
Liquidity and Capital Resources
At June 30, 2000, we had cash, cash equivalents and investments of
$16,025,000. Cash and cash equivalents is comprised primarily of the proceeds
from two private placements of common stock of approximately $14,000,000 during
fiscal year 2000. In order to preserve principal and maintain liquidity, our
funds are invested in U.S. Government obligations and other secured short-term
investments.
We believe that our financial resources are adequate for our operations
for at least the next 18 months. Our future capital requirements will depend on
numerous factors which cannot be quantified and many of which we cannot control,
including continued progress in our research and development activities,
commercialization costs of Visicol(TM), progress with pre-clinical studies and
clinical trials, prosecuting and enforcing patent claims, technological and
market developments, the ability to establish product development arrangements,
the cost of manufacturing scaleup, effective marketing activities and
arrangements, and licensing or acquisition activity. We may seek to obtain
additional funds through equity or debt financing, collaborative or other
arrangements with corporate partners and others, and from other sources. No
assurance can be given that necessary additional financing will be available on
terms acceptable to us, if at all. If adequate additional funds are not
available when required, we may have to delay, scale back or eliminate certain
of our research, drug discovery or development activities or certain other
aspects of our operations and our business will be materially and adversely
affected.
We plan to expend significant resources in new personnel in the next 12
months in connection with the expansion of our commercial activities surrounding
Visicol(TM). We anticipate incurring additional losses in the foreseeable
future, as we expand our commercialization activities relating to Visicol(TM),
and research and development activities relating to the Thrombospondin
Technology and Fc Receptor Technology. To achieve profitability, we alone or
with others, must successfully develop and commercialize our technologies and
products, conduct pre-clinical studies and clinical trials, obtain required
regulatory approvals and successfully manufacture, introduce and market such
technologies and products. The time required to reach profitability is highly
uncertain, and there can be no assurance that we will be able to achieve
profitability on a sustained basis, if at all.
New Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
("Statement 133"). Statement 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. Statement 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure the instrument at fair value. The
accounting changes in the fair value of a derivative depend on the intended use
of the derivative and the resulting designation. This Statement, as amended, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. The adoption of this standard did not have a material impact on InKine's
earnings or financial position.
In December 1999, the staff of the SEC issued Staff Accounting Bulletin
No. 101. Revenue Recognition in Financial Statements ("SAB 101"). SAB 101
-29-
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in the financial statements,
including recognition of non-refundable fees received upon entering into
arrangements. In June 2000, the SEC issued Staff Accounting Bulletin No. 101B
which delays the implementation date of SAB 101 until no later than the fourth
fiscal quarter of fiscal year beginning after December 15, 1999. Accordingly, we
are evaluating SAB 101 and the effect it will have on our consolidated financial
statements and current revenue recognition policy.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
The information required by this item is set forth beginning on pages F-1
through F-17 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated herein by
reference to the similarly named section in our Proxy Statement for the 2000
Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein by
reference to the similarly named section in our Proxy Statement for the 2000
Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated herein by
reference to the similarly named section in our Proxy Statement for the 2000
Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated herein by
reference to the similarly named section in our Proxy Statement for the 2000
Annual Meeting of Shareholders.
-30-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Financial Statements
The information required by this item is set forth in the Table of
Contents to Financial Statements on page F-1 hereof.
Financial Statement Schedules
All schedules have been omitted because they are not applicable, or not
required, or the information is shown in the Financial Statements or Notes
thereto.
Reports on Form 8-K
We filed a Current Report of Form 8-K on May 10, 2000, reporting the
completion of a Private Placement of 2,838,87 shares of common stock and 283,887
warrants for gross proceeds to InKine of $10,800,000. The items included in this
report consisted of:
Item 5. Other Events
Item 7. Exhibits -- 99.1 Press release dated May 8, 2000
Exhibits
The following is a list of exhibits filed as part of this Annual Report
on Form 10-K. Where so indicated by footnote, exhibits which were previously
filed are incorporated by reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated parenthetically,
together with a reference to the filing indicated by footnote.
Exhibit No. Title
- ----------- -----
3.1 Certificate of Incorporation, as amended. (Exhibit 3.1)(1)
3.2 By-laws. (Exhibit 3.2)(2)
4.2 Registration Rights Agreement dated September 20, 1999 between
InKine and certain Investors listed on the signature page
thereto. (Exhibit 4.2) (10)
4.3 Form of Common Stock Purchase Warrant (In accordance with Item
601 of Regulation S-K, similar warrants granted to the selling
shareholders have not been filed because they are identical in
all material respects except for the number of warrants
granted to each selling shareholder.) (Exhibit 4.3) (10)
4.4 Common Stock Purchase Warrant, dated May 5, 2000, granted to
the placement agent, Leerink, Swann, Garrity, Sollami, Yaffe &
Wynn, Inc. (Exhibit 4.2) (11)
10.1 Agreement and Plan of Reorganization among Panax
Pharmaceutical Company, Ltd., CorBec Pharmaceuticals, Inc. and
certain Security Holders of CorBec Pharmaceuticals, Inc.,
dated October 31, 1997. (Exhibit 10.1)(1)
10.2 Registration Rights Agreement among Panax Pharmaceutical
Company, Ltd. and the former security holders of CorBec
Pharmaceuticals, Inc. dated November 6, 1997. (Exhibit
10.2)(1)
-31-
10.3 Stock Purchase Agreement by and between Panax Pharmaceutical
Company, Ltd. and Leonard S. Jacob dated September 3, 1997.
(Exhibit 10.3)(1)
10.4 Employment Agreement between InKine Pharmaceutical Company,
Inc. and Leonard S. Jacob, dated November 6, 1997. (Exhibit
10.4)(1)
10.5 Employment Agreement between InKine Pharmaceutical Company,
Inc. and Robert F. Apple, dated November 2, 1998. (Exhibit
10.6) (9)
10.6 Option to Purchase Shares of Common Stock of InKine
Pharmaceutical Company, Inc. dated November 6, 1997, issued to
Leonard S. Jacob. (Exhibit 10.6)(1)
10.7 Common Stock Purchase Option, dated November 6, 1997 issued to
Allegheny University of the Health Sciences. (Exhibit 10.7)(1)
10.8 Non-Milestone Common Stock Purchase Option, dated November 6,
1997 issued to George Tuszynski. (Exhibit 10.8)(1)
10.9 Common Stock Purchase Option, dated November 6, 1997 issued to
George Tuszynski. (Exhibit 10.9)(1)
10.10 Stock Option Plan, as amended. (Exhibit 99)(3)
10.11 1997 Consultant Stock Option Plan. (Exhibit 99)(4)
10.12 Form of Stock Option Agreement. (Exhibit 10(b))(5)
10.13 License Agreement with ALW Partnership. (Exhibit 10(1))(7)
10.14 Form of Option granted to Partners of ALW Partnership.
(Exhibit 10(n))(7)
10.15 Amendment to Employment Agreement, dated November 4, 1999,
between the Company and Leonard S. Jacob. (Exhibit 10.18) (8)
10.16 Severance Agreement, dated November 3, 1999, between the
Company and Taffy J. Williams. (Exhibit 10.19) (8)
10.17 1999 Equity Compensation Plan. (Appendix A) (12)
23* Consent of KPMG LLP.
27* Financial Data Schedule.
- -----------------------
* Filed herewith.
(1) Filed as an Exhibit to InKine's Current Report on Form 8-K,
dated November 6, 1997 (as amended by Form 8-K/A filed on
December 3, 1997), with the Securities and Exchange
Commission.
(2) Filed as an Exhibit to InKine's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998, with the Securities and
Exchange Commission.
-32-
(3) Filed as an Exhibit to InKine's Form S-8 (SEC File No.
333-58063), dated June 29, 1998, with the Securities and
Exchange Commission.
(4) Filed as Exhibit to InKine's Form S-8 (SEC File No. 333-58065)
dated June 29, 1998, with the Securities and Exchange
Commission.
(5) Filed as an Exhibit to InKine's Annual Report on Form 10-KSB
for the year ended June 30, 1995, with the Securities and
Exchange Commission.
(6) Filed as an Exhibit to InKine's Annual Report on Form 10-KSB
for the year ended June 30, 1997, with the Securities and
Exchange Commission.
(7) Filed as an Exhibit to InKine's Current Report on Form 8-K
dated February 14, 1997, with the Securities and Exchange
Commission.
(8) Filed as an Exhibit to InKine's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1999, with the Securities
and Exchange Commission.
(9) Filed as an Exhibit to InKine's Annual Report on Form 10-K for
the year ended June 30, 1999, with the Securities and Exchange
Commission.
(10) Filed as an Exhibit to InKine's Form S-3 (SEC File No.
333-89365), dated October 21, 1999, with the Securities and
Exchange Commission.
(11) Filed as an Exhibit to InKine's Form S-3 (SEC File No.
333-37254), dated May 17, 2000, with the Securities and
Exchange Commission.
(12) Filed as an Appendix to InKine's Definitive Proxy Statement on
Schedule 14A relating to the 1999 Annual Meeting of
Shareholder, dated September 28, 1999, with the Securities and
Exchange Commission.
-33-
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.
INKINE PHARMACEUTICAL COMPANY, INC.
Date: September 26, 2000 By: /s/Leonard S. Jacob, M.D., Ph.D.
---------------------------------
Leonard S. Jacob, M.D., Ph.D.
Chairman and 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 in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Leonard S. Jacob, M.D., Ph.D. Chairman and Chief September 26, 2000
- ------------------------------------- Executive Officer and
Leonard S. Jacob, M.D., Ph.D. Director
/s/Robert F. Apple Sr. Vice President and September 26, 2000
- ------------------------------------- Chief Financial Officer
Robert F. Apple (principal financial and
accounting officer)
/s/J. R. LeShufy Director September 26, 2000
- -------------------------------------
J. R. LeShufy
/s/Steven B. Ratoff Director September 26, 2000
- -------------------------------------
Steven B. Ratoff
/s/Thomas P. Stagnaro Director September 26, 2000
- -------------------------------------
Thomas P. Stagnaro
/s/Robert A. Vukovich, Ph.D. Director September 26, 2000
- -------------------------------------
Robert A. Vukovich, Ph.D.
/s/Jerry Weisbach, Ph.D. Director September 26, 2000
- -------------------------------------
Jerry Weisbach, Ph.D.
-34-
INKINE PHARMACEUTICAL COMPANY, INC.
(a development stage company)
TABLE OF CONTENTS
PART II - FINANCIAL INFORMATION
Page
----
Report of Independent Auditors ............................................. F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Changes in Shareholders' Equity............................... F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
InKine Pharmaceutical Company, Inc.
We have audited the accompanying balance sheets of InKine Pharmaceutical
Company, Inc. (a development stage company) as of June 30, 2000 and 1999 and the
related statements of operations, shareholders' equity and cash flows for each
of the years in the three year period ended June 30, 2000 and for the period
from July 1, 1993 (commencement of operations) through June 30, 2000. 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. The accompanying financial statements of InKine Pharmaceutical
Company Inc., as of June 30, 1997 were audited by other auditors whose report
dated July 24, 1997 expressed an unqualified opinion on those statements. Our
opinion on the statements of operations, shareholders' equity and cash flows,
insofar as it relates to the amounts included for the period from July 1, 1993
(commencement of operations) to June 30, 1997 is based solely on the report of
the other auditors which report has been furnished to us.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of InKine Pharmaceutical Company, Inc. (a development
stage company) as of June 30, 2000 and 1999, and the results of its operation
and its cash flows for each of the years in the three year period ended June 30,
2000 and for the period from July 1, 1993 (commencement of operations) through
June 30, 2000, in conformity with accounting principles generally accepted in
the United States of America.
/s/ KPMG LLP
Philadelphia, Pennsylvania
August 4, 2000, except for Note 1 which is as of September 21, 2000
F-2
INKINE PHARMACEUTICAL COMPANY, INC.
(a development stage company)
BALANCE SHEETS
(In thousands, except share amounts)
June 30, 2000 June 30, 1999
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 5,629 $ 1,968
Short term investments ...................................... 10,396 4,894
Prepaid expenses and other current assets ................... 78 100
-------- --------
16,103 6,962
Fixed assets, net .................................................... 332 200
-------- --------
Total assets ................................................ $ 16,435 $ 7,162
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ....................... $ 540 $ 1,449
Line of credit............................................... 1,021 ---
-------- --------
1,561 1,449
Commitments, contingencies and other matters..........................
Shareholders' equity:
Preferred stock, $.0001 par value; authorized 5,000,000 shares;
none issued and outstanding.................................. - -
Common stock, $.0001 par value; authorized 50,000,000 shares;
issued 32,694,777 and 23,117,336 shares respectively ........ 3 2
Additional paid-in capital ........................................... 48,218 31,427
Deferred compensation ................................................ (473) (2,560)
Unrealized (loss) on investments ..................................... (10) (4)
Deficit accumulated during the development stage ..................... (32,827) (23,115)
Less common stock held in treasury (16,515 shares) ................... (37) (37)
-------- --------
Total shareholders' equity .................................. 14,874 5,713
-------- --------
Total liabilities and shareholders' equity .................. $ 16,435 $ 7,162
======== ========
The accompanying notes are an integral part of these financial statements.
F-3
INKINE PHARMACEUTICAL COMPANY, INC.
(a development stage company)
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Period from
July 1, 1993
(Commencement
Year Ended June 30, of Operations)
------------------- through June 30,
2000 1999 1998 2000
---- ---- ---- ----
Costs and Expenses:
Research and development................ $ 5,731 $ 6,565 $ 2,270 $ 16,474
Purchased research and
development.......................... --- --- 3,952 3,952
General and administrative.............. 3,506 3,593 3,782 13,312
Separation agreement and
accelerated vesting of options...... 835 --- --- 835
Write-off of debt discount.............. --- --- --- 75
-------- -------- -------- --------
$ 10,072 $ 10,158 $ 10,004 $ 34,648
Loss from operations........................... (10,072) (10,158) (10,004) (34,648)
Interest income................................ 399 525 515 1,867
Interest expense............................... (39) --- --- (46)
-------- -------- -------- --------
Net loss....................................... $ (9,712) $ (9,633) $ (9,489) $(32,827)
======== ======== ======== ========
Net loss per share - basic and diluted......... $ (0.36) $ (0.42) $ (0.60)
Weighted average shares
outstanding - basic and diluted......... 27,300 22,762 15,783
The accompanying notes are an integral part of these financial statements.
F-4
INKINE PHARMACEUTICAL COMPANY, INC.
(a development stage company)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Deficit
Accumulated
Common Stock Additional During the Treasury Stock
------------ Paid In Deferred Development --------------
Shares Amount Capital Compensation Stage Shares Amount
------ ------ ------- ------------ ----- ------ ------
Common stock subscription 2,000 $ --- $ --- $ --- $ --- --- $---
Issuance of stock rights in conjunction
with notes payable 75
Capital contribution--expenses paid on
behalf of Company 97
Net Loss (1,126)
Initial public offering, net of expense 1,236 4,986
Value of options granted 80
Proceeds from options and stock rights 80 5
------ ------ ------- ------- -------- ---- ----
Balance--June 30, 1995 3,316 --- 5,243 --- (1,126) --- ---
====== ====== ======= ======= ======== ==== ====
Value of options and warrants granted 218 (218)
Amortization of deferred compensation 79
Common stock acquired (180)
Net Loss (1,217)
------ ------ ------- ------- -------- ---- ----
Balance--June 30, 1996 3,316 --- 5,461 (139) (2,343) (180) ---
====== ====== ======= ======= ======== ==== ====
Value of options and warrants granted 134 (134)
Amortization of deferred compensation 140
Proceeds from options 31 25
Common stock issued to settle debt 27 140 180 ---
Common stock acquisition (17) (37)
Net Loss (1,650)
------ ------ ------- ------ -------- ---- ----
Balance--June 30, 1997 3,374 --- 5,760 (133) (3,993) (17) (37)
====== ====== ======= ======= ======== ==== ====
Common stock issued pursuant to
private placement 18,448 2 15,803
Fair value of shares issued pursuant to
purchased research and development 875 2,742
Value of option and warrants granted 6,628 (6,628)
Proceeds from options 23 21
Amortization of deferred compensation 2,441
Unrealized gain on investments
Net Loss (9,489)
------ ------ ------- ------ -------- ---- ----
Balance--June 30, 1998 22,720 2 30,954 (4,320) (13,482) (17) (37)
====== ====== ======= ======= ======== ==== ======
Value of option and warrants granted 122 (122)
Proceeds from options and warrants 397 --- 351
Amortization of deferred compensation 1,882
Unrealized loss on investments
Net Loss (9,633)
------ ------ ------- ------- -------- ---- ----
Balance--June 30, 1999 23,117 $ 2 $31,427 $(2,560) $(23,115) (17) $(37)
====== ====== ======= ======= ======== ==== ====
Common stock issued pursuant to
private placements 5,147 1 12,649
Value of option and warrants granted 320 (320)
Proceeds from options and warrants 4,431 --- 3,822
Amortization of deferred compensation 2,407
Unrealized loss on investments
Net Loss (9,712)
------ ------ ------- ------- -------- ---- ----
Balance - June 30, 2000 32,695 $ 3 $48,218 $ (473) $(32,827) (17) $(37)
====== ====== ======= ====== ======== ==== ====
[RESTUBBED FOR ABOVE]
Total
Unrealized Shareholders'
Gain on Equity
Investments (Deficiency)
----------- ------------
Common stock subscription $--- $ ---
Issuance of stock rights in conjunction
with notes payable 75
Capital contribution--expenses paid on
behalf of Company 97
Net Loss (1,126)
Initial public offering, net of expense 4,986
Value of options granted 80
Proceeds from options and stock rights 5
---- -------
Balance--June 30, 1995 --- 4,117
==== =======
Value of options and warrants granted ---
Amortization of deferred compensation 79
Common stock acquired ---
Net Loss (1,217)
---- -------
Balance--June 30, 1996 --- 2,979
==== =======
Value of options and warrants granted --
Amortization of deferred compensation 140
Proceeds from options 25
Common stock issued to settle debt 140
Common stock acquisition (37)
Net Loss (1,650)
---- -------
Balance--June 30, 1997 -- 1,597
==== =======
Common stock issued pursuant to
private placement 15,805
Fair value of shares issued pursuant to
purchased research and development 2,742
Value of option and warrants granted ---
Proceeds from options 21
Amortization of deferred compensation 2,441
Unrealized gain on investments 3 3
Net Loss (9,489)
---- -------
Balance--June 30, 1998 3 13,120
==== =======
Value of option and warrants granted ---
Proceeds from options and warrants 351
Amortization of deferred compensation 1,882
Unrealized loss on investments (7) (7)
Net Loss (9,633)
---- -------
Balance--June 30, 1999 $ (4) $ 5,713
==== =======
Common stock issued pursuant to
private placements 12,650
Value of option and warrants granted ---
Proceeds from options and warrants 3,822
Amortization of deferred compensation 2,407
Unrealized loss on investments (6) (6)
Net Loss (9,712)
---- -------
Balance - June 30, 2000 $(10) $14,874
==== =======
The accompanying notes are an integral part of these financial statements.
F-5
INKINE PHARMACEUTICAL COMPANY, INC.
(a development stage company)
STATEMENTS OF CASH FLOWS
(In thousands)
Period from
July 1, 1993
(Commencement of
Year Ended June 30, Operations)
------------------- Through
2000 1999 1998 June 30, 2000
---- ---- ---- -------------
Cash flows from operating activities:
Net loss .......................................... $ (9,712) $ (9,633) $ (9,489) $(32,827)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization ................... 99 59 54 312
Write-off of debt discount ...................... --- --- --- 75
Value of services paid by options and warrants .. --- --- --- 80
Amortization of deferred compensation ........... 2,407 1,882 2,441 6,948
Purchased research and development .............. --- --- 2,742 2,742
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses
and other assets .............................. 22 114 (89) (78)
Increase (decrease) in accounts payable and
accrued expenses .............................. (909) 1,203 58 566
Expenses paid by affiliate ...................... --- --- --- 97
Increase in management fees ..................... --- --- --- 113
-------- -------- -------- --------
Net cash used in operating activities................... (8,093) (6,375) (4,283) (21,972)
Cash flows from investing activities:
Purchases of investments .......................... (14,446) (10,968) (14,318) (47,857)
Proceeds from maturities and sales of investments.. 8,938 17,914 3,699 37,456
Deferred acquisition costs......................... --- --- 84 ---
Capital expenditures .............................. (231) (69) (214) (646)
-------- -------- -------- --------
Net cash provided by (used in) investing activities..... (5,739) 6,877 (10,749) (11,047)
Cash flows from financing activities:
Proceeds from sale of stock and exercise of
options and warrants - net of expenses .......... 16,472 351 15,826 37,664
Borrowings on line of credit....................... 1,021 --- --- 1,021
Deferred offering costs............................ --- --- 220 ---
Cost of shares - acquired ......................... --- --- --- (37)
-------- -------- -------- --------
Net cash provided by financing activities .............. 17,493 351 16,046 38,648
Net increase in cash and cash equivalents .............. 3,661 853 1,014 5,629
Cash and cash equivalents - beginning of period ........ 1,968 1,115 101 ---
-------- -------- -------- --------
Cash and cash equivalents - end of period .............. $ 5,629 $ 1,968 $ 1,115 $ 5,629
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-6
INKINE PHARMACEUTICAL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY:
InKine Pharmaceutical Company, Inc. (the "Company") (previously Panax
Pharmaceutical Company, Ltd.) is a biopharmaceutical company and was
incorporated in July 1993. The Company's lead product, Visicol(TM) (previously
Diacol(TM)), was approved by the United States Food and Drug Administration, or
FDA, in September 2000, and is the first and only tablet purgative preparation
indicated for bowel cleansing prior to colonoscopy. The Company's portfolio also
includes a late-stage clinical compound CBP-1011, a steroid molecule for the
treatment of Idiopathic Thrombocytopenic Purpura (ITP) and Inflammatory Bowel
disease (IBD). The Company is focused on the diagnosis and treatment of cancer
and autoimmune diseases, and has the additional strategy of acquiring late-state
drug candidates with short timelines to commercialization.
The Company is in the development stage, and its efforts have been
principally devoted to research and development. The Company is subject to those
risks associated with development stage companies. Substantial financing will be
required by the Company to fund its research and development activities. There
is no assurance that such financing will be available when needed or that the
Company's research and development efforts will be successful.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents -- The Company considers all highly liquid
investment instruments purchased with a maturity of three months or less to be
cash equivalents.
Investments -- Investments purchased with a maturity of more than three
months, and which mature less than twelve months from the balance sheet date,
are classified as short-term investments. Long-term investments are those with
maturities greater than twelve months from the balance sheet date. The Company
generally holds investments to maturity, however, since the Company may, from
time to time, sell securities to meet cash requirements, the Company classifies
its investments as available-for-sale as defined by Statement of Financial
Accounting Standards ("SFAS"), No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Available-for-sale securities are carried at market
value with unrealized gains and losses reported as a separate component of
Shareholders' Equity. Gross realized gains and losses on the sales of investment
securities are determined on the specific identification method and are included
in interest income.
Concentration of Credit-- The Company invests generally in securities
of the U.S. Treasury, U.S. government agencies, and U.S. government
security-based money market funds. The Company has not experienced any losses on
its investments.
Fixed Assets and Depreciation -- Fixed assets are recorded at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets, including: three (3) years for computers/software, five (5) years
for office equipment and seven (7) years for furniture and fixtures. Leasehold
improvements are amortized using the straight-line method over the term of the
respective lease, or their estimated useful lives, whichever is shorter.
Expenditures for maintenance and repairs are charged to expense as incurred.
Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and related notes. Actual results could differ from those estimates.
F-7
Revenue Recognition -- Any revenues from research and development
arrangements are recognized pursuant to the terms of the related agreements as
work is performed, or as milestones are achieved. In December 1999, the staff of
the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, SAB 101. SAB 101 summarizes certain
of the staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements, including the recognition of
non-refundable fees received upon entering into arrangements. The Company is in
the process of evaluating SAB 101 and its effects on the financial statements
and current revenue recognition policies.
Research and Development -- Research and development and patent costs
are expensed as incurred.
Stock Based Compensation -- The Company accounts for stock-based
employee compensation under Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. The
Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123").
The Company accounts for stock-based compensation granted to
non-employees based on the fair value of the consideration received or the fair
value of instrument issued, whichever is more reliably measurable. The fair
value is amortized over the period of the respective services provided.
Income Taxes -- The Company accounts for income taxes using the
liability method as prescribed by Financial Accounting Standards Board ("FASB")
Statement No. 109, "Accounting for Income Taxes." Deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities, and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. The measurement of deferred tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits which are not expected to be realized.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the period that such tax rate changes are enacted.
Loss Per Share -- The Company calculates its loss per share under the
provisions of Statement of Financial Accounting Standard No. 128, "Earnings Per
Share" ("SFAS 128"). SFAS 128 requires a dual presentation of "basic" and
"diluted" loss per share on the face of the income statement. Basic loss per
share is computed by dividing loss by the weighted average number of shares of
common stock outstanding during each period. Diluted loss per share includes the
effect, if any, from the potential exercise or conversion of securities, such as
stock options and warrants, which would result in the issuance of incremental
shares of common stock. Only basic loss per share amounts have been presented on
the face of the statements of operations as the inclusion of incremental shares
would have been anti-dilutive.
Comprehensive Income - SFAS No. 130 "Reporting Comprehensive Income"
establishes standards for the reporting of comprehensive income and its
components. Comprehensive income consists of reported net income or loss and
"other comprehensive income" (i.e. other gains and losses affecting
stockholders' equity that, under generally accepted accounting principals, are
excluded from net income or loss as reported on the statement of operations).
With regard to the Company, other comprehensive income consists of unrealized
gains and losses on marketable securities. The comprehensive loss for the years
ended June 30, 2000 and 1999 approximates the net loss in the statement of
operations.
3. ACQUISITIONS OF TECHNOLOGY:
As previously reported in the Company's reports filed under the
Exchange Act, as of November 6, 1997, the Company acquired all the outstanding
capital stock of CorBec Pharmaceuticals, Inc. ("CorBec"), a privately owned,
development-stage, bio-pharmaceutical company founded in 1993 to discover and
develop drugs to treat autoimmune disease, serious infections and
asthma/allergy, and Sangen Pharmaceutical Company ("Sangen"), a privately owned,
development-stage, bio-pharmaceutical company formed in early 1997 and focused
on the development of a potential cancer treatment technology. CorBec's
technology, which consists of compounds designed to modulate the immune system,
is licensed from the University of Pennsylvania and has been developed in the
laboratory of Alan D. Schreiber, M.D., Professor of Medicine and Assistant Dean
for Research at the University of Pennsylvania School of Medicine (the "Fc
Receptor Technology"). The most advanced product within this family of
compounds, CBP-1011, is in Phase III clinical trials for the treatment of
idiopathic thrombocytopenic purpura ("ITP") and Phase II clinical trials for the
treatment of Inflammatory Bowel Disease (IBD). Sangen's technology consists of
F-8
specific peptide molecules, a polyclonal antibody and Agniocidin (a soluble
protein) developed by Dr. George Tuszynski, Professor of Surgery, Medicine and
Pathology at MCP Hahnemann University (MCP), based on a specific thrombospondin
receptor, which Dr. Tuszynski discovered (the "Thrombospondin Technology"). In
addition, in early 1997, the Company acquired an exclusive, worldwide license to
a tablet form of the aqueous sodium phosphate purgative formula used to clean
the colon for any medical purpose and for use as a laxative ("Visicol(TM)"). The
Company licensed this technology from a partnership of physicians ("ALW
Partnership"), including Craig A. Aronchick, M.D., an attending
gastroenterologist and Head of the Endoscopy Unit at Pennsylvania Hospital in
Philadelphia and a Clinical Associate Professor of Medicine at the University of
Pennsylvania School of Medicine. As of November 6, 1997, certain rights of ALW
Partnership to cancel this license lapsed. The acquisitions of CorBec, Sangen
and the Visicol(TM) license are referred to collectively herein as the
"Acquisitions."
Simultaneous with the Acquisitions, Dr. Leonard S. Jacob became
Chairman of the Board and Chief Executive Officer of the Company under a
long-term employment agreement and was issued a ten-year option entitling him to
purchase the number of shares of Common Stock equal to 7 1/2% of the fully
diluted capitalization of the Company. The exercise price of Dr. Jacob's option
is (i) $0.61 per share for 1,200,000 shares and (ii) $1.00 per share for
approximately 1,200,000 shares. Dr. Taffy J. Williams, former President and
Chief Operating Officer of the Company received an option to purchase 5% of the
fully diluted capitalization of the Company. The exercise price of Dr. Williams'
option was (i) $0.61 per share for 500,000 shares and (ii) $1.00 per share for
approximately 1,000,000 shares. The exercise prices of Dr. Jacob's and Dr.
Williams' options were below the market value of $1.00 of the Common Stock of
the Company at the time of grant. Therefore, the Company has incurred, and will
continue to incur through November 6, 2000, a significant non-cash charge to
operations as a result of the option grants.
The Sangen acquisition included the grant to Dr. Tuszynski and MCP of
125,000 shares of Common Stock of the Company and options to purchase an
aggregate of 375,000 shares at $1.00 per share, of which options for 250,000
shares will be exercisable upon achievement of specified milestones in the
development of a new drug candidate. In addition, Dr. Tuszynski and MCP will be
entitled to cash royalties based on net sales and licensing fees derived from
the technology. The Company has agreed to fund additional research in Dr.
Tuszynski's laboratory in an amount ranging from $150,000 (in the first year) to
$1,350,000 (over seven years, inclusive). Dr. Tuszynski was engaged as a
consultant to the Company for a two-year period at a fee of $50,000 per year.
The stock issued resulted in a charge to purchased research and development for
the year ended June 30, 1998 of $305,000.
The acquisition of CorBec resulted in the payment of $750,000 and the
issuance of 750,000 shares of Common Stock of the Company with provisions for
additional cash payments and stock issuances based upon the achievement of
certain milestones for CorBec's most advanced drug candidate, CBP-1011, an
orally-administered glucocorticoid analog, which is in Phase II and Phase III
pivotal clinical trials in the United States. The shares issued resulted in a
charge to purchased research and development for the year ended June 30, 1998 of
$1,828,000. In addition, the Company entered into a three-year consulting
agreement with Dr. Alan Schreiber, the inventor of the Fc Receptor Technology,
providing for aggregate consulting fees over three years equal to $270,000, and
for the grant of options with respect to an aggregate of 120,000 shares of
Common Stock. The Company is also to fund up to $240,000 of sponsored research
in Dr. Schreiber's laboratory over the course of three years.
The following unaudited pro forma information is presented for the
Acquisitions, as if the Acquisitions had occurred on July 1, 1997. The pro forma
information does not purport to be indicative of the results that would have
been attained if the Acquisitions had actually been effective during the periods
presented, excludes the non-recurring purchased research and development charge
of $3,952,000 and is not necessarily indicative of operating results to be
expected in the future.
F-9
Unaudited Pro forma Information as if the Acquisitions Occurred on July 1, 1997
(In thousands, except per share data)
For the year ended
June 30, 1998
-------------
Costs and expenses................................. $6,857
Net loss........................................... (6,342)
Shares used in computing loss per share............ 16,248
Net loss per share - basic and diluted............. $(0.39)
4. INVESTMENTS:
The Company invests in U.S. Treasury and U.S. Government agency
securities. Excess cash is invested on a short-term basis in U.S. government
based money market funds. The Company had unrealized losses of $10,000 and
$4,000 at June 30, 2000 and 1999, respectively. The Company has not realized any
losses on its investments.
5. FIXED ASSETS:
Fixed assets are stated at cost and are summarized as follows (in
thousands):
June 30, June 30,
2000 1999
---- ----
Manufacturing equipment................................... $259 $ 39
Office equipment and furniture............................ 254 243
---- ---
Total..................................................... 513 282
Less accumulated depreciation............................. 181 82
---- ---
$332 $200
==== ====
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following (in
thousands):
June 30, June 30,
2000 1999
---- ----
Accounts payable.......................................... $158 $ 39
Clinical trial costs...................................... -- 1,218
Professional fees......................................... 73 54
Accrued compensation and benefits......................... 272 138
Other..................................................... 37 --
---- ------
$540 $1,449
==== ======
F-10
7. LINE OF CREDIT:
The Company secured a $2,000,000 line of credit with a financial
institution in December 1999. Under the terms of this arrangement, the Company
makes monthly interest-only payments at a variable per annum rate of 2.20%, plus
the 30-day Dealer Commercial Paper Rate, with principal due on January 31, 2001.
The Company maintains investments of approximately 100% of the amount
outstanding at the institution as collateral for the line of credit. At June 30,
2000, $1,021,000 was outstanding under this line of credit at an average
interest rate of 8.75%.
8. RELATED PARTY TRANSACTIONS:
During the years ended June 30, 2000, 1999 and 1998, the Company paid
$0, $48,000 and $100,000 respectively to Amercom Funding Ltd., ("Amercom"), a
company owned by certain of its previous officers, previous directors and
Shareholders, pursuant to a management agreement ("Management Agreement").
In January 1997, the Company agreed to extend for two years the term of
the Management Agreement with Amercom, which would have expired on February 1,
1998, upon the occurrence of a financing of at least $8,000,000. Amercom
received compensation of $100,000 for services during the first year of the
extension and an option for 175,000 shares of Common Stock at an exercise price
of $.61 per share as compensation for the second year of the extension. The
Company also agreed to issue under the 1993 Stock Option Plan, additional
options to purchase up to 225,000 shares of Common Stock at an exercise price of
$0.61 per share.
In October 1997, the Company renegotiated the Management Agreement
where the maximum amount of options available to Amercom changed from 225,000
options to no greater than 75,000 options. The Agreement called for the 75,000
options to be contingent on the Company successfully terminating its sub-lease
of its New York facility. These options were issued in fiscal year 1999. At June
30, 1998 the Company was no longer obligated under the New York lease.
The Company does not anticipate entering into any type of agreement
with Amercom in the future.
9. SHAREHOLDERS' EQUITY:
Preferred Stock
The Company's certificate of incorporation provides the board of
directors the power to issue shares of preferred stock without stockholder
approval. This preferred stock could have voting rights, including voting rights
that could be superior to that of our common stock, and the board of directors
has the power to determine these voting rights.
Common Stock
In January 1995, the Company effected an initial public offering of its
securities. A total of 1,235,710 units, each comprised of one share of common
stock and one redeemable common stock purchase warrant, were sold yielding net
proceeds of approximately $4,986,000 after underwriting commissions and
expenses.
In June 1997, the shareholders of the Company approved an increase in
the authorized share capital to 50,000,000 shares of common stock and 5,000,000
shares of preferred stock.
In November 1997, the Company completed a private placement of 17,000,000
shares of common stock, together with underwriter warrants as described below,
with proceeds to the Company (after offering expenses) of approximately $15.8
million.
F-11
Also, in November 1997, in connection with the purchase of certain
technologies 875,000 shares of common stock were issued.
In September 1999, the Company completed a private placement of
2,307,691 shares of common stock, together with warrants as described below with
net proceeds to the Company of $2,750,000.
In May 2000, the Company completed a private placement of 2,838,871
shares of common stock, together with placement agent warrants as described
below with net proceeds to the Company of $9,900,000.
Throughout fiscal year 2000 the Company issued approximately 4,431,000
shares of common stock from the exercise of warrants and stock options with net
proceeds to the Company of $3,822,000.
Warrants
In connection with the January 1995 initial public offering, the
Company issued warrants to the underwriter to purchase an aggregate of 183,632
shares of common stock, exercisable at $4.00 per share (after antidilution
adjustment). These warrants expired in January 2000.
In October 1995, the Company issued a warrant to purchase an aggregate
of 546,399 shares of common stock, exercisable at $0.59 per share (after
antidilution adjustment) for financial and business services to be provided by
an investment banking firm. These warrants were fully exercised during fiscal
year 2000.
In connection with the November 1997 private placement, the Company
issued warrants to the placement agents to purchase an aggregate of 2,044,843
shares of common stock, exercisable at $1.00 per share (subject to antidilution
adjustment). These warrants expire in November 2002. At June 30, 2000, 203,000
of these warrants are outstanding.
In connection with the September 1999 private placement the Company
issued warrants to the investors to purchase an aggregate of 761,538 shares of
common stock. The warrants are exercisable at $1.78 per share. The warrants are
subject to certain provisions which may increase the issuable shares and
decrease the exercise price for the warrants, upon certain events which may have
a dilutive effect on the investors. These warrants expire in September 2003. At
June 30, 2000, 507,692 of these warrants are outstanding.
In connection with the May 2000 private placement the Company issued
warrants to the placement agents to purchase an aggregate of 283,887 shares of
common stock, exercisable at $5.13 per share. These warrants expire in May 2005.
At June 30, 2000, 283,887 of these warrants are outstanding.
Treasury Stock
In May 1997, a stockholder/officer transferred to the Company 16,515
shares previously issued to her in payment of accrued salary; such transfer was
made in satisfaction of her obligations to the Company arising from the payment
of withholding tax relating to the issuance. The repurchased shares are being
held by the Company as treasury shares.
Stock Option Plans
In October 1997, the shareholders of the Company approved the amended
Stock Option Plan (the "1993 Plan") which as amended provides for the granting
of up to 4,200,000 shares of common stock, pursuant to which directors,
employees, non-employees, consultants and advisors are eligible to receive stock
options. Options granted under the 1993 Plan are exercisable for a period of up
to 10 years from the date of grant at an exercise price which is not less than
the fair value on date of grant, except that the exercise period of options
granted to a stockholder owning more than 10% of the outstanding capital stock
may not exceed five years and their exercise price may not be less than 110% of
the fair value of the common stock at date of grant.
F-12
In October 1997, the shareholders approved the 1997 Consultant Stock
Option Plan (the "1997 Plan") which provides for the granting of up to 2,500,000
shares of Common Stock, pursuant to which consultants and advisors to the
Company are eligible to receive stock options. Options granted under the 1997
Plan are exercisable for a period not to extend beyond February 14, 2007 and at
an exercise price determined by the Board or Plan Administrator.
In November 1999, the shareholders approved the InKine Pharmaceutical
Company, Inc. 1999 Equity Compensation Plan (the "1999 Plan") which provides for
grants of stock options and restricted stock of up to 1,000,000 shares of common
stock to selected employees and non-employee directors of the Company. Options
granted under the 1999 Plan are exercisable for a period of up to 10 years from
the date of grant at an exercise price which is not less than the fair value on
the date of grant.
In addition to the shares of common stock issuable upon exercise of
options granted under the Company's stock option plans, 2,586,773 shares of
common stock are issuable upon exercise of outstanding options granted to an
officer and a consultant pursuant to other written agreements. The exercise
price for these options was set by the Board of Directors, or a committee
designated by the Board, based upon an evaluation of the fair market value of
the Company's common stock on the date of grant. The options vest over various
periods, not exceeding three years, and expire no later than ten years from the
date of grant.
A summary of the status of the Company's stock options as of June 30, 2000, 1999
and 1998, and changes during the years ending on those dates is presented below
(in thousands, except per share data):
2000 1999 1998
---- ---- ----
--------------------------------------------------------------------------------------
Shares Weighted-Average Shares Weighted-Average Shares Weighted-Average
Options (000) Exercise Price (000) Exercise Price (000) Exercise Price
- ------- ----- -------------- ----- -------------- ----- --------------
Outstanding at beginning of year 8,246 $0.92 6,927 $0.84 2,145 $0.70
Granted...................... 962 $3.58 1,339 $1.32 5,079 $0.89
Exercised.................... (2,420) $0.92 (1) $0.50 (23) $0.99
Forfeited.................... (127) $0.72 (19) $0.84 (274) $0.73
------ ----- -----
Outstanding at end of year... 6,661 $1.30 8,246 $0.92 6,927 $0.84
Exercisable at end of year... 4,100(1) $0.86 5,206 $0.84 4,357 $0.80
(1) Of these shares 285,663 options are subject to the Company's right to
repurchase at a nominal price.
The following table summarizes information about stock options outstanding at
June 30, 2000 (in thousands, except per share data):
Options Outstanding Options Exercisable
------------------- -------------------
Range of Shares Weighted-Average Shares
Exercise Prices Outstanding Remaining Weighted-Average Exercisable Weighted-Average
--------------- at 6/30/00 Contractual Life Exercise Price at 6/30/00 Exercise Price
---------- ---------------- -------------- ---------- --------------
$0.50-$1.50............... 5,722 7.5 years $0.91 4,065 $0.86
$1.51-$3.00............... 247 9.4 years $1.81 35 $1.64
$3.01-$5.60............... 692 9.7 years $4.23 --- $ ---
----- -----
$0.50-$5.60............... 6,661 7.8 years $1.29 4,100 $0.86
F-13
691,000 of the stock options outstanding vest upon the completion of
certain milestones including, FDA approvable letter/approval of Visicol(TM) and
other milestone-based business activities.
In accordance with APB Opinion 25, the Company will take a significant
charge to earnings upon the successful completion of these events. Based upon
the closing price of the Company's stock as of June 30, 2000, the charge would
have been approximately $1,519,000, assuming all milestones were met on that
day. The following paragraph which describes the pro forma impact under SFAS 123
does not include the 691,000 options described above as the probability of their
vesting is uncertain.
The Company applies APB Opinion 25 and related Interpretations in
accounting for its options. Accordingly, no compensation cost has been
recognized for its stock option grants to employees. Had compensation costs for
the Company's stock option grants to employees been determined based on the fair
value at the grant dates for awards consistent with the method of SFAS 123, the
Company's net loss per share would have been increased to the pro forma amounts
indicated below (in thousands, except per share data):
2000 1999 1998
---- ---- ----
Net Loss As reported $(9,712) $(9,633) $(9,489)
Pro forma (10,111) $(9,760) $(9,540)
Net Loss Per Share-basic As reported $(0.36) $(0.42) $(0.60)
Pro forma $(0.37) $(0.43) $(0.60)
The resulting effect on pro forma net loss and net loss per share
disclosed above is not likely to be representative of the effects on net loss
and net loss per share on a pro forma basis in future years, because 1999, and
1998 pro forma results include the impact of only three and two years,
respectively, of grants and related vesting, while subsequent years will include
additional years of grants and vesting.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
2000 1999 1998
---- ---- ----
Range of risk free interest rates.................. 5.5% 5.0% 5.6%
Dividend yield..................................... 0% 0% 0%
Volatility factor.................................. 159% 120% 82%
Expected life of options (in years)................ 5 6 6
The Weighted Average Fair Value of options granted was $2.80 in 2000,
$1.10 in 1999, and $.77 in 1998.
Restricted Stock
In connection with the 1999 Plan, the Company is authorized to award
shares of restricted stock. The maximum number of restricted shares issuable or
transferable under the 1999 Plan is 25% of the aggregate number of shares
issuable or transferable under the 1999 Plan. During the year ended June 30,
2000, 228,000 shares of restricted common stock were awarded to selected
employees and non-employee directors of the Company. The restriction period for
these awards was either a 2-year vesting period or upon the attainment of
certain business related milestones, commencing from the grant date.
In accordance with APB Opinion 25, the Company will take a significant
charge to earnings upon successful completion of these events. Based upon the
closing price of the Company's stock as of June 30, 2000, the charge would have
been approximately $463,000, assuming all milestones were met on that day.
F-14
10. INCOME TAXES:
The Company has approximately $12,448,000 of net operating loss ("NOL")
carryforwards available to offset future taxable income and approximately
$11,511,000 of net operating loss carryforwards available to offset future state
taxable income subject to a $2,000,000 annual limitation. The NOL carryforwards
are subject to examination by the tax authorities and expire in various years
from 2005 through 2020. The NOL carryforwards differ from the accumulated
deficit due principally to differences in the recognition of certain research
and development expenses for financial and federal income tax reporting. The
Company is also entitled to approximately $553,000 of research and
experimentation credits to offset future federal income tax liability.
The Tax Reform Act of 1986 contains provisions that may limit the NOL
and research and experimentation credit carryforwards available to be used in
any given year upon the occurrence of certain events, including significant
changes in ownership interest. Generally, a change in ownership of a company of
greater than 50% within a three year period results in an annual limitation on
that company's ability to utilize its NOL carryforwards and tax credits from the
tax periods prior to the ownership change. The rules providing for the
definition of an ownership change are complex and a study needs to be performed
to determine if the Company has undergone a change in ownership. The Company
believes that it has undergone an ownership change and is subject to an annual
limitation on the use of its NOL carryforwards pursuant to these provisions. The
Company's NOL carryforwards and temporary differences represent a previously
unrecognized tax benefit. Recognition of these benefits requires future income.
Because the attainment of future income is uncertain, the Company has
established a valuation allowance, which increased by approximately $5,253,000
during the year ended June 30, 2000, for the entire amount of the tax benefit.
Significant components of the Company's deferred tax assets as of June
30, 2000 and 1999 are as follows (in thousands)
2000 1999
---- ----
Net operating loss carryforwards and credits $ 5,555 $ 3,218
Research and development costs 6,050 3,358
Compensation 2,015 1,843
Other 170 118
-------- -------
Net deferred tax assets 13,790 8,537
Valuation allowance for deferred tax assets (13,790) (8,537)
-------- -------
Total deferred tax assets $ 0 $ 0
======== =======
11. 401(K) PLAN:
The Company maintains a 401(k) retirement plan available to all
full-time, eligible employees. Employee contributions are voluntary and are
determined on an individual basis, limited to the maximum amount allowable under
federal tax regulations. The Company, at its discretion, may make certain
contributions to the plan. During fiscal year 2000 and 1999 the Company provided
a contribution equal to 50% of the first 4% contributed by the employee. An
expense of approximately $26,000 and $23,000 was recognized in fiscal year 2000
and 1999 respectively.
F-15
12. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:
License Agreements
The Company's rights to Visicol(TM), its rights to certain compounds
comprising the Fc Receptor Technology and its rights to the Thrombospondin
Technology are held pursuant to license agreements. In addition, the Company
anticipates entering into licenses for other product candidates and technologies
that may be limited in scope and duration, and may authorize the development and
marketing of specified licensed products or technologies for a limited period of
time. The license agreements may be terminated prior to their expiration date
under certain circumstances, including the Company's failure to comply with
product development commitments specified therein.
The success of licensing arrangements depends on many factors,
including the reasonableness of license fees in relation to revenue generated by
sales of the licensed products and the viability and potential developmental
success of the licensed products. Certain of the Company's licensing
arrangements require, and future licensing arrangements may require, specified
levels of research and development expenditures by the Company. The inability of
the Company to finance any or all of such expenditures could result in the
termination of affected licenses, and the termination, cancellation or inability
to renew any of its existing licensing arrangements, coupled with the inability
to develop and enter into new licensing arrangements, could have a material
adverse effect on the Company's financial condition and results of operation.
Terms of the acquisition of CorBec (the "Fc Receptor Technology") on
November 6, 1997, required the Company to pay the CorBec shareholders an
aggregate of $750,000 and issue to them an aggregate of 750,000 shares of Common
Stock. Additional cash payments in the aggregate amount of $16,580,000 and
additional issuances of an aggregate of 720,000 shares of Common Stock are to be
made upon the achievement of the following milestones and targets: (i) $500,000
and 180,000 shares upon the Company's receipt of a letter of approval from the
FDA allowing for the commercial sale of CBP-1011; (ii) 80,000 shares following
the first fiscal year net revenues from CBP-1011 sales equals or exceeds
$20,000,000; (iii) $7,500,000 (payable in five equal annual installments)
following the first fiscal year net revenues from CBP-1011 equals or exceeds
$30,000,000; (iv) 180,000 shares following the first fiscal year net revenues
from CBP-1011 sales equals or exceeds $40,000,000; (v) $500,000 and 30,000
shares upon the Company's filing of an IND with the FDA with respect to a second
generation compound (a "Second Drug"); (vi) $80,000 upon the successful
completion of Phase II clinical trials with respect to a Second Drug; (vii)
120,000 shares upon the Company's filing of an NDA with respect to a Second
Drug; (viii) $500,000 and 130,000 shares upon receipt of a letter of approval
from the FDA allowing for the commercial sale of a Second Drug; and (ix)
$7,500,000 (payable in five equal annual installments) following the first
fiscal year net revenues from the Second Drug equals or exceeds $75,000,000. In
addition, the Company entered into three-year consulting agreement with Dr. Alan
Schreiber, who is the inventor. An option to purchase an additional 200,000
shares at the market price on the date of grant for the five year period
following FDA approval, if any, of an IND and the commencement of clinical
trials with respect to a third generation compound is to be granted to Dr.
Schreiber. The agreement also requires the Company to fund Dr. Schreiber's lab
over the course of three years.
The ALW License, entered into February 1997, which covers Visicol(TM),
may be terminated by the licensor if (a) the Company fails to pay, commencing in
February 2003, minimum royalties of $100,000 per year whether or not any sales
have occurred, or (b) there is no commercial sale of Visicol(TM) or any product
under the ALW License by February 2005. In addition, the Company's rights under
the ALW License will no longer be exclusive, and the minimum royalty payment
will no longer be due (although decreased actual royalty payments will be due)
if there is no valid or enforceable patent on Visicol(TM) or any other product
under the ALW License. Upon receiving NDA approval in the United States of the
first of any product obtained under the license, the ALW Partnership will
receive $250,000.
The Company has licensed rights from MCP Hahnemann University (MCP) and
Dr. Tuszynski pursuant to an exclusive, worldwide license, dated November 6,
1997, to make, have made, use, sell, import, offer for sale and sublicense the
F-16
Thrombospondin Technology and to utilize and exploit the related patents and
proprietary information. The license agreement is to terminate, unless earlier
for breach or for failure of the Company to achieve certain FDA product approval
milestones within seven years, upon the expiration or abandonment of the last
patent related to the Thrombospondin Technology. The license required the
Company to issue to MCP 125,000 shares of Common Stock and options to purchase
125,000 shares, issue to Dr. Tuszynski ten-year options to purchase 250,000
shares of Common Stock, to pay MCP royalties of 2% of net sales of licensed
products, to provide MCP funding ranging from $150,000 (in the first year) to
$1,350,000 (over seven years, inclusive) for sponsored research.
The termination of any license or the loss of exclusivity thereunder
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Rent
The Company has entered into a three-year operating lease for its
corporate office facility. The lease provides for minimum annual rent payments
of $62,000 through 2001. The lease provides for escalations relating to
increases in real estate taxes and certain operating expenses.
We signed a lease in August 2000 for new office space of approximately
8,000 square feet, also in Blue Bell, Pennsylvania. The new lease will not take
effect at least until November 2000, will expire five years after the effective
date and will have minimum annual rent payments of approximately $202,000.
Rent expense was approximately $108,000, $100,000, and $177,000 for the
years ended June 30, 2000, 1999 and 1998 respectively.
F-17
EXHIBIT INDEX
Exhibit No. Title
- ---------- -----
3.1 Certificate of Incorporation, as amended.(Exhibit 3.1)(1)
3.2 By-laws.(Exhibit 3.2)(2)
4.2 Registration Rights Agreement dated September 20, 1999 between
InKine and certain Investors listed on the signature page
thereto. (Exhibit 4.2) (10)
4.3 Form of Common Stock Purchase Warrant (In accordance with Item
601 of Regulation S-K, similar warrants granted to the selling
shareholders have not been filed because they are identical in
all material respects except for the number of warrants
granted to each selling shareholder.)
(Exhibit 4.3) (10)
4.4 Common Stock Purchase Warrant, dated May 5, 2000, granted to
the placement agent, Leerink, Swann, Garrity, Sollami, Yaffe &
Wynn, Inc. (Exhibit 4.2) (11)
10.1 Agreement and Plan of Reorganization among Panax
Pharmaceutical Company, Ltd., CorBec Pharmaceuticals, Inc. and
certain Security Holders of CorBec Pharmaceuticals, Inc.,
dated October 31, 1997. (Exhibit 10.1)(1)
10.2 Registration Rights Agreement among Panax Pharmaceutical
Company, Ltd. and the former security holders of CorBec
Pharmaceuticals, Inc. dated November 6, 1997. (Exhibit
10.2)(1)
10.3 Stock Purchase Agreement by and between Panax Pharmaceutical
Company, Ltd. and Leonard S. Jacob dated September 3, 1997.
(Exhibit 10.3)(1)
10.4 Employment Agreement between InKine Pharmaceutical Company,
Inc. and Leonard S. Jacob, dated November 6, 1997. (Exhibit
10.4)(1)
10.5 Employment Agreement between InKine Pharmaceutical Company,
Inc. and Robert F. Apple, dated November 2, 1998. (Exhibit
10.6) (9)
10.6 Option to Purchase Shares of Common Stock of InKine
Pharmaceutical Company, Inc. dated November 6, 1997, issued to
Leonard S. Jacob. (Exhibit 10.6)(1)
10.7 Common Stock Purchase Option, dated November 6, 1997 issued to
Allegheny University of the Health Sciences. (Exhibit 10.7)(1)
10.8 Non-Milestone Common Stock Purchase Option, dated November 6,
1997 issued to George Tuszynski. (Exhibit 10.8)(1)
10.9 Common Stock Purchase Option, dated November 6, 1997 issued to
George Tuszynski. (Exhibit 10.9)(1)
10.10 Stock Option Plan, as amended. (Exhibit 99)(3)
10.11 1997 Consultant Stock Option Plan. (Exhibit 99)(4)
10.12 Form of Stock Option Agreement. (Exhibit 10(b))(5)
10.13 License Agreement with ALW Partnership. (Exhibit 10(1))(7)
10.14 Form of Option granted to Partners of ALW Partnership.
(Exhibit 10(n))(7)
10.15 Amendment to Employment Agreement, dated November 4, 1999,
between the Company and Leonard S. Jacob. (Exhibit 10.18) (8)
10.16 Severance Agreement, dated November 3, 1999, between the
Company and Taffy J. Williams. (Exhibit 10.19) (8)
10.17 1999 Equity Compensation Plan. (Appendix A) (12)
23* Consent of KPMG LLP.
27* Financial Data Schedule.
- -----------------------
* Filed herewith.
(1) Filed as an Exhibit to InKine's Current Report on Form 8-K,
dated November 6, 1997 (as amended by Form 8-K/A filed on
December 3, 1997), with the Securities and Exchange
Commission.
(2) Filed as an Exhibit to InKine's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998, with the Securities and
Exchange Commission.
(3) Filed as an Exhibit to InKine's Form S-8 (SEC File No.
333-58063), dated June 29, 1998, with the Securities and
Exchange Commission.
(4) Filed as Exhibit to InKine's Form S-8 (SEC File No. 333-58065)
dated June 29, 1998, with the Securities and Exchange
Commission.
(5) Filed as an Exhibit to InKine's Annual Report on Form 10-KSB
for the year ended June 30, 1995, with the Securities and
Exchange Commission.
(6) Filed as an Exhibit to InKine's Annual Report on Form 10-KSB
for the year ended June 30, 1997, with the Securities and
Exchange Commission.
(7) Filed as an Exhibit to InKine's Current Report on Form 8-K
dated February 14, 1997, with the Securities and Exchange
Commission.
(8) Filed as an Exhibit to InKine's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1999, with the Securities
and Exchange Commission.
(9) Filed as an Exhibit to InKine's Annual Report on Form 10-K for
the year ended June 30, 1999, with the Securities and Exchange
Commission.
(10) Filed as an Exhibit to InKine's Form S-3 (SEC File No.
333-89365), dated October 21, 1999, with the Securities and
Exchange Commission.
(11) Filed as an Exhibit to InKine's Form S-3 (SEC File No.
333-37254), dated May 17, 2000, with the Securities and
Exchange Commission.
(12) Filed as an Appendix to InKine's Definitive Proxy Statement on
Schedule 14A relating to the 1999 Annual Meeting of
Shareholder, dated September 28, 1999, with the Securities and
Exchange Commission.